The RBZ’s gold coins were recently put up for sale and it seems the entire lot of 1 500 gold coins were taken up by unspecified members of the public. The RBZ seems so excited about this uptake that they announced that an additional 2 000 gold coins would soon be sold during this week of 1 August. The notice from the RBZ lacks a couple of details but it still makes for interesting reading. Those who bought the Mosi coins stand to make a whopping US$1 044 profit. No wonder why they sold out.
There were some interesting nuggets:
- 85% of gold coins were bought using Zimbabwean dollars with the remainder bought using USD
- It’s not clear which type of USD was used we have real USD and Nostro USD (electronic USD in your account) in Zimbabwe. If I was a betting man I would
Was this a success?
It is not surprising that the government is trying to tout this as a success. They are somehow implying that them selling all the coins in such a short space of time and the fact that there was some unfulfilled demand means they are on the right track and their critics including me were wrong.
That is very misleading and off the mark. If anything the government’s data shows we were completely right. In fact, 2 000 gold coins will not be enough. They can pump tens of thousands of coins and people will keep buying. The reason for this is simple. The gold coins offer an unbeatable arbitrage opportunity that allows those who partake in their trade an opportunity to get rich quickly at the expense of the taxpayer. How you ask?
It is simple really:
- These are gold coins made up of 22-carat gold weighing about 31 grams. That gold costs about US$1 700. The coins are worth about US$1 800
- The government sold 85% of that gold in ZWL at a rate of about $420 ZWL per USD instead of the prevailing market rate of almost $1 000 ZWL per USD.
- The RBZ and the government do not have gold they have to buy it in USD from miners. Miners would never accept RTGS or Zimbabwean dollars for their gold which means that the RBZ is paying them in USD.
- This means that for each dollar paid to miners the RBZ is losing (1 000-420) $580 ZWL for a total of (1700*580) $986 000 ZWL.
- In other words, in market terms, buyers are paying $756 000 ZWL per coin instead of $1 800 000 ZWL per coin.
- In market-rate terms, buyers are actually paying US$756 which is less than half the US$1 800 face value of the coin. Each time the lucky rich buy a coin they are making a profit of US$1 044. That is a get-rich-quick scheme if I have ever seen one.
- This profit that they are making is not coming out of thin air, the RBZ is tax-funded however you look at it. Either we pay through direct taxes whenever the RBZ pays the gold buyer in USD instead of ZWL. Or as an opportunity cost. The RBZ is wasting USD that the country could have used to import essential raw materials by using it to pay miners for gold that will be sold at a loss to those buying gold coins. Lastly, if the RBZ prints money we are essentially being robbed because the ZWL we have as a country is being diluted in value.
With this in mind, I must reiterate that the gold coins scheme might look like it’s working now but eventually it will be exposed for the mistake it is. It makes our country poorer and a few rich people richer. Already not everyone is allowed to buy these coins. You need to write an application letter explaining why you need to buy the coin. In case you are wondering in Zimbabwe dubious onerous regulation is often used by the elite and bigwigs to preclude those not connected form participating in the economy.