Zimbabwe central bank declares victory

THE Reserve Bank of Zimbabwe (RBZ) says as of last Wednesday, 4 475 gold coins valued at $3,7 billion had been bought with 90% being local currency purchases, a move it says has cooled the galloping parallel market forex rate.

On July 25, RBZ released gold coins onto the market to help mop up excess liquidity.

This increase in money supply has been seen as driving the depreciation of the local currency, leading to a rise in inflation.

As of June, broad money increased by 15,25% to $1,11 trillion compared to $973,5 billion recorded in the prior month.

This was driven by an expansion of $98,75 billion and $49,40 billion in foreign currency deposits and local currency components, respectively, RBZ reported.

By offering the gold coins, RBZ sought to entice the market to use excess Zimbabwe dollar liquidity to buy the coins.

“In addition, subsequent measures taken by the bank (RBZ) to increase interest rates and introduce gold coins as an alternative stable investment product for store of value and mopping up excess liquidity from the economy have gone a long way in preserving the value of the local currency,” RBZ governor John Mangudya said in the mid-term monetary policy statement released on Thursday.

He said the move helped authorities reduce liquidity on the market, as well as reduce foreign currency demand on the parallel market, which has “stabilised the exchange rate and prices”.

“As at August 10, 2022, 4 475 gold coins had been sold realising $3,7 billion of which 90% was paid in local currency and the balance in foreign currency, and evenly distributed throughout the agents.

“The high demand for the gold coins will assist in mopping up liquidity from the market and thus strengthen the demand and enhance the value of the local currency. The bank shall continue to release additional gold coins into the market on an ongoing basis in line with demand,” Mangudya said.

Since the release of the gold coins, the majority of parallel forex dealers have been offering $700 for the greenback, a drop from between $750 and $1 000 before the release of the gold coins.

“The price of the gold coins is determined by the London Bullion Market Association…gold price, plus a margin of 5% to cover the production and distribution costs,” Mangudya said.

“The price of the gold coin on the date of initial release, July 25, 2022, was US$1 823,80 or $805 745,35 in local currency.

“Fluctuations will be experienced on the US$ and ZW$ prices as a result of the movement in the international price of gold and the exchange rate,” he added.

Source – NewsDay

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