Zimbabwe introduces a new gold-backed currency

(Kitco News) – Gold’s role as a monetary metal has dominated the marketplace for the last two years, and now Zimbabwe will be utilizing its gold reserves.

Friday, the Reserve Bank of Zimbabwe announced that on April 8, the government will launch a new currency backed in part by gold. The new currency, the ZiG – short for Zimbabwe Gold – will also be supported by a basket of foreign currencies.

The new currency comes as the current Zimbabwe dollar has sharply declined against the U.S. dollar.  It is currently the second worst-performing currency against the greenback this year.

“We want a solid and stable national currency in this country,” said Central Bank Governor John Mushayavanhu during the press conference. “It does not help to print money. Certainly, under my watch, it is not going to happen.”

Mushayavanhu, who became the central bank governor on March 28 — a month earlier than the initial start date — promised to bring more orthodox monetary policies to the African nation.

President Emmerson Mnangagwa first hinted about a new gold-backed currency in February as his government tries to fix decades of monetary chaos.

This will be the sixth new currency Zimbabwe has introduced since 2008.

Currently, the RBZ holds 2.5 tonnes of gold in its reserves and $100 million in cash. President Mnangagwa said the nation has sufficient gold reserves to back its new currency.

“The total amount of gold and cash reserve holdings of US$285 million represents more than three times cover for the ZiG currency being issued,” the central bank said in supporting documents.

Zimbabwe’s move to a gold-back currency is the latest step the nation has taken to fight its massive inflation problem. In May 2023, the central bank started selling a gold-backed digital token to: “provide investors with a platform to save, invest and transact in gold.”

In July 2022, Zimbabwe started selling gold coins.

Some analysts have noted that a few years ago, the idea of a country backing their currency with gold would have been dismissed. However, sentiment has changed significantly as central banks have bought record amounts of the precious metal for two years.

“I’m always a bit hesitant to jump onboard the gold-backed currency story as it has been mostly talk for a number of years,” said Ole Hansen, Head of Commodity Strategy at Saxo Bank. “However, considering the pace of central bank buying in recent years we can most certainly not rule out it would happen eventually.”

Colin Hamilton, commodities analyst at BMO Capital Markets, said that Zimbabwe’s announcement has broader implications for global trade and could be the start of a much larger trend.

“We expect that many of Zimbabwe’s exports to China might now be paid for in CNY (rather than USD), which can be converted into gold through the Shanghai Gold Exchange. We expect this to become a growing trend in China’s trade with developing countries amid the wider push to grow the international influence of the CNY, which would also bring more gold back into the global monetary system,” he said.

In a recent interview with Kitco News, Robert Minter, Director of Investment Strategy at abrdn, said that it’s not surprising that more nations are turning to gold as the U.S. government continues to weaponize the dollar. He added that this won’t do much to change the U.S. dollar’s role as the world’s reserve currency; however, this will impact markets on the margins.

“It is very difficult to actually unseat the U.S. dollar as the global reserve currency because U.S. citizens spend so much on foreign products, distributing the dollar to exporting countries around the world. No other country distributes its currency in such an overwhelming fashion,” said Minter. “However, the trend of the last ten years has been for many emerging countries to diversify away from U.S. treasuries and dollars and into gold at the margin. Relatively this has little effect on the U.S. treasury market given the size of it, but has resulted in a step up in gold demand and support for gold prices that has been meaningful.”