Tuesday, May 17, 2011

Zimbabwe-Born Entrepreneur Endorses Zimbabwe Gold Standard

Gilbert Muponda now lives in North America, but he was born in Zimbabwe. He thinks the idea of backing the Zimbabwean dollar is great. Now that the allowance of multiple currencies has stabilized the Zimbabwean economy, he argues, a gold-backed currency will lead to growth. Moreover, it will lower interest rates considerably and get around the blockage to international capital markets that Zimbabwe has had to endure.
Zimbabwe has systematically been excluded from the international credit system, specifically because of the ZIDERA Act passed by the United States in 2001. The Act makes it illegal for any US national or entity do transactions with certain companies or individuals in Zimbabwe. This affects various institutions such as the World Bank, IMF, IFC and ADB where US representatives cannot vote in favour of any credit to Zimbabwe. This creates a huge political risk premium which makes international banks hesitant to grant lines of credit to Zimbabwe and Zimbabwean institutions.

This situation effectively blocks these institutions from doing any meaningful business with Zimbabwe as the country’s political risk is magnified. This lack of access to international credit markets has become very clear throughout the economy with banks failing to grant any medium to long term loans. This is partly causing the mini-financial crisis rocking Zimbabwe’s banks as they fail to access reasonably-priced funding.
A gold-backed currency, Muponda suggests, will attract international loan capital because gold backing would provide assurance that the capital won't depreciate.

Actually, Zimbabwe seems a fitting country for a gold standard. Not only does it have a thriving gold industry, but also its citizens have experienced the ravages of inflation fully. They're ready for gold in a way that people inhabiting other countries aren't as of yet. Moreover, a gold-backed Zimbawean dollar would make for a national currrency that isn't subject to the risk of inflation.

No comments:

Post a Comment