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Zimbabwe planning a return to the gold standard?

Yes, you did read the headline correctly, Zimbabwe. New Zimbabwe is reporting that the central bank of Zimbabwe is toying with the idea of retuning to the gold standard. On top of this the central bank also added that the status of the US dollar as the world reserve is now over.

A quick recent history lessen. It was Zimbabwe that not 3 years ago produced the highest denominated bank the world has ever seen – the pictured below 100 trillion Zimbabwe dollar. Of course that bill could barely buy a couple of packs of gum at the height of their hyperinflation. Since then the Zimbabwe dollar has been resigned to the annals of hyperinflation history and instead the country now uses other foreign currencies like the the euro and the US dollar.

(click for sharper image of the biggest denominated the world has ever seen)

Zimbabwe’s finance minster Tendai Biti is hoping to reintroduce the Zimbabwe dollar in about 6 months time. However the head of the countries central bank, Gideon Gono, the very same guy who printed the nations currency literally into oblivion, is now saying that when the country does reintroduce its own currency it has to be gold backed:

“There is a need for us to begin thinking seriously and urgently about introducing a Gold-backed Zimbabwe currency which will not only stable but internationally acceptable,”

“We need to re-think our gold-mining strategy, our gold-liberalisation and marketing strategies as a country. The world needs to and will most certainly move to a gold standard and Zimbabwe must lead the way.”

He then went on to add that all the deficit financing and money printing in the states will lead to other countries refusing to use the US dollar:

“The events of the 2008 Global Financial Crisis demand a new approach to self reliance and a stable mineral-backed currency and to me, Gold has proven over the years that it is a stable and most desired precious metal,”

It will certainly be very interested to watch this progress over the next few months and see just how serious Zimbabwe will be in introducing a gold backed currency. It will be the only country in the world with a currency back by more than just hope and air.

It’s also a good reminder just what happens after a country losses all faith in the currency it produces. To regain that faith it is very hard to do unless the paper being issued is redeemable in something. Afterall, how many people in Zimbabwe would rush out and use a new Zimbabwean dollar if its just run off a printing press with nothing behind it just the same as before? Wouldn’t it be natural to mistrust such a currency unless you could convert it to something tangible and real if you choose?

This is why the proposal from Gono is not only sensible, it also probably the only means available to reintroduce a currency that people will once again use. Now that’s a sentence we thought we’d never write about the man who is the biggest hyperinflator in the world.

 

Link to this article: : http://www.goldmadesimplenews.com/gold/zimbabwe-planning-a-return-to-the-gold-standard-3793/

Posted by on May 16 2011. Filed under Gold News. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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