MUPONDA WEEKLY: Is all that glitters Gold?

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By Gilbert Muponda

The gold coins are finally with us. According to the RBZ a total of 2,000 gold coins have been released to the market. This translates to about $3.6 million worth of gold coins.

This amount is on the low side to be able to shift or control the market; so small that the market can be cornered  and manipulated. When a market is thin and shallow, it becomes a haven for financial gymnastics and mecca for speculating.

Considering that the RBZ would like the gold coins to be an alternative investment asset for Zimbabweans more coins need to be released and amount needs to approach the $1 billion market for the coins to have the desired impact.

This is based on the Country’s financial sector size and expected savings that would reflect a savings culture needed to broaden and deepen the local financial markets.

Whilst the amount released is relatively small what is more important is the idea and concept being introduced by the RBZ. The linking of gold to currency pushes the country towards the Gold Standard.

The Gold Standard implies that a currency can be readily be exchanged for gold worth the amount of currency involved. This is exactly what the RBZ has introduced albeit at a very limited scale and without directly announcing it.

If done sustainably, and at the correct scale this effectively means Zimbabwe will be running a Gold Standard currency as opposed to Fiat money which is effectively paper money backed by nothing much except a promise to pay by the Central Bank.

Zimbabwe’s gold coins become a gold standard as they are available in local currency. The RBZ needs to fine tune the mechanics around it such that the market is wide and deep enough to stabilize the local currency. A long road ahead!

The idea behind the Gold Standard is that all the currency issued is backed by actual and real gold stored somewhere. As a result, that currency exchange is closely related to gold, and, as such, its value and worth is stable and predictable.

This is what the RBZ is pushing towards; it remains to be seen how determined are the Authorities to see this vision through.

Gilbert F Muponda is an Economist and Entrepreneur