Expert urges authorities to defend ZWL depreciation; digital gold coins expected to ease depreciation

Business Reporter

ECONOMIC analyst Persistence Gwanyanya  has urged authorities to defend the Zim dollar depreciation amid optimism that the coming on board of digital gold coins can be a get out of jail card to ease the rising tide.

The calls come at a time when the local currency has depreciated on the official market to US$1:ZWL1 020 amid reports that on the parallel market, some players are already charging a high US$1:ZWL2 000.

Lately, bulk payments made to government contractors have been singled out as the main source of funding fuelling the black market.

Analysing the trend, economist Gwanyanya said authorities must come in full force to defend the ZWL depreciation on the on the two markets.

“Stability begets stability, and instability begets instability there is urgent need to reverse the current ZW$ depreciation. It is time for Treasury and Reserve Bank of Zimbabwe (RBZ) should come out in full force to defend the ZW$.

“If ever there is one key lesson we learnt in the second half of last year when Treasury implemented the value for money audits and RBZ tightened the monetary policy-with a historic hike in interest rate to 200%-is that government has power to shift the market in its desired direction,” he said.

Gwanyanya said in Zimbabwe where Treasury commands more than 70% of market power it’s quite possible to reverse the current ZW$ through judicious management of the national purse supported by tight monetary policy stance by RBZ.

“Commendably, treasury has started supporting contractors and suppliers of foreign currency for their import requirements to minimize pressure from on US$ from this constituency of the market.

“The Financial Intelligence Unit is scaling up its monitoring of especially the contractors who are paid US$ portion by the government to meet their import requirements. On the other part, the RBZ is working flat out to roll out the digital gold tokens, which were approved by MPC on 28.04.23,” he said.

The top economist said the markets can benefit from another announcement effect as happened on introduction of gold coins amid indications that the market is anxiously waiting for the digital gold coins, which they hope to salvage them from ZW$ depreciation and inflation as a value preservation attribute.

“Importantly, the product is seen as supporting the ZW$ as it drives up its demand. Who doesn’t want to buy a gold backed product in ZW$ at interbank rate. Being a digital product, the digital gold backed tokens are highly divisible, which makes them more convenient.

“It’s possible to buy even a small fraction of the digital gold backed token. This product is being introduced at a time when our gold reserves are increasing as we have started receiving royalties of special minerals in minerals themselves as per new requirements,” he said.

Gwanyanya said such a move will make it easy for RBZ to back the digital coins with gold amid expectations that pressure on US$-especially relating to the need to preserve/store value-to significantly ease.

“In the circumstances, the US$ will largely be required for importation of goods and service. That way we can easily reverse the re-dollarisation trend and restore stability. Clearly, instability today can be traced to increased dollarization.

“That’s why we believe a viable alternative to the US$ is necessary to reduce pressure on the US$. We see the gold instruments as fit for the purpose,” he added.