Recently the RBZ published an update on their upcoming gold coins and now we know for example they will go on sale on the 25th of July. We also know that the gold coin is basically money. You can buy sugar with it if you want and use it pretty much as you do ZWL, Rands and USD. We already suspected this would be the case and it would have happened anyway even if the government had said otherwise. We also know that the coin can be bought using ZWL at the official rate. Now that is going to be a huge problem.
While the Zimbabwean government likes to whine about saboteurs they never take the time to look in the mirror. Their refusal to accept a purely market-based rate has created chaos and pricing distortions in the economy because there are arbitrage opportunities everywhere especially if you are politically connected. You can make a fortune by just buying USD at the official rate and selling it on the black market. There are a lot of conspiracy theories that suggest that potbellied bigwigs make their money by doing exactly that.
It is something that can be a little hard to prove given the fact that those same potbellied fellows also control pretty much every lever of power in this country. They are so effective to the extent that no high-ranked bigwig has ever faced real consequences despite pervasive corruption in this country. Catch and release is the order of the day.
Despite all this, the Zimbabwean government continues to pass laws and issue directives that are riddled with loopholes that bigwigs can easily exploit. Not only do the laws and policies have loopholes, but they also come with an incentive that will make it worth the while for anyone who decides to venture into corruption. If one were given to conspiracy theories they could conclude that these laws are deliberately peppered with loopholes for expressly this purpose. So that bigwigs can exploit them.
I am not saying this is the case but allowing people to buy gold coins at the official rate from banks is going to lead to incidences of corruption involving the sale of these coins. This is no different from the law that allowed banks to sell up to U$500 to individuals at the official rate. Bank officials, their relatives and close associates made a killing. They would buy this USD at a discounted official rate and sell it on the black market for a fortune. The same happened when we had US$50 per week limits involving bureau de changes.
The usual suspects are going to get rich
This scheme is already looking less and less about the economy and more about the usual suspects trying to swindle the nation more with hapless nationwide tricks disguised as a policy meant to save the economy. We saw this with a scheme that sought to buy back ZWD at some cooked-up rate by the RBZ back. Ordinary people lost their life savings and their entire pensions but somehow the government announced a policy where they bought people’s bank balances and converted them to USD. Only the connected benefited from this scheme which was of course funded by the taxpayer e.g. those same people who lost their money during the same period. And of course the much-praised auction rate. Only the rich and formal businesses and the connections were able to get foreign currency at these rates.
Only the rich and connected will be able to buy coins at these low and subsidised rates. These rich will continue to get richer at the expense of the whole nation. As economists have rightly pointed out, the RBZ has no gold. The gold Fidelity will use to mint these coins is coming from miners. There is simply no way miners are going to accept payment in RTGS (ZWL)-much less at the official rate which no one except the government thinks is fair. They will want real USD which the RBZ will get from exporters at the usual low official rate.
This means that the coins will not really lead to a reduction in demand for USD as the RBZ is claiming since they will still need USD to buy the gold they will use. What the coins will do is continue to allow certain privileged individuals to continue to benefit from a low subsidised exchange rate without really bringing in the benefits being claimed.
Another brilliant idea ruined by an overbearing government
As already mentioned our beloved government never looks at the saboteurs in the mirror. By insisting on using the official rate we can already predict how this gold coin episode will play out. Banks will tell most ordinary customers that they have run out of coins every time they try to buy. Certain fellows with reach will buy them at the official rate and then sell them to ordinary people for USD. They can even take the coins out of the country and sell them for real USD making obscene profits in the process. In the meantime, there will be no respite on the current rate spikes which will continue to rise.
None of the current problems we are facing will be solved by the gold coins. Demand for USD will remain high. Prices will continue to rise. Inflation will remain high. Not even the bear ZSE many are predicting will happen as long as the so-called official rate is used. A limited number of these 22-carat coins will be made. The rate will rise as always and we will continue to moan about how miserable our lives have become. The usual suspects will continue to get richer at our expense by exploiting backdoors left by our policymakers in the economy.
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