Zimbabwe is actively seeking new steps to stabilize its native currency, including plans to tether the exchange rate to tangible assets such as gold and form a currency board. Finance Minister Mthuli Ncube disclosed the proposed action during an online news briefing on Monday.
The Zimbabwean dollar has fallen by roughly 40% since the beginning of the year, owing to increased demand for foreign currency, especially from state personnel getting December bonuses, and a drop in inflows due to lower commodities prices. President Emmerson Mnangagwa recently announced plans to adopt a “structured currency,” but no specifics about its implementation were disclosed. The central bank governor confirmed continuous efforts to investigate and enhance this.
According to the Minister, the next step needed is to ensure that the growth of liquidity is managed, which is highly correlated with money supply growth and inflation. He reiterated that there is need to have some sort of currency board type system in place where the growth of the domestic liquidity is constrained by the value of the asset that is backing the currency. He further remarked that more announcements will follow stating that he has a strong belief that the additional measures will provide a long-term solution to currency volatility.
Zimbabwe is still suffering from the effects of hyperinflation under Robert Mugabe’s long-term reign. Zimbabwe abandoned its inflation-ravaged currency in 2009 and switched to foreign currencies, primarily the US dollar. The government reinstated the native currency in 2019, but it immediately devalued again. Since then, Zimbabwe has made many measures to save the Zimbabwean dollar, including the introduction of gold coins and bullion-backed digital tokens known as ZiG.
However, both attempts were eventually unsuccessful in slowing the currency’s slide. Last year, the country said it will continue its multi-currency system, with the United States dollar as its anchor, until 2030.
