There is Shona saying about a man desperately looking for his hunting bow who ends up looking for it in pots and pans. The English translation does not quite do the proverb justice but it still does paint a picture of the lengths people will go to in moments of desperation. Zimbabwe’s economic leaders find themselves in this position and their latest act of desperation to arrest the ongoing slide comes in the form of gold coins. As usual, this announcement has left the majority of people in Zimbabwe confused. Does Zimbabwe have a new currency the gold coin? Well, yes and no. Let me explain.
First, this is what the Finance had to say about his fancy gold coins:
The gold coins will be minted by Fidelity Gold Refineries (Private) Limited and will be sold to the public through normal banking channels.What the Finace Minister had to say
So does Zimbabwe have a new currency? Strictly speaking, the answer is no. The gold coins will not be considered a currency. They will be treated more like assets although people will not be taxed when the gold coins appreciate in value. The gold coins are not meant to be used as a currency where you can spend and receive them in return for goods and services rather they are meant as a way for you to save money. So why did I say there were a currency? This is because if they catch on they will almost be certainly be used as a currency. This is because they meet most features of a currency:
- durability-these are metal coins so they will easily meet the durability check here
- portability-they can be easily carried around in your pocket. We already hurl sack of ZWL, the coins will probably weigh less in terms of value per kg
- divisibility-they will almost certainly be various denominations of the coins
- uniformity-they will be minted to a certain standard,
- limited supply-this is gold so of course the government does not have an endless supply. This being the Zimbabwean government I wouldn’t put it past them to try and add alloys but they are promising gold for now,
- and acceptability-again this is gold. Who does not want it
So while this may not be a currency in legal terms the gold coins will be a currency in practice.
Why is the government doing it?
The most obvious reason is that they want to wean us off the US dollar. This is because one of the main reasons why people buy USD is to conserve value. The concept of gold coins is not new. There are already a lot of gold coins out there including the famous Kruger coins. They are mostly used as a way of saving your money and protecting it against inflation. Part of the reason why people are running to purchase USD on the streets is so they can save money in USD which is less susceptible to rate spikes. The government this probably hoping to reduce the ordinary man’s reliance on USD as a way of conserving the value of their savings. This, they hope will reduce the demand for USD in the economy and ultimately reduce the rate.
Will this happen? Again like many things it depends on certain other factors. Such as people accepting the gold coins and how much money the government will print. If so much money is printed and people prefer USD to the coins as they can easily spend USD then the coins are doomed. If people accept them widely then there is a chance this might just work.