Zimbabwe just made gold coin legal tender. Why?

Southeast African country Zimbabwe has issued gold coins as legal lender to tackle growing hyperinflation in the country. The name of the gold coin is Mosi-oa-Tunya and it will have a “liquid asset status”.

 The Reserve Bank of Zimbabwe said that this can be converted to cash, traded locally and internationally and used for transactions, Sky News reported.

What's happening in Zimbabwe? Zimbabwe has been battling with one of the worst economic crisis in the last one decade. According to the International Monetary Fund (IMF), in 2020, inflation in Zimbabwe reached 837%. A tighter fiscal policy by the government helped to curtain this inflation to 60.7%, but it has remained in the double digits since then.

• For example, the inflation for June 2022-23 jumped to 191.6% from to 132.6% in May, Al Jazeera reported.
• Authorities failed to control the spiraling inflation as people started to lose their faith in the country’s devaluing currency against the US dollar. Unemployment also rose to 90% along with reduced manufacturing output.

• Further, the printing of new currency by the Central Bank of Zimbabwe worsened the situation. It dampened the gains made by the country when it brought inflation from 800% to 60% in January this year.
• At present, the inflation is so high that there is a grave food insecurity for the poor people of the country. Zimbabwean chief economist Prosper Chitambara, acknowledged the situation. He said that many people don’t even have money for bread, let alone savings, Al Jazeera reported.
• The bank also increased the lending rate from 80% to 200% and raised the interest rate from 50% to 100% per annum.
• People no longer have trust in the country’s currency and they prefer using US dollars for daily transactions and even savings.

What will be the role of gold coins? The gold coins which have been introduced by the Reserve Bank can only be traded after keeping them for a minimum of 180 days.

• Chitambara said that the government is trying to moderate the high demand for the US dollar because the soaring demand is not able to match with the supply. He added that the introduction of gold coins will indirectly benefit the common man through moderating the prices. Else, there is no major role of gold coin to benefit the ordinary man.
• At the time of launch on Monday (July 25), the value of 1 Zimbabwe gold coin was USD 1,824. The coin will be of pure 22 carat gold and its price will be based for an ounce of gold, plus 5% to cover its production and distribution.