Could More Countries Start Using Gold Coins to Fight Inflation?

Could More Countries Start Using Gold Coins to Fight Inflation?

Rampant inflation has been a major concern for most countries worldwide. However, developing countries seem to face the brunt of it, with many economies currently battling hyperinflation. Southeast African country Zimbabwe is one of the hardest hit countries, with inflation topping 191% in June. The annual inflation rate is hovering around 192% as of June.

The Russia-Ukraine war has further exacerbated the economic crisis, as the inflation rate rose from 66% in February to over 130% in May. Moreover, as the Zimbabwean dollar has been losing value rapidly, the demand for stable foreign currency, particularly the U.S. dollar, has shot up as well, triggering a forex crisis.

Zimbabwe’s Inflation-Beating Strategy

The Reserve Bank of Zimbabwe (RBZ) is currently deploying an old-school technique by using gold to hedge against surging inflation rates. In late July, the central bank unveiled its plan to sell gold coins to citizens as a store of value and act as an alternative to the U.S. dollar. The technique has yielded positive results so far, as RBZ sold 1,500 gold coins in the first tranche.

The central bank is currently in the process of selling 2,000 additional gold coins in the near term to stabilize the local currency.

Apart from these actions, Zimbabwe also plans to legalize the U.S. dollar as a legal tender in the country to address the currency and forex crisis. The government will likely adopt a multi-currency system, permitting the use of U.S. and Zimbabwean dollars as legal tender.

Will Other Countries Follow Suit?

Several other countries are currently battling hyperinflation, namely Lebanon, Sudan, and Syria. Lebanon's annual inflation rate stood at 210% as of June 2022, while Sudan’s inflation rate came in at 220.71% as of April 2022. The regional instability coupled with rising commodity prices earlier this year from the Russia-Ukraine war resulted in hyperinflation in these countries.

As Zimbabwe rolled out the gold coin scheme on July 25, data-driven results of this policy are yet to be seen. Provided this generates desired results, other hard-hit economies might adopt gold coins in a bid to tame the domestic inflation rates.

Related: How to Buy Gold Coins

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