WIKIFX REPORT: African Nations Moving to Gold

The African continent has been famous for gold production since 1886, when prospectors found several gold-bearing reefs around present-day Johannesburg in South Africa. The area caused a boom in production, and for over a century, South Africa remained the world‘s dominant gold player, producing 30% of the world’s gold for decades.

Although South Africa still holds large quantities of untapped gold ounces, it is no longer a top producer. West Africas gold mining industry, led by Ghana, Mali and Burkina Faso, currently produces nearly twice as much gold as South Africa. The majority of the 30 West African mines which have been developed in the past 20 years, have targeted shallow easily mineable oxide material and the deeper sulphide ore is still in the ground. Ghana alone mined an impressive 130 metric tons of gold in 2021 and is now the sixth-largest gold-producing country in the world.

Zimbabwe has begun issuing 1oz (22-carat) gold coins as legal tender to be cashed in, used for trade, transactions, and as a security for loans. 1,500 coins were released on 25 July), and there are a further 2,000 in the pipeline. The coins hold unique serial numbers printed onto the bar and are called ‘Mosi-Oa-Tunya’, which means “Smoke that thunders”. This name is a reference to the Victoria Falls. Zimbabweans can purchase the coins with the local currency, US dollar and other foreign currencies. What will be telling is whether the gold coins can be used to pay taxes. If they are, then the use case for the local fiat currency will be even more reduced.

One of the goals of introducing the gold coins is to reduce the demand for the US Dollar as Junes inflation came in at nearly 192%. The Zimbabwean Central bank has responded by lifting the cash rate from 80% to 200%. It certainly puts the 50 basis points the RBA raised Tuesday into perspective. In fairness, it is well known that the cash rate needs to be substantially higher than inflation to restore faith in a fiat currency, and it looks as if policy setters in Zimbabwe are more determined, or desperate, to rein in fiat devaluation than the board of the RBA.

In their Press Release, the Zimbabwean Bank has said that the original paper certificates need to be kept with the coin, and that the bank has the right to buy back the coins after a period of 180 days in an effort to ‘promote a savings culture in the country’.

Upon redemption, the holders of the coins will be able to choose if they want to take payment in $US or $ZW. The RBZ Governor Dr John Mangudya expressed some uncertainty about exactly how the program will be rolled out stating that it was still ‘early days yet to determine the format that the administering of gold coins would take’. In particular, its not clear how the bank would be able to force people to sell their gold once it has been traded, but we will be watching how this cookie crumbles very carefully.

However, They are not the only African nation flirting with a return to a gold standard, with Nigeria launching “Sanu Coin” fully allocated digital gold and silver currencies which can be physically redeemed in Nigeria and the UAE. The gold coins come in 1oz, 1/2oz and 1/4oz denominations as well as 1oz Silver.

The program is being run through the West African based Kian Smith Refinery, and they are seeking to build what they call a “gold value chain” to try to keep more gold in the countries where gold is mined and in the hands of citizens who mine it. Every avalanche starts with a few snowflakes…