With just under a week to go before the launch of the Mosi-Oa-Tunya (MOT) gold coin, the Reserve Bank of Zimbabwe released exchange control Directive RX 20 dated 18 July 2022 which gave us more details on the latest attempt to steady the exchange rate and curb high inflation. While the directive added precious little the little it added took some of the glitter out of the impending gold coins.

Exchange Control Directive RX20 on Gold Coins

The gold coin idea was introduced by the Reserve Bank of Zimbabwe just a few weeks ago as an attempt to offer Zimbabweans a competing store of value to the US dollar. The thinking was, that Zimbabweans are in a rush to sell Zimbabwean dollars for US dollars because Zimbabwean dollars have proven a poor store of value. The gold coin would therefore offer a direct alternative to buying US dollars and this would,  supposedly reduce US dollar demand and therefore slow or halt exchange rate depreciation. In a vacuum this works however there are many other factors to consider.

More details emerge

A few things were added to what we already knew. Here are the new details and their impact.

Declaration of the source of funds

The first new detail is that Know Your Customer (KYC) requirements for buying the coins will include a declaration of the source of funds. Not unexpected when dealing with the RBZ but it’s the first mention we’ve seen of it. The impact on the gold coin is little to none as it’s something that we surely all expected. The document concludes with KYC details for buyers and sellers. Nothing surprising there either, just that proof of address or affidavit will be required for individuals.

Sticking to the interbank rate

This is not new but it remains the most important detail of the Mosi Oa-Tunya coin. Zimbabweans will be able to buy in both Zimbabwean dollars and US dollars. The price will be set in US dollars and the Zimbabwean dollar price arrived at through the prevailing interbank rate. The coins can also be purchased using British Pound Sterling (GBP), The Euro (EUR), Australian Dollar (AUD) and the South African Rand (ZAR). No Chinese Yuan/Renminbi?

There are exceptions

While Zimbabweans will be able to buy in both Zimbabwean dollars and foreign currencies this doesn’t apply to all Zimbabweans. Exporting entities must buy from their foreign currency retentions. However, exporters that earned less than US$1 million in 2021 can apply for exchange control approval to buy Mosi-Oa-Tunya using a portion of their receipts that is payable in local currency. This sounds like they can rather get approval to convert export proceeds to gold coins than buy gold coins using Zimbabwean Dollars.

Non-residents to pay in foreign currency

Non-resident buyers are expected to buy in foreign currency and this doesn’t seem to discriminate based on citizenship. So Zimbabweans abroad will have to hand over foreign currency to the government for gold coins.

Vesting period

The MOT will have a vesting period of 180 days. This detail has certainly dampened the prospects further. While it’s understandable the point is to give people a store of value locking them in diminishes that. Worse still locking people into an asset that does not compensate you for the tenure but may go up (or down) based on a market isn’t attractive. This also hinders the ability of gold coins to be used for transacting purposes until they mature. MOT discount market sounds like something we will see very soon with people paying a discount on the market value based on how far the coin is from “maturity”.

While the approach to MOT coins has always been cautious a little optimism wasn’t supposed to hurt. The latest details, particularly the vesting period will have taken a little shine off the gold coin and added to the growing list of drawbacks the coin has before it even reaches the people. Credit to the RBZ for communicating clearly during the process of introducing us to the MOT.