On Monday, the government of Zimbabwe announced that it will be implementing a currency backed by gold to take the place of their currently devalued dollar. This decision comes as many businesses in the country have opted to use the U.S. dollar or South African rand instead.
During an online press conference, Minister for Finance and Economic Development Mthuli Ncube announced that Zimbabwe is taking action to promote continued growth.
Ncube stated that the main goal is to achieve stability in currency. The most prominent currency that has emerged over time is the U.S. dollar.
In the future, our goal is to sustain and potentially increase the strong growth we have already achieved,” he stated. “This can only be accomplished with continued stability in our domestic currency. One potential solution is to tie the exchange rate to a tangible asset, like gold.”
He did not specify a timeline for when Zimbabwe will implement a currency backed by gold.
After gaining independence in 1980, Zimbabwe has implemented multiple new forms of currency due to the rejection of previous forms by its citizens and businesses.
The current currency, referred to as the dollar, bondnotes, or ZWL, was implemented in 2014. However, it quickly began to decrease in value due to the government printing an excess amount of notes and businesses lacking trust in the currency, according to economists.
The current exchange rate is 20,000 units per 1 U.S. dollar.
According to Prosper Chitambara, a senior economist at the Labor and Economic Development Research Institute of Zimbabwe, this decision will assist in regulating the amount of money in circulation.
He mentioned that this practice aids in maintaining the stability of the currency as its value is largely influenced by that of gold. While it may seem like a beneficial concept to tie a currency to a tangible asset like gold, there are potential drawbacks.
In the end, Chitambara emphasized that Zimbabwe must practice fiscal responsibility in order to maintain a stable domestic currency.
He stated that it is imperative to maintain fiscal sustainability by enforcing fiscal responsibility, consolidating fiscal policies, and reorganizing government expenditures to eliminate unnecessary and unproductive spending.
According to him, it is crucial to maintain fiscal responsibility by monitoring the amount of resources available and implementing structural changes to reduce wastage and ineffectiveness in government-run businesses.
According to him, Zimbabwe has been incurring financial losses by providing subsidies to state-owned companies that are not profitable.
According to Steven Dhlamini, a professor of economics at National University of Science and Technology, the effectiveness of the change will also depend on the public’s trust in the gold-backed currency. This includes their belief in the government’s transparency and accountability regarding the production of gold and printing of currency.
He stated that once trust is established, it is crucial for ensuring the stability and acceptance of the currency.
Source: voanews.com
