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Zimbabwe Urged to Set Up a Gold Reserve Bank
By Conrad Mwanawashe
Zimbabwe Herald, Harare
Monday, April 4, 2016
http://www.herald.co.zw/set-up-gold-reserve-bank/
Visiting investment consultants from the United States and Canada have
implored Zimbabwe to consider setting up a gold reserve bank and introduce a
gold currency with a view to attracting international capital.
Under the initiatives, Zimbabwe could link the gold bank and currency to a
gold debit card and finance it through economic citizenship.
Economic citizenship is when an individual goes through the process of
naturalisation in a second country on account of his financial investment
into that country's economy.
In interactions with the business community and government officials at a
breakfast meeting on Friday, New York Times bestselling author and chairman
of Casey Research Doug Casey and Casey Research senior editor Nick Giambruno
pointed out areas government could target with a view of turning around the
economy.
The breakfast meeting was organised by the Ministry of Macro-Economic
Planning and Investment Promotion.
Apart from setting up a gold reserve bank and introducing a gold currency,
they said government could also consider the economic citizenship concept.
The gold reserve bank could become an international gold bank attracting
deposits from all over the world in any currency from depositors who prefer
to hedge in gold. The bank would then convert the amounts deposited into gold
using prevailing market rates.
Mr. Casey, who is also an investor and international business consultant,
said setting up or converting the Reserve Bank of Zimbabwe into a gold bank
could be necessary to raise capital. "If you set up a gold bank in this
country, all the people (Zimbabweans) become shareholders and it will be
possible to raise maybe as little as $100 million on the world market and
that will capitalise the bank," Mr. Casey said.
"People could deposit their euros and dollars into the gold bank and
the bank will buy gold and convert the currency into gold. This is how the
gold bank is built. As more and more people deposit their savings into the
bank, it is transferred and converted into gold, and when it grows it can be
converted into notes or coins and it will be growing," he said.
He reckons that this way there will be billions deposited into the bank by
African countries and even the whole world converting money into gold.
Apart from bringing money into the country, the use of gold as a currency
could also increase confidence in Zimbabwe's currency and financial system
and ultimately the economy as it attracts international capital.
"The gold bank can be implemented with technological aspects because
the country can introduce gold bank debt cards and there are many ways to do
this. This can make Zimbabwe a free country in Africa and the bank will
create good public relations for the country," said Mr. Giambruno.
A number of countries, including China, are accumulating gold reserves
because gold is fungible.
"If you did that, Zimbabwe will be the first country in the world to
have gold currency and this will improve the life of Zimbabwean business
people and citizens," Giambruno said.
Local economists, however, said that although the idea sounds noble, the
challenge is that Zimbabwe is not aware of the quantum of minerals it
possesses because there has not been enough exploration.
The director responsible for mining promotion and development in the
Ministry of Mines and Mining Development, Mr. Den Makandwa, confirmed that
opportunities are available in exploration.
"You will realise that Zimbabwe is yet to experience extensive
mineral exploration as well as application of modern technology. You will
also realise that most of our minerals deposits at the moment are by global
standards, except for platinum group metals, because they still need to be
investigated further. This presents opportunities in exploration both in
brownfield and greenfield projects. We would welcome interventions in
exploration," said Mr. Makandwa.
The lack of reliable information from exploration makes it difficult to
use gold to back currency. Another challenge would be the value of the gold,
which is determined on the world market, which may make the gold-backed
currency volatile.
"It is very vulnerable to speculation. In other words they (the
visiting investors) are simply suggesting introduction of a local currency to
improve liquidity," said Mr. Thomas Masese, an economist with the Africa
University.
Introduction of a gold bank and gold currency "is feasible but it still
needs discipline. It is the same as when you are able to seigniorage your own
currency. The amount in circulation has to be correctly linked to the level
of output or production in the economy. You must also have enough reserves of
gold to prop up the currency when it is under speculative attack. You do not
necessarily need a gold bank because the reserve bank through Fidelity
Printers and Refiners are the legal custodians of the country's gold,"
said Mr. Masese.
But the economist feels that instead of a gold bank to resuscitate or grow
the economy, Zimbabwe needs to work on economic hygiene issues such as the
cost of doing business, boost production, increase competitiveness of local
products, attract investment, policy consistency, fighting corruption, and
sorting out the indigenisation issues.
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