Will Gold Save the Zimbabwean Dollar?

In a recent Online press conference Zimbabwe's finance minister, Mthuli Ncube, announced that Zimbabwe is considering backing its currency with gold in order to end exchange rate instability. The move is part of a series of efforts to revive the Zimbabwean dollar, the world's worst-performing currency.

Link to Hard Asset

A notable consideration is the possible pegging of the Zimbabwe dollar exchange rate to a hard asset, such as gold. This idea, proposed during the announcement, marks a search for more stable values for the national currency in response to ongoing economic challenges.

Since the reintroduction of the Zimbabwean dollar in 2019, after a decade of absence due to hyperinflation, authorities have made multiple attempts to stabilize the currency. Despite the introduction of Gold Coins and gold-backed digital tokens called ZiG, the currency continued to fall. The International Monetary Fund has in the past been critical of the unconventional methods used by the officials.

Policy outlook and monetary reforms

President Mnangagwa's recent remarks provided a look ahead to policy and the consideration of a currency council as a possible solution to exchange rate volatility. A currency board, if implemented correctly, can be an effective means of managing the fluctuating exchange rate, according to Lloyd Mlotshwa, head of research at IH Securities in Harare.

The Battle of the Zimbabwean Dollar

The Zimbabwean dollar has lost nearly 50% of its value against the U.S. dollar this year, after falling 90% in the previous year. This makes it the worst-performing currency in the world during that period. On Monday, the coin was trading at Z$11,617 per U.S. dollar, according to central bank data.

Zimbabwe's economic future and the stability of its currency depend on the implementation of well-thought-out and effective policies. The proposed peg to gold, the introduction of a structured currency, and the consideration of a currency board are steps that could contribute to a more sustainable economic environment. As the world watches, the question remains whether these strategies will bring the long-awaited stability that the country so desperately needs.