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RBZ legalises possession of gold coins amid potential elite looting

The Reserve Bank of Zimbabwe (RBZ) has issued a controversial directive that reportedly violates Section 3 of the Gold Trade Act which criminalizes the possession and trade of gold.

The central bank introduced gold coins into the market “as an instrument that will enable investors to store value” last week as part of the measure to contain the skyrocketing inflation in Zimbabwe.

In the latest blow to the purchasing power of Zimbabweans, figures from the Zimbabwe National Statistics Agency showed last week that the country’s annual inflation rate reached 191% in June.

The gold coin scheme was announced by Finance Minister Mthuli Ncube and Permanent Secretary George Guvamatanga after recommendations by RBZ’s Monetary Policy Committee (MPC).

On Monday, the RBZ governor John Mangudya issued a statement saying buyers would be allowed to physically possess the gold coins. He added the buyers would bank the coins if they want.

“Upon purchase, the buyer shall take physical possession of the coin and be issued with a Bearer Ownership Certificate. The buyer or holder of the coin may opt to place it in the custody of bankers of their own choice in which case a safe custody certificate/receipt will also be issued,” Mangudya said.

He added that “the coin will have liquid asset status, that is, it will be capable of being easily converted to cash, and will be tradable locally and internationally.

“The coin may also be used for transactional purposes.”

Analysts have, however, argued that the move by RBZ violated Section 3 of the Gold Trade Act and will increase looting and smuggling of gold by a few powerful elites.

The Act says “Prohibition of dealing in or possession of gold (1) No person shall, either as principal or agent, deal in or possess gold, unless (a) he is the holder of a licence or permit; or (b) he is a holder or tributor; or (c) he is the holder of an authority, grant or permit issued under the Mines and Minerals Act [21:05] authorizing him to work an alluvial gold deposit.”

Analyst and political activist Pride Mkono said the gold coin facility will create a launch-pad of looting for the elites.

“It is patently illegal according to the Gold Trade Act but that is just a tip of the iceberg. What matters most is that sales will be controlled through a murky arrangement involving the RBZ, which is another quasi fiscal activity of the Bank, selected private actors and Fidelity Printers,” he said.

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“Such an arrangement raises fears of another elite looting scam as we have seen in the now defunct forex auction system and the Bureau de Charge scandal we witnessed last year. The whole arrangement is an unprecedented looting scandal which would benefit a few through favourable trading and externalisation of gold.”

Mkono castigated RBZ for failing to come up with proper measures to address the economic and financial problems facing the country.

“Insidiously, the measures fail to address hyperinflation which is wiping out salaries and wages resulting in mass impoverishment of workers and their families. In addition, it fails to address the lack of confidence in the local currency and skyrocketing prices which should be the main agenda of the government instead of creating bogus schemes to benefit only a few, ” he said.

Opposition Citizens Coalition for Change (CCC) spokesperson Fadzayi Mahere said Mangudya’s decree was illegal.

“This illegal press statement by RBZ violates Section 3 of the Gold Trade Act which criminalizes the possession and trade of gold in the manner proposed.

“You can’t wake up & pretend the rule of law doesn’t exist. Gimmicks won’t fix the economy. We need new leaders,” she said.

Renowned economist Tinashe Nyembesi argues that “one could be mistaken to think RBZ produces gold. It doesn’t.”

He added that by selling gold in ZWL means eventually the gold miner is prejudiced and must accept ZWL. Gold miners prefer USD cash. By the stroke of pen Gold deliveries will plummet and greater smuggling. So why is RBZ doing this?

He said: “Money is as good as the issuer. RBZ doesn’t have credibility. So its coins must trade at par with gold bars. Only after independent authenticity and weight test.

“Internationally it will only be accepted as a gold bar.”

American professor of Applied Economics at Johns Hopkins University in Baltimore, Maryland, Steve Hanke, calculated that Zimbabwe’s real inflation for June has surged to 426%, making it the highest in the world by far, while exposing economic failure.

Mangudya and his team said the coin will have prescribed asset status and institutional investors can use it to meet regulatory requirements for prescribed asset investments.

The RBZ further stated that “the coin can be used as security for loans and credit facilities. Buy Back Arrangement – At the instance of the holder, the Bank will buy back the coin.

“The gold coins will be available for sale to the public from 25 July 2022 in both local currency (ZW$) and United States Dollars (US$) (and other foreign currencies) at a price based on the prevailing international price of gold and the cost of production.

“The coins will be sold through the Bank and its subsidiaries, Fidelity Gold Refinery (Private) Limited and Aurex (Private) Limited, local banks and selected international banking partners. Entities selling the coins shall be required to apply Know Your Customer (KYC) principles.”