Government's desperate measures to revive the severed Zimbabwean dollar as election nears

Government’s desperate measures to revive the severed Zimbabwean dollar as election nears

Time Stamp: July 5, 2023 12:00 AM
  • As the presidential election scheduled to take place on August 23, 2023 nears, President Emerson Mnangagwa’s government has come up with plans to revive the value of the Zimbabwean dollar
  • Mr Mutsvangwa revealed that the government intends to anchor the local currency to gold production.
  • Zimbabwe produced 35.38 tonnes of gold in 2022 and seeks to expand to 60 tonnes this year. In 2021, Zimbabwe exported over US$3.51 billion in gold.
  • The average earning of the working population stood at 58 dollars per-month-per-person as of 2020

As the presidential election scheduled to take place on August 23, 2023 nears, President Emerson Mnangagwa’s government has come up with plans to revive the value of the Zimbabwean dollar. The local currency experienced the highest rate of inflation (over 1,000,000 per cent) under former President Mugabe and is yet to recover since then.

Precisely, the value had gone down to a point that the citizens have abandoned it for the US dollar. This has sent the government on a wild goose chase to try and revive the local currency. They have issued threats to business people to sell in Zimdollar but they have declined. They have published a false rate of inflation to hide the actual one, all in the name of inspiring faith in their currency.

Opposition leader, Nelson Chamisa, has been using the poor economic measures put up by the government to drum up support for his presidential bid. Chamisa states that the government intends to keep the economy ticking over until the election date. The worrying statistics is that the average earning of the working population stood at 58 dollars per-month-per-person as of 2020, according to economist Tom Hawkins. in the country.

However, President Mnangagwa believes that this time, he has the blueprint to strengthen the local currency.

‘Secret’ to revive the Zimdollar

Chris Mutsvangwa, Zanu PF (ruling party since independence) spokesperson says that the government has a sure way to revive the Zimdollar; adopting gold as their reserve currency.

Gold contributes the largest percentage of Zimbabwe’s foreign currency earnings. It is behind the increasing stabilization of the Zimdollar. In an interview with a national television in the country, Mr. Mutsvangwa revealed that the government intends to anchor the local currency to gold production.

“The more we dig gold, the more our currency stabilizes…We will be immune to dictates from any foreign government, including the American government,” he said.

The sentiments from the Zanu PF spokesperson come amid the drum African leaders are beating against the United States dollar.

“Traders from Djibouti selling to Kenya, or vice versa, have to look for the US dollars. How is the US dollar part of trade between Kenya and Djibouti, and why?” President Ruto’s thoughts provoked African leaders.

Read: Using crypto as a hedge against inflation might take some time

Zimbabwe’s gold revenue

Zimbabwe produced 35.38 tonnes of gold in 2022 and seeks to expand to 60 tonnes this year. In 2021, Zimbabwe exported over US$3.51 billion in gold.

To increase gold production, the government has passed a law to recognize young people as legitimate gold producers, contrary to the past when it was illegal. Zimbabwe has over 2 million young people earning a living from gold mining

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Zimbabwe is also riding on its rich soil even as they seek to exploit the promise that Lithium exportation provides. The world is moving towards the production of electric locomotives, and Lithium is a major component of electric batteries.

President Mnangagwa’s major enemy to the cause; gold smuggling in Zimbabwe

Before 2022, The Central Bank of Zimbabwe is the only exporter of gold, as per the country’s law. However, gold smuggling in Zimbabwe is a pandemic. In 2021, the government reported that gold worth US$1.2 billion is illegally exported from Zimbabwe every year.

As aired by Al Jazeera, there is a cartel of gold smugglers in Africa that are more powerful than even Presidents in the continent. One of the gold smugglers in the documentary is Eubert Angel, a self-proclaimed prophet and Zimbabwe’s ambassador to Europe and the Americas.

Gold in Zimbabwe has been a perfect tool for money laundering and the current administration has not shown enough goodwill to combat the challenge. Making gold the reserve currency anchor would also place the economy in the hands of these global launderers.

Other options to revive the Zimdollar

Dollarization

Currently, business people and politicians operate using the US dollar. Locals also prefer to store their value in US dollars. The fear of rising inflation continuously crashes any hope of reviving the Zimdollar.  As a result, dollarization features as a possible solution to rising inflation. However, dollarization would require a high political price to the international community, which for a long time, Zimbabwe has been unwilling to pay. Additionally, the Central Bank reports that they do not have enough US dollars to support the process.

In 2015- 2016, the government had gone full-blown on dollarization but later retracted. If this is an option in 2023, the government would have to renegotiate.

Adoption of a dual system

Zimbabwe’s economy is run by an 85-90 percent US dollar to 10-15 per cent Zimdollar. However, this dual system is a slim path as the government itself does not trust its currency. The Central Bank has recently suggested the adoption of gold tokens to support the Zimdollar. Consequently, the dual system would end up leaning on one side, dollarization.

Read: Zimbabwe announces ambitious Gold backed digital currency

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