From Mines to Mints: Zim hoards gold to back new c...

From Mines to Mints: Zim hoards gold to back new currency

Nyashadzashe Ndoro

The Zimbabwean government’s process of exploring a gold-backed currency as a solution to persistent exchange rate instability and a path towards “sustained growth” is being complemented by the accumulation of more than 793 kilogrammes (25 000 ounces) of gold reserves.

This move signifies a bold ambition to break free from the dominance of the US dollar and stabilise the domestic currency.

“This is a quest for currency stability,” Finance Minister Mthuli Ncube declared in a press conference on Monday. He emphasised the need to solidify the achieved economic growth and envisioned linking the exchange rate to a “hard asset like gold” as a potential solution.

This plan comes amidst the build-up of Zimbabwe’s gold reserves, currently at 793 kilogrammes. This accumulation follows a law mandating mining companies to pay part of their royalties in gold. However, concerns regarding its effectiveness alongside the existing multicurrency system prevail.

His vision involves a currency board system, maintaining a fixed exchange rate with a foreign currency while directly backing the Zim Dollar with gold reserves. This strict approach aims to guarantee stability and attract international confidence.

While the proposed gold-backed currency holds promise for stability and self-reliance, its success hinges on careful implementation and navigating potential challenges. Public trust, transparent management of gold reserves, and addressing underlying economic issues will be crucial factors in determining its effectiveness.

Zimbabwe’s journey towards a stable and independent currency system continues, with the gold-backed proposal sparking debate and raising hopes for a prosperous future.

Whether this bold move paves the way for sustained growth and dollar independence remains to be seen, it undoubtedly signifies a significant step towards shaping the nation’s financial landscape.

“Gold-backed currency is the way to go,” commented economic analyst Brighton Musonza.

He advocates for abandoning the US dollar entirely and proposes a permanent, gold-backed Zimdollar as the ultimate solution. Musonza emphasises the need to move beyond “experiments” and achieve true currency independence.

Prosper Chitambara, a senior economist with the Labour and Economic Development Research Institute of Zimbabwe, told the Voice of America that the move will help control money supply.

“It also helps to stabilise the value of the currency because, ultimately, the value of the currency would be determined to a greater extent by the value of gold,” he said.

“On paper, it sounds like a good idea to link your currency to an underlying asset such as gold.

“We need to ensure fiscal sustainability through ensuring there is fiscal discipline, fiscal consolidation, restructuring public spending with a view of eliminating waste and non-productive spending,” he said.