An aggregate of 1,500 gold coins were disposed of by the Central Bank in the prior week following the launch of 2,000 coins into the economy in the same week.
The Governor of the Central Bank, John P. Mangudya, alluded that demand for the gold coins was more than expected, with most banks running out of the coins by the end of the week.
The Central Bank launched the Mosi-oa-Tunya gold coins into the economy last week as it seeks to offer value preservation to investors.
This comes as the local currency continues to depreciate by more than 1% each respective day while annual inflation reached 256.9% in July.
A first batch of 2,000 gold coins was launched on Monday last week, at a price of US$1,823.43 per coin. The price was derived from the global spot price of gold plus a 5% production cost.
The RBZ added a further 2,000 coins today as a second batch. Gold spot price globally was US$1,753.40 at the opening of the current week, setting the local gold coin price at US$1,841.07.
According to RBZ, 85% of the coins sold from the first batch was in local currency. The local currency price is derived from the United States Dollar (US$) price multiplied by the prevailing interbank exchange rate. In the prior week, average interbank exchange rate was 443.9695.
Therefore, the selling price per coin in local currency was ZWL791,313. An aggregate of 1,275 coins (85%) were thus sold for a total of ZWL1,008,924,082 while the other 225 coins (15%) were sold for US$410,272.
According to the latest published data on reserve money by the Central Bank, the total reserve money by mid-July amounted to ZWL35 billion.
Reserve money refers to a combination of currency in circulation, bankers’ deposits with the Central Bank and other deposits with the Central Bank.
Of the reserve money components, the money is circulation is largely responsible for rampant inflation as abundant supply of money means the money-holder will be willing to pay more for a hard asset, while scarcity of the money means the holder will be willing and only able to pay less.
A total of ZWL1 billion which was mopped up from circulation in the prior week through the sell of gold coins represented 3% of total reserve money, which would, therefore, translate to a larger portion of money in circulation.
The impact of the above highlighted changes in money supply were felt towards the end of the week of gold coins’ int.
Reduced liquidity in circulation resulted in an appreciation of the local currency on the parallel currency market as exchange rate fell from 850 to 750 by the end of the week, the first significant appreciation in over 2 years.
Meanwhile, the local currency denominated bourse, the Zimbabwe Stock Exchange, had embarked on a recovery trajectory in early week trades following 3-months of a bear run. The bourse suffered a halt to the recovery trend in late week trades as liquidity stifled demand. In today’s trades, the ZSE sailed stable for the first time since de-dollarization as liquidity constrains depressed activity.
Assuming the demand for gold coins remains constant going forward, a currency stability will be expected in the short to medium term, while other local currency denominated asset classes will suffer low liquidity.
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