Zimbabwe is set to implement new strategies aimed at stabilizing its local currency, including linking the exchange rate to hard assets like gold and establishing a currency board, announced Finance Minister Mthuli Ncube on Monday. The Zimbabwean dollar has experienced a significant decline of approximately 40% since the beginning of the year. Factors contributing to this decline include heightened demand for foreign currency due to civil servants receiving December bonuses and a decrease in inflows resulting from weaker commodity prices.
President Emmerson Mnangagwa recently mentioned the government’s intention to introduce a “structured currency,” although details on its implementation were not provided. The central bank governor also indicated ongoing efforts in this regard. Ncube elaborated on the proposed measures, stating, “The idea going forward is to make sure that we manage the growth of liquidity, which has a high correlation to money supply growth and inflation. The way to do that is to link the exchange rate to some hard asset such as gold.” He further emphasized the necessity of establishing a currency board to regulate domestic liquidity growth based on the asset backing the currency.
In a press briefing, Ncube expressed confidence that these measures would provide a long-term solution to currency volatility. He assured that more details would be revealed in due course, underscoring the government’s commitment to addressing economic challenges. Zimbabwe’s history of hyperinflation, particularly under the tenure of longtime leader Robert Mugabe, continues to influence its economic policies. Despite the reintroduction of the local currency in 2019 after a period of dollarization, its rapid depreciation prompted authorities to reinstate the use of foreign currencies in domestic transactions.
With memories of economic turmoil still fresh, Zimbabwe is navigating a delicate balance between restoring confidence in the local currency and mitigating the risks of hyperinflation. With the government’s determination to implement comprehensive measures, stakeholders anticipate progress towards addressing currency volatility and promoting sustainable economic growth.
