Zimbabwe returns to gold standard to replace dollar

ZIMBABWE has launched a new goldbacked currency to replace the dollar, in the latest effort to shore up the perennially crisis-hit economy.

The new currency, which is called Zimbabwe Gold or ZIG, is being issued at a value of around 13.5 to the US dollar, and 17.1 to the pound.

Its central bank has given the Zimbabweans 21 days to convert their dollars into the new currency as newly printed notes and minted coins begin circulation at the end of this month.

Zimbabwe has suffered serious waves of inflation and devaluation and John Mushayavanhu, governor of the Reserve Bank of Zimbabwe, said this was being done “to ensure that our local currency does not die”.

In 2009, hyperinflation led to the production of banknotes with a face value of 100trillion Zimbabwean dollars, as officials raced to keep up. When the country shifted to using US dollars in 2015, banknotes bearing that surreal face value were exchanged for just 40 cents by the central bank.

In its most recent iteration, Zimbabwe’s dollar lost more than 99pc of its value against the US dollar between 2019 and the end of 2023.

The US dollar is expected to remain a popular choice in the country as citizens have learnt to have limited faith in Zimbabwe’s economic institutions.

However, Mr Mushayavanhu has promised the ZIG will be “fully anchored and fully backed” by gold and other precious metals; the theory being that they are tangible assets with inherent value, which limits the extent to which the currency can lose value.

Economists warn, however, that gold is not an asset of fixed value, so there is no guarantee of the currency’s stability.

Paul Donovan, at investment bank UBS, said recent bouts of inflation in other countries would have been just as severe with a gold-backed currency. “Like any other commodity, gold’s relative value goes up and down,” he said. “In September 2022, US dollar milk prices were rising more than 16pc; in gold terms milk prices were rising more than 23pc – dangerously high inflation.

“Gold-backed currencies experience inflation and deflation with volatile economic cycles, as demand for liquidity and the value of gold shift relative to other commodities,” he warned.