Business Development

Mid-term fiscal review: Why gold coins will fail

Professor Gift Mugano, Economist

By Professor Gift Mugano


For starters, the Minister of Finance and Economic Development rightfully outlined the major drivers of exchange instability and the current inflation dynamics. However, the current measures are not sufficient to address both the exchange rate and inflation dynamics. The Reserve Bank of Zimbabwe is introducing gold coins with a view to providing an alternative vehicle that can be used to preserve value instead of the USD. Conventional wisdom tells us that gold coins are an investment asset that economic agents with surpluses can consider as part of their strategies to diversify their portfolios.


In Zimbabwe, ZIMSTAT shows that 49% of the population (7.9 million people) is in extreme poverty, that is, they live on less than US$1.90 per day. This population is struggling to put food on the table and as such, they can’t aside any meaningful savings to buy gold coins.


In addition, the working class is getting salaries that are far below the consumer basket of ZWL$140,000. In essence, both the working class and the population in extreme poverty have no financial muscle to buy the gold coin which will cost around US$1,800 per ounce when all the associated transaction costs are taken into account. Ironically, with their limited income, the very same population has the capacity to buy the USD of any amount or denomination. In their millions, they have the critical mass to push the parallel market rate up notwithstanding the fact that they have a limited income as individuals.


In extreme cases, in cases where an ordinary individual has excess cash and makes an investment into gold coins, this individual is likely to face problems associated with convertibility and convenience. For example, in times of emergencies where one may need to buy medical drugs the individual will only be able to do so after 180 days (six months) since the vested period is 180 days.


In view of the foregoing observation, the generality of the population will not be part of the gold coins market. It, therefore, means that they will continue to throng the black market for the USD since it is a trusted currency that addresses matters such as convenience, divisibility, and trust issues, which gold coins cannot address. In this regard, gold coins can’t reduce the value preservation pressure from the general public.


From the looks of things, since the gold coins are also classified as prescribed asset status, it follows that insurance companies and pension funds will be compelled to buy gold in line with statutory requirements of around 20% since their compliance levels are around 3%. Assuming that the insurance sector and pensions funds, will this rein in the parallel market rate?


Evidence shows that the major drivers of the parallel market rate, outside the general public buying foreign currency, service providers to the current construction work, and the command agricultural programme, are the major culprits who are driving the parallel market rate. Put simply, using the revised budget, the Government of Zimbabwe is anticipated to spend ZWL$1.22 trillion on service providers. It is quite clear that these service providers will continue to throng the parallel market.


From a return of investment point of view, at the moment, gold coins are not an attractive investment vehicle as investors are looking for USD-related investments which are powered by increase in interest rates as the US is hiking rates to contain inflationary pressures. This has resulted in a sudden fall of the gold price per ounce from US$2,039 in 2021 to around US$1,720 per ounce in June 2022. Market watchers are of the view that the current price of US$1,720 per ounce has been somehow sustained at that level, which is considered high enough because of the Russia – Ukraine crisis. Russia, with 10% of world gold production, is under sanctions and as such cannot sell its gold which kind of starved the gold market. If there is a resolution on the Russia-Ukraine crisis, which is likely in the near future, the price of gold will take a nose dive. This renders the gold coins a very risky investment which may reduce the appetite of cash-rich economic agents to think twice before making investments in gold coins. However, the usual economic agents which can utilise the existing arbitrage opportunities will still make profits on gold coins on the back of the exchange rate disparities as adequately explained by Prof Mutambara (see:


To make matters worse, in Zimbabwe, with companies coming out of the COVID-19 crisis which has resulted in compression of cash flows, the number of companies that can invest in gold coins and hold their cash for six months is quite limited.


Overall, the gold coins are a scheme for the elite and cronies of the regime which, like the auction system, will make them richer and richer while the generality of the population languishes in poverty:


  • There are also challenges of divisibility when one miraculously buys gold coins – if you buy gold coins say at US$1800 but urgently need U$5 to buy drugs it will be difficult to meet this urgent need yet the USD notes can do justice
  • So, the gold coins scheme is largely for the corporates with excess cash and rich individuals.
  • The big elephant in the room is exchange rate disparity – the gold coin will open the worms of a casino economy again just like the auction system.
  • The risk ahead is the possibility of a massive exchange spiral when the vested time of 6 months expires and the gold coins are liquidated.


In view of the effectiveness of the value for money and cleaning up of the procurement system, whilst this is a very good strategy that will help to rein in the current abuses, the big elephant in the room is centred around the concentration of few service providers who have political muscle and drought of political will.

About the author

Byron Adonis Mutingwende