Zimbabwe Turns to Gold Coins

Zimbabwe has tried just about everything in its power to slow the runaway inflation that for years has decimated its economy. The beleaguered African nation is now considering something out of the numismatic Middle Ages—circulating gold coins.

Could gold coins circulate successfully in this day and age? Specie may not be entirely dead. The smallest current U.S. gold coin that could be argued is a business strike is the tenth ounce Gold American Eagle. The face value on this coin may only be $5, but its intrinsic value is about $185, making it a challenge to use for over-the-counter purchases.

An interesting alternative is offered for use in New Hampshire, Nevada, and Utah by the privately owned company Goldback Inc. Goldback issues “24 karat” gold certificates in five denominations starting with 1/1000th of an ounce of real gold. This denomination had an intrinsic value of about $1.80 at the time this article was being written.

According to the company web site GoldBack.com, “The designs are printed on a sheet of polymer that is then bombarded with the correct amount of atomized gold particles in a vacuum chamber. This gold is then sealed inside by a second protective barrier of polymer, thus creating a beautiful negative image. Valaurum has been developing the process for nearly two decades and it has never been counterfeited.”

Each certificate has a serial number, making it even more challenging for someone to try to counterfeit the certificates.

Merchants in three states can accept the gold certificates on a voluntary basis. According to the web site, “Members of our team have been working in the precious metals industry since our general counsel, Lawrence Hilton, authored and championed the passage of the Utah Legal Tender Act in 2011. The Utah Precious Metals Association formed in 2012 from the ‘Citizens for Sound Money’ and began offering legal tender gold accounts that same year. We have been innovating in the space ever since. Goldback Inc. was founded as a new company in 2019.”

Valaurum Inc. released gold 1-cedi notes in the name of Ghana in 2020. Like the GoldBack notes, these are legal tender, however they are seldom if ever seen inside Ghana.

The bottom line—if a private enterprise in the United States (and perhaps in Ghana?) can successfully issue gold certificates containing real gold, why can’t Zimbabwe succeed with introducing gold coins?

On June 27 Reserve Bank of Zimbabwe Governor John Mangudya said, “The Monetary Policy Committee resolved to introduce gold coins into the market as an instrument that will enable investors to store value.

The gold coins will be minted by Fidelity Gold Refineries (Private) Limited and will be sold to the public through normal banking channels,” continuing, “The committee noted that the increase in inflation was undermining consumer demand and confidence and that, if not controlled, it would reverse the significant economic gains achieved over the past two years.”

Fidelity Printers and Refinery is a security printing and gold refining company wholly owned by the Reserve Bank of Zimbabwe. The company operates a coinage mint in Bulawayo. Other FPR products include bank notes, Commercial Bank checks, passports, traveler’s checks, as well as both gold and silver bullion.

Mangudya explained, “In order to enhance the circulation of foreign currency in the economy, as well as to support the willing-buyer willing-seller foreign exchange market, the MPC resolved to maintain the current export retention thresholds across the various sectors of the economy and that 25 percent of the unutilized export receipts shall be liquidated at the willing-buyer willing-seller exchange rate after 120 days from the date of receipt of the export proceeds.”

Zimbabwe has been plagued with inflation for years. Due to spiraling inflation the country has gone through several monetary reforms, seen coins vanish from circulation while issuing bank notes in astronomical denominations, and allowing the use of foreign rather than domestic currency in various attempts to control the economy. Mangudya said the year-on-year inflation rate has recently increased to 191.6 percent. Interest rates and statutory reserves have been reviewed, resulting in the central bank policy rate being increased from 80 to 200 percent, this new high interest rate to be introduced on July 1.

On June 27 Zimbabwe Finance Minister Mthuli Ncube said the government would once again legalize the U.S. dollar for the next five years. Perhaps this could include the $5 Gold American Eagle?

The new Zimbabwe coin has no specific denomination but is called Mosi-oa-tunya, a native language name for Victoria Falls. The coin has a weight of one troy ounce. The coins are now available in local currency, U.S. dollars, and other foreign currencies at a price based on the prevailing international price of gold and the cost of production. The coins can be converted into cash in Zimbabwe after 180 days and can be traded locally as well as internationally. The London Bullion Market Association price will be the benchmark on which the five percent margin cost cover will be added.

Not everyone is excited about the new coin. On July 22 economist Prosper Chitambara told Agence France-Presse, “The coin is not going to have a significant effect in terms of stabilizing the macro economy,” noting that most Zimbabweans are too poor to purchase the coin.