Zimbabweans hit by 257% inflation: Will gold coins help?

AP ^ | 8/18/22

[EBH]

HARARE, Zimbabwe (AP) — After working as an overnight security guard at a church in Harare’s impoverished Mabvuku township, Jeffrey Carlos rushes home to help his wife fetch water to sell.

Prolonged water shortages mean most residents of the capital city of more than 2.4 million must source their own water. Carlos is lucky because the property he rents has a well and his family can haul up buckets of water to sell to neighbors.

“This is our gold,” he says of the well water.

“If we are lucky, we can sell up to 12 buckets of water (per day) for $2,” said the 50-year-old father of three. That’s about enough money to buy the family’s food for the day, he said.

Rising prices and a fast depreciating currency have pushed many Zimbabweans to the brink, reminding people of when the southern African country faced world-record inflation of 5 billion% in 2008. With inflation jumping from 191% in June to 257% in July, many Zimbabweans fear the country is heading back to such hyperinflation.

o prevent a return of such economic disaster, President Emmerson Mnangagwa’s government last month took the unprecedented step of introducing gold coins as legal tender. The country’s central bank, the Reserve Bank of Zimbabwe, said that because the value of the one-ounce, 22-carat coins would be determined by the international price of gold they will help tame the runaway inflation and stabilize the nation’s currency

[Gunslingr3]

See 5. There has to be a gold to silver peg. Gold for big purchases (cars, houses), silver for every day use.

Bi-Metallism rests on the fallacy that there can be a permanent, fixed relationship between the price of two commodities. The goods have different supply and demand curves.

It’s not possible.

Gold is sufficient as it is divisible and recombinable to a single atom in size. No worry making ‘change’.

[Travis McGee]

In 1962, a gallon of gasoline cost 32 cents. Let’s round that up to 35 cents for the purpose of explaining its true value in “real” money, silver.

That would be one silver quarter plus one silver dime to buy a gallon of gas in the early 1960s, before our “silver” change was converted to silver-plated copper.

“Junk silver” coins are 90% silver. Rough math, a “face value” dollar in junk silver today is worth between $14 and $19, depending on a few factors. (See link below)

$0.30 X $14 = $4.20 a gallon for gasoline in 2022
$0.30 X $19 = $5.70 a gallon for gasoline in 2022

So in silver terms, gasoline costs about the same that it did in the early 1960s. What has changed is the declining value of the inflated U.S. Dollar, not the value of silver or gasoline.

https://cointrackers.com/blog/2/junk-silver-prices-today/

A bag of containing $100 face value coins if sold at spot would be priced at $1,397 assuming that the bag contained around 71.5 oz. silver, and you were purchasing the bag at the current silver spot price of $19.54.

Now realistically you are always going to pay a premium on minted coins, so assuming it was about 20% more then it would cost you somewhere near $1,886, and that is a bit more realistic.

[Travis McGee]

I disagree, and so does history.

A Mexican 2 peso gold piece that weights 1.7 grams is the size of the rim of a .45 ACP. It’s half the size of an American dime, and it’s currently worth about $80 USD.

Try chopping that up into your “atoms” to buy a loaf of bread.

I’ve been in many border towns as well as interior towns in Mexico and Central America. Store cashiers have the latest dollar/peso prices posted. With a simple electronic calculator, at lighting speed, they can take dollars and give change in pesos, or the reverse.

The conversion rates are honest, because a store with a bad rate will either lose customers or lose money on the arbitrage. It’s amazing how every store in town will change their conversion rates in step, staying within 1 or 2% at most.

The same conversion will be done with gold and silver, instead of dollars and pesos, in a precious metal economy. Govts may try to set an official peg, and it may last for a while, but the floating nature of the true ratio will always lead to arbitrage. Shop owners will float the ratio just like they do today when doing business in dollars and pesos.

So why will there be silver coinage? Because you just can’t buy a loaf of bread, much less a candy bar, with a piece of gold smaller than a grain of rice. For that, you’ll need silver coinage.

It was ever thus, going back through history.

[bk1000]

Zimbabwe was once the breadbasket of Africa. Socialist government run by greedy idiots caused massive starvation, and the printing of $trillion bills that were worthless.

[Travis McGee]

Only if the Zim dollar is fully convertible on demand into physical gold.

That won’t happen, this is just another pipe dream.

See my 2 comments above.

[DesertRhino]

The status of silver and how to use it was a giant debate in US politics in the late 1800s. As you suggest, they demanded it have rules to prevent it from debasing the dollar.

[PIF]

Again the currency is worthless - to tie their currency to gold would mean gold is worthless.

Its like saying that Confederate dollar tied to gold would revive the South.

[Travis McGee]

Here is why a PM economy will need silver: this is the smallest viable gold coin. It's almost exactly the diameter and thickness of the rim of a .45 ACP brass shell.

In the 1890s, the math would have been daunting for everyday market shopping in both gold and silver, so govts attempted to "peg" the ratio to a fixed conversion rate. Usually and for long periods it was about 20-1.

But new discoveries and other factors would tip the value in favor of gold or silver, and the peg ratio would periodically have to be changed. One metal or the other would be "cheaper" due to the peg, so the economy would tilt toward gold or silver, but you still needed silver for small purchases, and gold for large ones.

Today, with ubiquitous electronic calculators, it will be no problem to run a bi-metal economy, with a floating conversion ratio. See my comment above about dollar-peso conversion in every Mexican border and tourist town. The same will occur, IMHO, with a bimetal economy after the collapse of fiat.

Of course govts and central banks will resist this, but they will have to force a new fiat currency at the point of a gun. They have in the past, they will in the future, but will it succeed? That's another question.

[Leaning Right]

> “If we are lucky, we can sell up to 12 buckets of water (per day) for $2,” said the 50-year-old father of three. <

Yes, lucky until your neighbors decide to grab machetes and just take the water.

[Blood of Tyrants]

The Zim dollar is only worthless if you can’t trade in a set amount of Zim dollars for gold. If they don’t have the gold reserves, then it truly is worthless.

[Blood of Tyrants]

And also, the inflation rate in the US is hovering around 10% because there are many trillions of US dollars floating around, mainly because the US dollar is used almost exclusively for buying oil. I doubt anyone knows how much.

[PIF]

Now you are catching on. Who else issues 10 trillion dollar bills for general use?

[xp38]

Piker

[xp38]

When it comes to gold coins I like the edible kind

[butlerweave]

They’re lucky it wasn’t 260%

[dereknunley]

Because inflation isn’t about the price of goods going up. It’s about the worth of the currency going down. Gold doesn’t fluctuate, 1 ounce buys the same basket of goods today as it did 100 years ago, or 1000 years ago.

[Bonemaker]

They must have democrats running things there.

[pghbjugop]

Wow, putting your money on a gold Standard, that’s never been done before, let’s see if it works.

[Organic Panic]

A few more trillions in welfare for Africa should help...

[nonliberal]

It was. Then the Brits betrayed the whites living in Rhodesia and turned the country over to the blacks.