Zimbabwe allows currency free-fall while it weighs gold standard
Zimbabwe, the poster child of hyperinflation, is allowing a free fall in its currency that it’s no longer keen to defend and is instead working on a new exchange rate potentially backed by gold.
The country’s local dollar has weakened against the US dollar every day in 2024, sending the price of a single loaf of bread from Z$6,105 to Z$19,357 in a mere 11 weeks. Such a loss of purchasing power has historically pushed the central bank to intervene and arrest the slide, but this time, there has been no action.
“They’ve left the exchange rate to go,” said Tony Hawkins, a former professor at the University of Zimbabwe. “It means they are thinking of a new currency.”
This is Zimbabwe’s sixth attempt to have a functional local currency since 2008 when inflation crossing 231 million percent left it worthless. Despite previous failures due to lack of public confidence — the oxygen of any fiat currency — President Emmerson Mnangagwa announced this February his government will introduce a “structured currency.” Then, Finance Minister Mthuli Ncube said it may be backed by gold and the central bank postponed its monetary-policy statement to give final touches to the plan. When Zimbabwe makes the switch, it will be the only country in the world with the gold standard.
“There are currently no nations that back their currencies with gold or any other precious metal,” said Peter C Earle, a senior economist with the American
Institute for Economic Research. “There have been political overtures in the past to create some form of commodity standard, but the siren call of money printing always gets the upper hand.”
Zimbabwe’s tendency to keep printing money means citizens show little faith in any legal tender brought forward by the government. The US dollar accounts for 80 per cent of all economic transactions in the country, according to the national statistics agency. Even when people want to use it, the Zimbabwe dollar can hardly buy anything. The highest denomination, the Z$100 note, must be carried in large wads to carry out the smallest of transactions. The currency has lost 68 per cent against the US dollar this year, to Z$18,992. It trades much weaker on the widely used parallel market at Z$22,000, according to the Zimpricecheck.com website. Despite the losses, the central bank hasn’t conducted any dollar auction. Once, the government ordered a temporary shutdown of the country’s largest mobile-money platform. On other occasions, they imposed a ban on bank lending and even halted payments to government contractors they suspected of colluding in the selloff.
Zimbabwe suspended publishing inflation figures after July 2008, when the measure reached an annual 231,162,000 per cent, according to Bloomberg. The government now publishes a new inflation series, under which consumer-price growth currently stands at 47.6 per cent.