RBZ chief John Mangudya dismisses IMF position on Zim gold coins

Reserve Bank of Zimbabwe (RBZ) governor John Mangudya has dismissed claims by the International Monetary Fund (IMF) that the introduction of gold coins did nothing to ease inflation in the country.

The IMF staff team led by Dhaneshwar Ghura conducted a mission to Harare during December 1-15, 2022, in the context of the 2023 Article IV Consultation.

The mission made a number of recommendations aimed at helping Zimbabwe to curb the skyrocketing inflation. One of the recommendations was for the government to do away with the gold coins.

“A near-term policy imperative is to sustainably anchor macroeconomic stability,” read the statement by Mr. Ghura.

“In this context, Fund staff recommend accelerating the liberalization of the FX market, including through the removal of restrictions on the exchange rate at which banks, authorized dealers, and businesses transact, addressing the Reserve Bank of Zimbabwe’s quasi-fiscal operations to mitigate liquidity pressures; maintaining an appropriately tight monetary policy stance to durably restore macroeconomic stability and ensure social stability; restoring the nominal anchor for monetary policy, including through the use of appropriate interest-bearing instruments to mop up liquidity and winding down the use of gold coins; and maintaining a prudent fiscal stance.”

But Mangudya believes that the IMF did not appreciate the central bank’s idea.

He said the RBZ would not phase out gold coins.

“The IMF mission team to Zimbabwe did not fully appreciate the bank’s noble objective of introducing gold coins into the domestic economy,” he said.

“They view the issuance of gold coins as tantamount to intervening in the foreign exchange market, thus depleting foreign exchange reserves.

“The bank, however, views the gold coins as an alternative product or asset to foreign currency in the economy’s dual currency system,.”

“..hence a retail open market operations instrument for store of value and for mopping excess liquidity.

“Use of gold coins for mopping excess liquidity is particularly important in the dual currency environment where the public has a choice of holding both the US$ and local currency.”

He added that in an environment, when the public prefers holding the US dollar and has less appetite to hold domestic currency-denominated assets, the use of gold as a liquidity-mopping instrument is more effective.

“Thus, the bank views the gold coins as a necessary open market operations instrument if the economy continues with a dual currency environment and the uncertainty of losing value on domestic currency-denominated investments is perceived to be high.”

“Against this backdrop, the bank has no plans to withdraw the gold coins until such a time when there is a high preference by the public to hold domestic currency-denominated assets that can also be used as open market instruments for mopping liquidity.”