A gold coin is a coin that is made mostly or entirely of gold. The majority of modern gold bullion coins, such the Britannia, Canadian Maple Leaf, and American Buffalo, are pure gold, as opposed to the majority of gold coins created since 1800, which are 90-92% gold (22 karat). The average weight of alloyed gold coins, such as the American Gold Eagle and South African Krugerrand, is 91.7% gold, with the rest being silver and copper.
After the country’s inflation rate skyrocketed from 191% in June to 257% in July of last year, the Zimbabwean government took the unprecedented step of making gold coins legal tender. From Z$108.66 to US$1 at the beginning of last year to Z$481.85 to US$1 in August at the official rate and Z$800 to US$1 on the illicit market, the value of the local currency plummeted.
The introduction of the gold coins on July 25, 2022 was one of numerous policy changes aimed at reducing demand for the US dollars, stabilizing the value of the Zimbabwe dollar, and containing surging inflation. People were rushing to exchange their Zimbabwean dollars for US dollars because of the skyrocketing inflation to prevent their savings from losing value. As a result, there was a shortage of USD cash, which increased exchange rates. The central bank responded by stopping loans.
The decrease in the parallel market rate for the Zimbabwe dollar, which had fallen more than 80% against the US dollar last year, was stopped by the coins, according to the government, allowing it to converge with the official rate. Both the official and black-market exchange rates were Z$650 to the US dollar as of October 12, 2022. A number of interventions, including a significant hike in the bank rate from 80% to 200%, were made by the government to stabilize the Zimbabwean economy, including the Mosi-oa-Tunya Gold Coins introduction. Banks use the bank policy rate as a benchmark for their minimum lending rates.
The usage of Gold as part of the trading system is not new and has had its advantages and disadvantages as seen in the USA when they used the Gold standard system. In a currency system known as the “gold standard,” the value of a country’s currency is tied to the price of gold. A certain amount of paper money can be exchanged for a specific amount of gold in a system where gold is the standard. Increases in paper currency cannot be made by nations using the gold standard without corresponding increases in their gold reserves.
Most nations in the world including the United States followed an international gold standard from the late 1800s through the 1930s.The U.S. economy boomed during the first part of the 1920s with industries such as construction and automobiles driving the post-war recovery. In an effort to combat inflation, the Federal Reserve raised interest rates in 1928. But European countries that had borrowed money from the United States during World War1 had trouble paying off their debts. As a result, demand for U.S. exports slowed.
A slowing economy combined with the stock market crash of 1929 and a subsequent wave of bank failures in 1930 and 1931 led to crippling levels of deflation. Soon, the frightened public began hoarding gold.so The bank failures led to people hoarding the gold and this alone should be a lesson to the Zimbabwean government that the bank should be on point and avoid scenarios of gold hoarding as that would risk the success of the gold coins in Zimbabwe
The USA government then abandoned the Gold Standard system. This exchange of gold for paper money allowed the United States to increase the number of gold reserves at the United States Bullion Depository at Fort Knox. The government raised the price of gold to $35 per ounce, which allowed the Federal Reserve to increase the money supply.
The economy slowly began to grow again, but it would take the United States most of the 1930s to fully recover from the depths of the Great Depression. As such Zimbabwe should take note of the previous events involving the Gold so to avoid the collapse of the economy.
