Thursday, August 20, 2009
The country is looking for an alternative to its hyperinflation-ravaged Zimbabwean dollar that was replaced by multiple currencies in January
HARARE -- Zimbabwe's central bank governor Gideon Gono on Thursday 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 231m % 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.
"Whilst Zimbabwe has managed to stabilise the hyperinflationary pressures that characterised 2008, the country has relapsed into a serious demand deficiency loop that is threatening to choke the productive sectors across the board," Gono said.
"As a country we had pinned our hopes on vibrant financial liquidity being injected by outsiders. This has not yet happened. Industrialists too are on the brink of relapsing into the downward spiral due to the severe demand deficiency now dangerously characterising the country's goods and services markets."
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.
"Government will establish an independent committee to ascertain and certify the quantity of gold or diamonds produced to back the issuance of local currency," Gono said.
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.
Tsvangirai, who has also ruled out the immediate return of the local unit, is at odds with Mugabe, who has backed Gono on the matter. (Editing by Andy Bruce)For further reading:
"Zimbabwe central bank says raided private bank accounts", Reuters, April 20, 2009
"Zimbabwe Prime Minister to talk with South Africa on use on rand", Reuters, February 19, 2009
"R.I.P. Zimbabwe Dollar", Steve H. Hanke, February 9, 2009
"Zimbabwe knocks 12 zeroes off inflation-hit dollar", Reuters, February 2, 2009
"It Can’t Be Any Worse", Newsweek, January 24, 2009
"Free Banking for Zimbabwe", Steve H. Hanke, November 20, 2007
"Hyperinflation Around the Globe", Mike Hewitt, October 14, 2007