November 23, 2022

Gold Coins: Expanding and Cementing Economic Confusion

THE Reserve Bank of Zimbabwe really likes to lie to people and then start believing their own lies.

This stuff of gold coins to preserve value doesn’t make any economic sense and I’ll say why.

First, Zimbabwe already uses its gold to import essential supplies and pay for local needs.

It is not entirely possible for the authorities to have an excess to float it and use it to generate savings and preserve value.

Second, our challenge is forex. Why would a central bank float money instead of acquiring currency by selling gold? I think that will be a very irrational opportunity cost analysis.

Third, Zimbabwean workers earn peanuts and the unemployed struggle with investment alternatives.

The real challenge for most is that their income is so paltry that they can’t even feed themselves enough to even think of saving using coins.

This product is not intended for the generality of people, nor for companies.

Fourth, no company will survive in a 200% inflation environment by keeping its money in coins that have a 30% annual return.

Silver should sweat, but these coins should preserve their value. Businesses want to increase value, not preserve it.

Zimbabweans really like complex things. We just need decent policies and people to do exactly what every country in the world is doing.

Gold coins, US dollars and Zimbabwean dollars in one economy for what?

The country needs to have a functioning currency, not an additional currency called gold coins.

While gold coins are meant to be a means of saving and preserving value as an alternative to the US dollar, not a currency, no company or individual at this time and in this environment has the pleasure to preserve value instead of growing it above inflation in the hundreds.

The challenge for the majority of peanut-earning and unemployed workers is not the lack of savings alternatives, but the fact that they do not have enough income to feed themselves.

For businesses, I see limited value in these gold coins. A CFO who keeps gold coins which can earn 30% a year in a country with 191% inflation will not be very good at cash because it is Zimdollar. Either way, money should be made to sweat, not to be kept in safes.

It would help if it was a medium of exchange that would allow our country to have three currencies such as gold coins, US dollar and Zimdollar with multiple exchange rates like forex auctions , interbank, parallels, EcoCash, cash, transfers, etc.

There is a lot of confusion to understand anything. It’s much better to do the basics like everyone else: just have a currency.

The concept of the Kruger rand, which these gold coins intend to emulate, was based on trust, which is non-existent in the Zimbabwean scenario.

This lack of confidence is because depending on the outcome of this experimental gold coin, investors will be faced with a plethora of new rules and regulatory instruments.

No one trusts the Reserve Bank and it is imperative to start there by answering the question of how we can get people to trust the central bank.

Who can trust someone who didn’t quit after saying they would make the Zimbabwean dollar equivalent to the US dollar? Who trusts a liar to supervise a central bank?

People all over the world will bank their money, earn interest, withdraw it, invest it, get credit cards, transfer it, borrow it, etc.

Isn’t it Zimbabwe we must have? We don’t need all these complexities. Success should be measured on this basis alone.

Why Zimbabwe cannot be a normal economy is because in addition to our policies which are not fair, we are trying to solve simple problems using complex solutions.

Anyone with common sense will tell you that we only need one currency, a floating exchange rate, funding long-term projects with long-term finance; and not print money.

We should get rid of the idea that the money will come without growing the economy.

The productive sectors must be financed, a new breed of investors is needed.

Zimbabwe should reject overreliance on primary industry, have appropriate centers of innovation and finance, and leapfrog its regional peers in the fourth industrial revolution.

As long as we are a net importer and the demand for US dollars does not decline; and as long as we have three currencies, the bad currency will die.

Where is this gold when it is already used to import essential supplies and the rest is smuggled out? There is no gold to use as a store of value.

The whole world has moved to fiat money, which is based on trust and we are trying to get back to the gold standard.

We need to develop our mind to think of simple ideas. If I can’t explain money to my grandmother or my child, then it’s not money.

Money should be simple for everyone, without having Zimbabwean dollar, US dollar, gold coins, then EcoCash rate, bank transfer rate, foreign exchange rate, interbank rate, bank transfer rate. auctions, gold coin rates, etc. It shows failure.

Let’s have a broad economic discussion with industry, government, workers, peasants and the unemployed for a new social contract.