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A new gold standard

The finance ministry wants to use the country's gold to shore up its local dollars

Treasury officials say they are working on measures to stabilise the Zimbabwe dollar, including by linking its exchange rate to hard assets such as gold and creating a currency board. The question is whether such measures, promised by Finance Minister Mthuli Ncube on 12 February, will halt the slide of the world's worst-performing currency.

Ncube says the moves will be designed to introduce a 'structured currency', but they are not entirely new. President Emmerson Mnangagwa's government has previously experimented with backing its currency with gold, introducing gold coins and bullion-backed digital tokens known as ZiG, but both failed to convince the markets that they were long term measures (AC Vol 63 No 20, ZANU-PF beats its economic chest). 

Mnangagwa's slogan in the 2018 elections – his first after ousting Robert Mugabe – was that Zimbabwe was open for business and that he would end the country's US dollar shortage. That has not happened, and the Zimbabwe dollar has continued to slide, despite repeated attempts to prop it up, since its reintroduction in 2019 after scrapping it a decade earlier, when hyperinflation erased its value.

The introduction of gold coins in 2022 was supposed to absorb 'excess liquidity' in the foreign exchange market and did temporarily bolster the Zim dollar (AC Vol 64 No 16, How to spin an economic catastrophe).

Now, about three-quarters of transactions are in US dollars, compared with a third in 2020.

Using gold is an old-fashioned way, beloved of some fiscal conservatives, to support a currency and previous attempts to do this have faced a sceptical reaction from the International Monetary Fund and independent economists, who warn that this could merely undermine national gold reserves.

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