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COULD ZIMBABWE’S GOLD COINS LAUNCH THE DEMISE OF THE USD IN AFRICA?

COULD ZIMBABWE’S GOLD COINS LAUNCH THE DEMISE OF THE USD IN AFRICA?
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Faith Nyasuguta

The era of Dollar dominance in Africa could soon be decimated if nations opt to ditch their reliance on the USD and peg their currency to gold just like Zimbabwe.

Zimbabwe recently announced that it will begin issuing gold coins to its citizens as a hedge against inflation this month.

On Monday, the central bank disbursed 2,000 gold coins to commercial banks. The first batch of the coins was minted outside the country but eventually they will be produced locally, according to the governor of the Reserve Bank of Zimbabwe.

This move means that as a global inflationary wave continues to send costs soaring for everything from fuel to groceries, some governments are getting creative in reining in prices.

The gold coins are known as Mosi-oa-Tunya (the original and local name of the famous Zambezi River Falls given the colonial name “Victoria Falls”. Mosi-oa-Tunya coins can be converted into cash and sold locally and internationally.

Central Bank Governor John Mangudya said the gold coins would reduce pressure on the US dollar in the open market, which the authorities blame for the depreciation of the Zimbabwe dollar.

“As you are aware, the US dollar has largely been used for two things; for the importation of goods and store of value,” he said.

“The gold coins will provide an alternative investment option to the US dollar as a store of value.”

The Zimbabwe gold coin /Harare Live/

The central bank boss said investors that purchase gold coins will be able to preserve value and make good profits when gold prices rise. He said the coins will contain one troy ounce of gold and would be sold through normal banking channels.

For Zimbabwe, a country of less than 15 million people in southern Africa, the gold coins will be a “store of value,” according to a statement by the central bank governor Mangudya. 

In essence, Zimbabweans can exchange them in the future without worrying about the coins deteriorating in value as has happened with the local Zimbabwean dollar, which has been devalued by over 40% since the beginning of the year. 

They coins will be sold “based on the prevailing international price of gold and the cost of production.”

Zimbabwe, which has experienced hyperinflation since 2007, is in the midst of an economic crisis marked by high inflation, a swift depreciation of the local currency, 90 per cent unemployment, and falling manufacturing production. 

DOLLAR DOMINANCE?

The USD has dominated the market for decades /Reuters/

The first U.S. dollar was printed in 1914 after the Federal Reserve Bank was created. It has long played an outsized role in global markets. It continues to do so even as the American economy has been producing a shrinking share of global output over the last two decades.

Last month, Kenya experienced a USD shortage as the Kenyan shilling depreciated, exacerbating the economic pain as manufacturers complained of rising production costs due to the persistent dollar shortage.

With years of defying predictions of its demise, the U.S. dollar has been the world’s dominant currency. Nearly 60% of the world’s foreign exchange reserves are in dollars, but that share has been falling gradually, and the evolution of markets and technology have weakened the dollar’s market share in global payments. 

With Zimbabwe pioneering the shift from USD to gold coins, many other African countries could eventually follow a similar path, shrinking their reliance on the US currency. 

Zimbabwe president Emmerson Mnangagwa/Reuters/

For instance, Sudan, Ethiopia, and Angola, which are currently adjusted to inflation rates of 245 per cent, 35 per cent, and 24 per cent, respectively, could relieve their economies by pegging their currencies to gold and thereby hedging inflation.

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Faith Nyasuguta

3 Comments

    This is a very interesting angle Zimbabwe has taken. However, I am led to ask a few question…
    -What does this mean for the other member countries of the SADC?
    -Shifting from a dollar focused forex environment to one that trades in gold requires a culture change of global proportions because the countries Zimbabwe trades with must overhaul their systems to be able to trade in gold. Is there a plan for that?
    -If it turns out that using golf is viable, what is Zimbabwe doing to ensure that the same fare that fell upon their currency doesn’t fall upon their decision to trade gold?

      Excellent questions. This would be a systemic overhaul of trading as we know it. I can appreciate Zimbabwe’s quest to get out of the crushing grip imposed by certain foreign entities that I won’t mention. These embargos are causing excruciating pain to regular people and literally making it very difficult to form businesses let a long thrive. At the end of the day something needs to be done. The status-quo can no longer continue.

    This article is stupid. You are selling gold coins based on a USD value and you are suggesting it could be the demise of the USD in Africa? Zimbabwe simply needs to use it’s good to back a new Zimbabwean currency and they will be able to address inflation.

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