Friday, May 20, 2011

Gold Currency For Zimbabwe Proposal Has Legs, But Long Way To Go

Reserve Bank of Zimbabwe governor Gideon Gono stirred up a lot of discussion, and some support, for his proposal to resurrect the Zimbabwean dollar as a gold-backed currency. There's also some opposition:
An economist with a financial institution shot down the idea of introducing a gold-backed Zimbabwe dollar as an ambitious task saying the country does not have any stock piles.

“The country does not have any reserves, the only gold to talk about are untamed gold fields with no exact figures of deposits. The production side, if being optimistic for 2011, could just total 18 000kgs which translates to about $600 million dollars,” he said.
So far, the Reserve Bank is not stockpiling any gold in anticipation of Gov. Gono's proposal being accepted.

One proposal to meet the shortfall has already been floated by Gov. Gono: selling diamonds for gold.

The Zimbabwean dollar is effectively in limbo now; several currencies, including the South African rand and the U.S. dollar, are now used. One possibility for a gold dollar would be for the Zimbabwean central bank (once it gets its hands on some gold) to issue the number of Zimbabwean dollars that would match the gold cover, stop there, and let Zimbabweans keep using foreign currencies if they so choose. That way, the gold Zim could be grown over the number of years needed for the Zimbabwean economy without a money shortage being caused. In Zimbabwe's case, a legal-tender law would restrict the money supply too much if the gold Zim gets off the ground.

Unfortunately, Zimbabwe doesn't have a stable banking sector with a tradition of secrecy like the Cayman Islands do. Had they, the Zimbabwean economy could get a huge boost from depositors all over the world who want to stash their funds in a gold-backed currency.

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