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Reserve Bank of Zimbabwe Governor John Mangudya holds a sample of a gold coin at the launch in Harare on July, 25.Tsvangirayi Mukwazhi/The Associated Press

Faced with a collapsing currency and the world’s worst inflation rate, the Zimbabwe government has introduced an unconventional new weapon: a 22-carat gold coin with a value of more than US$1,800 that can be used for retail purchases.

Zimbabwe last week issued 2,000 of the gold coins, emblazoned with an image of Victoria Falls, the biggest waterfall in Africa. Each coin contains one troy ounce of gold. The coins were quickly snapped up – but shops haven’t seen them. Instead, they were bought mainly by investors and currency speculators.

Shop clerks laugh when they are asked about it. “Oh no, no, we haven’t received gold coins from any of our customers,” said Lina Muchero, an assistant at a clothing store in the upscale Westgate shopping mall in the Zimbabwean capital, Harare.

Ordinary people haven’t seen the coins either. “They will benefit the rich and the political elite,” said Laurence Muswere, an unemployed university graduate who sells winter socks and woolen hats on the pavement outside a supermarket in central Harare.

Inflation is rising sharply across Africa this year, partly because of the Russian invasion of Ukraine. But the price crisis is particularly severe in Zimbabwe, where external pressures have been compounded by years of economic mismanagement and corruption by an authoritarian government that has failed to find a stable currency for the country.

Zimbabwe was devastated by hyperinflation in 2008, when the central bank issued the local Zimdollar in banknotes of up to 100 trillion. It finally abandoned the currency and switched to the U.S. dollar in 2009.

The government revived the Zimbabwean dollar a decade later, but the Zimdollar today has plunged to an unofficial rate of 800 to the U.S. dollar on the illegal street market. Just three months ago, the street rate was 400 to the dollar.

To discourage speculation and prop up the currency, authorities have experimented with a range of desperate measures, including a ban on all bank loans in May. The ban was lifted 10 days later after widespread complaints.

Inflation, meanwhile, has continued to worsen. The official year-on-year inflation rate climbed to 257 per cent in July, up from 192 per cent in June. U.S. economist Steve Hanke, who tracks inflation worldwide, has calculated that Zimbabwe’s inflation rate in July was 595 per cent, the highest rate in the world. The World Bank reported last week that Zimbabwe’s food price inflation rate is the second-highest in the world, behind Lebanon and ahead of Venezuela.

In another attempt to stem inflation, the central bank more than doubled its main interest rate to 200 per cent last month.

The gold coins are the bank’s latest tactic. While they are seen as unaffordable for the vast majority of Zimbabweans, the central bank has promised to introduce them in smaller amounts in the future.

The central bank said the coins were swiftly sold out within a week at most banking outlets where they were made available. It plans to release another 2,000 gold coins this month.

But interviews by The Globe and Mail suggest that the coins were popular mainly among wealthy investors, financial companies and speculators. Many were exploiting the fact that the coins could be bought in Zimdollars at the official exchange rate, far below the street rate.

Traders described how they changed their U.S. dollars into Zimdollars on the street market, used the Zimdollars to buy gold coins, then sold the coins to banks for U.S. dollars and returned to the street market to repeat the process, making a profit along the way. Others are using the coins to soak up their Zimdollars and convert them to U.S. dollars at a profit.

“I’m offloading all the local currency that I get from my transport business and my three supermarkets,” said businessman Nicholas Midzi as he waited outside a state-owned gold refinery where the coins are sold. “I’m getting the coins before the majority of people begin to realize there is quick money in dealing them.”

A woman who gave her name only as Nelia, who said her husband owned liquor stores in Harare, said she was planning to buy and sell several of the coins. As long as the unofficial money changers remain on the streets, the gold coins will be profitable, she told The Globe.

Wage earners were less impressed by the coins. “I haven’t bothered to learn much about them, because their price has already put me off,” said Mirirai Hoto, a 37-year-old high-school teacher in Harare. “I’ll never have enough money to buy a gold coin.”

The state-owned Herald newspaper said the coins had triggered a “gold rush” and an “overwhelming” demand. It predicted that the coins would gain value faster than the U.S. dollar.

But an opposition activist, Elvis Mugari of the Citizens Coalition for Change party, said the coins will only benefit a few insiders with connections to the ruling ZANU-PF party. “The poor will continue with their poverty as the rich get richer,” he said.

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