While Honduras seems cautiously to be following a path trod by its Central American neighbour El Salvador, and accepting Bitcoin in payment in some parts of the tourist spot of Santa Lucia, a short distance from the capital of Tegucigalpa, the African country of Zimbabwe has launched gold coins as legal tender. The intention is to try to halt rampant inflation by providing a source of value that the country’s citizens can trust.
Zimbabwe has sporadically suffered from hyperinflation (technically, prices rising by 50% or more a month) and is on the verge of another taste of the same – inflation in June this year rose to 192%. The country’s central bank has put its key rate up from 80% to 200% as a consequence. In November 2008, the country’s estimated annualized inflation rate was almost 80,000,000,000%. That was a daily inflation rate of 98%, headed towards Hungary’s 1946 daily rate of 195%.
Zimbabwe’s inflation sickness owes nothing to the spike in prices of imported essential commodities. The Ukraine war may be contributing to higher prices, but this is a long-standing problem entirely related to high indebtedness and the printing of more money to finance it.
Hyperinflation meant that people could no longer afford basic goods, banking activity became paralyzed, a barter economy arose, savings were wiped out, and output collapsed. Eventually the government stopped printing Zimbabwean Dollars and normalized the use of the US Dollar. The Zimbabwean Dollar was formally demonetized in 2015, only to reappear in 2019 as the Real Time Gross Settlement (RTGS) Dollar, which has now lost almost all its value against the US Dollar.
John Mangudya, head of Zimbabwe’s central bank has now introduced the Mosi-oa-Tunya gold coins, which is Sotho (and means the smoke which thunders), otherwise known as Victoria Falls, a tourist attraction on the Zambezi River. 2,000 of the Mosi-oa-Tunya gold coins, each weighing one troy ounce, went on sale on 25 July with an opening price of $1,823 or Zimbabwean Dollars 805,000. This is out of reach of most Zimbabweans, where the average annual salary is around $230. The coins have “liquid asset” status, so can be converted to cash, used for transactions, and traded locally or internationally – 180 days after they have been purchased. Each coin is priced at the international market rate for an ounce of gold plus 5% for production costs.
The aim of the gold coin is to cut Zimbabweans’ appetite for foreign currency. Mangudya was explicit that he hopes the coins will be seen as a store of value. He has said that we “are now providing that store of value to ensure that people do not run to the parallel market in search for foreign currency to store value… And there is no other better product that can be used to store value other than gold…We know what you have been going through in terms of the fear factor of losing value and therefore we are providing this gold coin”.
Will it work? According to a local finance analyst: “not on their own and the market has to be pliable and play ball. Confidence has to return especially to big players sitting on those large amounts of Z$. Likely, overtures to them have been made behind the scenes already, which explains why the central bank is not going all out on a campaign blitz… if the ‘big players’ are agreeable and believe in the vision then the gold coin will prevail. Otherwise the mathematics is screaming a different story”.
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