Zimbabwe is considering backing its currency with gold to end exchange rate instability, Finance Minister, Mthuli Ncube, has said.
“In order to manage growth of liquidity, we may link the exchange rate to a hard asset such as gold,” the minister said in an online press briefing held to announce a conference of African ministers that Zimbabwe will host at the end of this month [February 2024].
According to Bloomberg, Zimbabwean President, Emmerson Mnangagwa, has indicated that authorities are contemplating an overhaul of the world’s worst-performing currency. He mentioned that the Treasury and monetary officials are collaborating on developing a ‘structured currency.’
Since its re-introduction in 2019, after being abandoned a decade earlier due to hyperinflation, the Zimbabwean authorities have made several attempts to stabilize the Zimbabwe dollar. These efforts have included initiatives such as introducing gold coins and digital tokens backed by bullion, known as ZiG, which was introduced as a means of exchange in October 2023.
However, those measures have been ineffective in halting the currency’s decline. The International Monetary Fund (IMF) has previously expressed criticism of the unconventional methods employed by officials to address the depreciation of the local currency.
According to the IMF, Zimbabwe should instead work towards maintaining a tight monetary policy stance and implementing a swift liberalization of Zimbabwe’s foreign currency market. This would involve removing restrictions on the exchange rate at which banking institutions, regulated dealers, and businesses can transact.
In addition to the move to back the currency with gold, the southern African nation is exploring the possibility of establishing a currency board as part of its deliberations.
“This will provide a lasting solution to the volatility [of the exchange rate],” Ncube said.
The Zimbabwean dollar has experienced a significant depreciation, declining nearly 50% against the U.S. dollar since the beginning of the year [2024]. This follows a staggering 90% drop in value in 2023, solidifying its position as the worst-performing currency globally over this period.
As of February 14 2024, it was trading at Z$12,093 per US dollar, according to data published on the central bank’s website.
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