Zimbabwe Absurdity

As of four days ago Zimbabwe has its very own gold bullion coins, one troy ounce, 22 carat gold. Like gold coins sold all over the world it even has its own name, Mosi-oa-Tunya, which is the name the Tonga people gave the Victoria Falls and roughly translates to “The smoke that thunders”. Unlike gold coins elsewhere nobody has any idea if it will be tradable outside the country and therein lies the catch.

The coin has been introduced to try and rescue the local Zimbabwe dollar from oblivion. Nobody wants it and on the parallel market it’s trading at 720 to one US dollar though for some reason now outlets I spoke to yesterday were using less than 760. That is actually down from 750 a week ago when I had to sell 1,000 US dollars to part-fund my staff wages. Not many retailers are using the local dollar anymore and, although they are bound by law to accept Zimbabwe dollars, they price goods so that it’s very attractive to pay in $US. Supermarkets are the lone exception and they price at the official rate of 400 or so to the US dollar. Those who can obviously pay for their groceries and consumables in the local currency.

The initial run of gold coins will number 2,000 and will be sold at around US$1,800 or so depending on the value of the metal. One can also pay in any other major currency and, here’s the kicker, Zimbabwe dollars at the official rate! Yes, this means that if you can get enough local dollars you can get yourself a gold coin or several very cheaply indeed. The government admits that this price is out of consideration for most people, so will consider minting smaller coins at a later stage.

Cynics are easily found in Zimbabwe and it’s not difficult to see why. Many have pointed out that these coins are there purely for the rich and politically connected to mop up easily and hopefully in the process rescue the local dollar (the price is way beyond the average citizen intent on daily survival). I suggested to my cousin, who is a gold smith in Cape Town, that she should see if she could get her brother, who lives in Harare, to buy her some that she could then melt down for use in her business. Gold jewellery is usually diluted with silver to around nine carats. It would be really worthwhile doing if possible. My local cousin is well-connected but probably not that well connected.

It has not of course escaped notice that Zimbabwe does not have a great reputation for fiscal responsibility and those who do buy the coins might well find out that nobody outside the country is interested in buying them. Why should they when in South Africa, our neighbour, one can buy the internationally recognized gold Krugerrand not to mention the plethora of other coins available worldwide?

It doesn’t take a huge amount of mathematical intellect to work out that gold coin sales are unlikely to make much difference to Zimbabwe’s dire financial status. Let’s have a look:

Initial minting is 2,000 coins valued at $1,800 each. That’s a grand total of $3.6 million. Not a lot to get excited about. This has not stopped the government owned newspaper The Herald from waxing lyrical and claiming that that existing stocks of the coins have already sold out. How many were available in the first place was not mentioned. Perhaps even more tellingly the article claims that the gold coins will take local currency out of circulation. Does this mean that we are reverting to using the US dollar once again?