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.

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.

A Counterintuitive Convert: Gold Standard Supported By Governor Of Central Bak Of Zimbabwe

Yes, Zimbabwe: the same country whose name is synonymous with hyperinflation in our times. The Zimbabwean central bank ended up destroying the currency outright; the U.S. dollar became the de facto money in the country.

Now, in part because of worries about the greenback, the central bank's Governor, Dr. Gideon Gono, is arguing for a new Zimbabwean currency backed by gold.

“There is a need for us to begin thinking seriously and urgently about introducing a Gold-backed Zimbabwe currency which will not only stable but internationally acceptable,” he said in an interview with state media.

“We need to re-think our gold-mining strategy, our gold-liberalisation and marketing strategies as a country. The world needs to and will most certainly move to a gold standard and Zimbabwe must lead the way.”

Gono said the inflationary effects of United States’ deficit financing of its budget was likely to impact other countries to leading to a resistance of the green back as a base currency.

“The events of the 2008 Global Financial Crisis demand a new approach to self reliance and a stable mineral-backed currency and to me, Gold has proven over the years that it is a stable and most desired precious metal,” Gono said.

“Zimbabwe is sitting on trillions worth of gold-reserves and it is time we start thinking outside the box, for our survival and prosperity.”

Granted that it's easy to scoff at this proposal, as many commenters did over at the Free Republic, but there's a good reason why the gold standard would be a good fit for Zimbabwe. Zimbabweans, including the authorities, have learned the dangers of fiat money the hard way. Offtimes, we don't mend our ways until we've hit a real low.