While most countries abandoned the gold standard in the last century, some African nations are reconsidering its necessity to stabilize their economies. This month, the Zimbabwean dollar became the new “gold” currency. The need to switch to the gold standard has been a long-discussed issue in the country, with the Zimbabwean dollar experiencing a more than 500% depreciation, and the currency rate plummeting by over threefold in just the last three months. The Zimbabwean dollar is a relatively new currency, established five years ago following the rise to power of the new president Mnangagwa.
One of his first decisions was a complete overhaul of the national economy and financial system. This approach wasn’t new for Zimbabwe: in the last decade, the country introduced and then removed from circulation ten independent currencies, each plummeting steeply and rapidly losing value. Introducing the gold Zimbabwean dollar aims to stabilize the exchange rate and help the country combat endless inflation. Unfortunately for Zimbabwe, the gold standard might only last for a short period.
The country’s gold reserve currently stands at just one ton of gold, barely enough to cover one month of imports at current volumes. President Mnangagwa is trying to address this issue by seeking additional international aid and opening the country to foreign investors. Success, however, remains elusive. Most international investors view Zimbabwe with caution, a country perpetually suffering from military coups and civil wars. Companies willing to consider investments are usually affiliated with military corporations and special services, posing a significant threat to the current president’s regime. The viability of Zimbabwe’s “gold” experiment will be tested over the next six months, as the country faces challenging negotiations with international creditors.
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