The wave of inflation continues to spread across the globe and it has increased the cost of almost everything, ranging from groceries to fuel. Of course, the overall impact has been quite negative and some countries are taking bigger hits than others. One country, in particular, that is really feeling the effects of the ongoing inflation happens to be Zimbabwe. Thus country has a population of close to 15 million people, who are suffering terribly from inflated prices.
To battle this issue, the African country’s government plans to issue citizens gold coins as hedge against the current inflation. This was announced by Zimbabwe’s central bank. The main purpose of introducing the coins is to ensure that they are a store of value, as the statement by John Mangudya, the central bank’s governor suggested.
This means that the people of Zimbabwe can exchange the coins they receive in the future and not have to worry about their overall value deteriorating, like it happened with the Zimbabwean Dollar. The currency has devalued by more than forty percent since the year’s beginning and could go further down. The gold coins being talked about will become available to the public on the 25th of July and can be sold according to gold’s cost of production and international price.
The public can purchase gold coins through the U.S Dollar as well as the Zimbabwean Dollar, along with other currencies. While the country’s main currency is still the Zimbabwean Dollar, the U.S dollar and several currencies from other countries became the legal tender during the past decade. Many people still use the greenback as it is widely accepted and used.
Buyers have the option of holding on to their coins or placing them in a bank’s custody. Holders are allowed to trade their coins to get cash whenever they please. That being said, Mangudya stated that people can also use the coin for transactional reasons, which many people thought was quite vague. The main reason gold was introduced is to ensure that central bank of Zimbabwe got a chance to control the country’s soaring inflation, with the annual rate hitting close to 200 percent last month.
Gold has arguably been the most popular commodity since the 1970s and people often use it for hedging against war and inflation. This is mainly because the metal’s value rises quite quickly whenever a currency’s purchasing power goes down.
That said, this is the first time ever Zimbabwe used a commodity to potentially replace its currency. Investors often turn to gold whenever there is rising inflation and market uncertainty. This became even more evident when Russia invaded Ukraine, as many investors ended up sending gold’s value to a two year high.
Gold’s long reigning status of being a long term hedge for inflation came into question recently as many experts noted the metals history of offering investors rare positive returns since 1970. Things are quite different when it comes to Zimbabwe, however, as inflation has been running rampant in the country for many years. Therefore, any type of hedge that may help reduce the impact caused by high prices is more than welcome in the country.
Surprisingly, this isn’t the first time Zimbabwe suffered from inflation as the African country’s economy suffered from a period of hyperinflation. This term is generally used for describing incredibly high price increases and this mainly happens whenever the rate of inflation goes beyond the fifty percent mark. The world’s economic crises forced the country to raise its money supply drastically because of the increasing national debt.
The country’s hyperinflation eventually resulted in the introduction of the first ever one hundred trillion Dollar note. Turning to the U.S Dollar, along with other currencies during 2009 and reverting to the Zimbabwean Dollar after a decade did very little to help with inflation. If anything, it eventually hit a high of over 500 percent during 2020. Ever since the country reintroduced the Zimbabwean Dollar, its currency started plunging again.
So, to make sure the country’s currency remains stable from the ever increasing inflation, the Zimbabwean government decided that it would keep the United States Dollar as the legal tended for the next 5 years at least.
Zimbabwe’s annual inflation rate went up to almost 21 percent in October 2018, showing that things may be headed south very quickly. This rent went up from almost 6 percent in September as the shortage of dollar caused the Zimbabwean currency to collapse. This triggered massive price hikes in a wide range of services and goods. As you would expect, this spread a massive wave of fear in Zimbabwean citizens, who had no other option but to abandon their official currency and adopt other options like the U.S Dollar.
Many Zimbabwe based businesses now demand cash in the form of US dollars. In additions, they have increased prices significantly for most Zimbabweans, especially those who use bond notes, bank cards or mobile money. According to Tony Hawkins, who is a business studies professor in Zimbabwe, the hike in prices was expected and there could be further increases down the line.
While authorities believe that it may be a one off spike, things might be quite different. According to the country’s inflation forecast, there could be a five percent increase down the line. The rates of basic items like flour, cooking oil and meet rose significantly as soon as the value of electronic dollars and bond notes collapsed in the parallel market. Because of this, many consumers started to panic buy.
Needless to say, the economic crisis of Zimbabwe has been a massive challenge for the country and its officials, as they try to keep people’s hopes up. Unfortunately, the reality of the situation is that Zimbabweans are well aware of the state their country is in and most of them realize that it will take a while for things to start getting better.
Recently, the country’s inflation rate rose to triple digits. This was after the Zimbabwean central bank devalued the country’s local currency through a changed interbank rate. This is the rate which will dictate the country’s commerce landscape moving forward. Zimbabwe’s annual inflation rose to 132 percent from almost 97 percent in April, effectively ending a ten month streak where the rate was lower than one hundred percent.
Costs increased 21 percent in April, which has been the fastest since 2020. There was also a notable increase in food prices by over one hundred and fifty percent. Four years after ousting Robert Mugabe, Zimbabwe’s previous leader, who was overseeing the country’s hyperinflation and poor economic output, there are no signs of the country getting back on track.
Zimbabwe ‘s reserve bank introduced the brand new interbank rate, which was 276/Dollar during the 9th of may. This was 2 days after the country’s president prohibited banks from providing loans and other lending opportunities. He also introduced several other measures to try and minimize the Zimbabwean Dollar’s plunge in the black market.
Most recently, the country has started to issue gold coins to Zimbabwean citizens in hopes to get the economy stable. However, many believe that the process to get this African country’s economy back on track will be a long and painful process with a great deal of trial and error involved.
