Govt to introduce gold backed currency

**Finance, Economic Development and Investment Promotion Minister, Mthuli Ncube**

Nyashadzashe Ndoro

The government is set to introduce a gold backed currency that will be managed by a currency board, Finance Minister Mthuli Ncube said on Monday.

This comes a week after President Emmerson Mnangagwa said the country could introduce a “structured currency” to save the embattled Zimbabwean dollar.

Under the new measures being considered, hard assets such as gold will be used as reserves to back the new currency that is on the cards.

“The idea going forward is to manage the growth of liquidity which has a high correlation to money supply growth and inflation. The way to do that is to link the exchange rate to some hard asset such as gold,” Ncube said.

“To do that, you have to have some sort of currency board type system in place where the growth of the domestic liquidity is constrained by the value of the asset that is backing the currency.”

According to the Investopedia, under the currency board, the management of the exchange rate and money supply are given to a monetary authority that makes decisions about the valuation of a nation’s currency.

This means that in Zimbabwe, for instance the management of the exchange rate and the money supply are taken away from the Reserve Bank of Zimbabwe.

Economist Brighton Musonza said the gold backed currency is a good idea, but it can not work alongside the US dollar.

“Gold backed currency is the way to go; but it won’t work alongside the US dollar or so-called multicurrency. The US dollar has got to go.

“It is high time for Zimbabwe to bring back home its currency in its permanent form. Time for experiments is over.

“A currency board would then operationalise the makeshift monetary system by maintaining a fixed exchange rate with a foreign currency by backing the Zim dollar with foreign reserves at a fixed exchange rate.

“Essentially, it will operate as a strict form of a fixed exchange rate regime,” he said.