Zimbabwe proposes introduction of gold-backed Zim dollar

27.08.2009

Zimbabwe’s central bank governor Gideon Gono proposed the introduction of a gold-backed local currency, which was destroyed by hyperinflation and replaced by multiple foreign currencies in January.

A unity government formed by rivals President Robert Mugabe and Prime Minister Morgan Tsvangirai in a bid to end a political crisis introduced multiple foreign currencies to stop sky-rocketing inflation and revive the economy.

But Gono, a Mugabe ally whose reappointment last year has been opposed by Tsvangirai, says the shortage of foreign currencies in the country was hurting economic recovery efforts.

In an article he wrote in the state-controlled Herald newspaper, Gono urged the re-introduction of the Zimbabwe dollar to ease the liquidity crunch, but said this was not a call for “a blind return to the money printing press”.

“Rather, what I am calling for is the guarded reintroduction of the Zimbabwe dollar where such a new currency will be fully backed by credible, tangible and locally available assets, such as gold, diamonds or platinum, among several other possibilities,” Gono said.

Zimbabwe’s inflation has tumbled from an official annual rate of 231 million% in July 2008 — which independent analysts say was understated — to a monthly rate of 1% in July 2009 following the decision to abandon the local currency.

But the unity government, which says it needs at least $8,3 billion for reconstruction, has so far failed to attract anticipated foreign financial aid, with Western donors demanding broad economic and political reforms.

Although Gono also floated the idea of issuing domestic currency under a currency board, he expressed reluctance at the loss of monetary authority that this system would entail.

He, however, proposed an independent body to evaluate mineral reserves and recommend the amount of local currency to be issued.

Although Finance Minister Tendai Biti was not immediately available to comment, he has previously said the Zimbabwe dollar would not be re-introduced any time soon.

http://www.businessday.co.za/articles/Content.aspx?id=79126