Zimbabwe launches ‘gold-backed’ currency

According to a report on the Financial Times website on April 4, Zimbabwe will issue a new currency on the 5th, which is said to be backed by the country’s gold reserves. The latest move comes amid years of currency chaos.

After visiting the central bank’s vaults, Mnangagwa said the southern African country had enough gold to back the new “structural currency”, although analysts questioned the adequacy of the assets.

The reform comes after the Zimbabwean dollar’s depreciation accelerated this year.

Data from the tracking agency Zimbabwe Price Tracking Network shows that this week, the black market exchange rate of the Zimbabwean dollar against the U.S. dollar was about 1 US dollar to 36,000 Zimbabwean dollars, while the official exchange rate was 1 US dollar to 26,000 Zimbabwean dollars.

David Mnangagwa, the president’s son and appointed as Zimbabwe’s deputy finance minister last year, said “anxiety and expectations” about the new exchange rate mechanism have exacerbated the currency plunge.

But analysts and economists say this reflects deeper problems, such as Mnangagwa’s government printing money to pay for spending. There is a widespread lack of trust in the currency among ordinary Zimbabweans, whose purchasing power and savings have been wiped out during years of turmoil.

Many Zimbabweans like to keep their money at home, a practice that’s affectionately nicknamed: “mattress banking.”

Masimba Manyanya, former chief economist at the Ministry of Finance, said: “In the past 10 years, we have had five currencies. This reflects the chaos within the government.”

There are also doubts about whether the country has enough reserves to support a currency tied to the value of the country’s gold.

John Mushayavanhu, who was appointed governor of the Reserve Bank of Zimbabwe last month, said the bank has just over 1 ton of gold in its own vaults and 1.5 tons overseas. The Ministry of Finance of Zimbabwe stated that the Zimbabwean government still has US$300 million in banks.