A week ago we presented the idea floated by once hyperinflationary Zimbabwe, oddly jeered by most, that the country is seeking to move to a gold-backed currency, adding, somewhat surrealistically, that the "days of the US dollar as the world's reserve currency are numbered." And if anyone should know a hyperinflationary basket case, it's Zimbabwe. Well, today this bizarre story just went fuller retard, after the country announced that it may exchange diamonds for gold "so that it can have a gold-backed currency, according to a recent proposal from the governor of Zimbabwe’s central bank." Indeed we speculated previously why: "Zimbabwe, a country rich in natural resources, took so long to figure out that it was nothing but a puppet in the hands of western monetary interests." Well, others are now getting this idea - Commodity Online reports that "The country is a resource hub: It sits on gold reserves worth trillions. It has the world’s second largest reserves of platinum, has got alluvial diamonds that can fetch the nation $2 billion annually and even boasts of chrome and coal deposits." And since Zimbabwe is now fully on board this whole "pioneering" thing perhaps it should just go ahead and create the first diamond-platinum backed currency. Just don't give China and Russia ideas about floating a new reserve currency that actually has real commodity backing. What's that, you say? They are launching one soon? Oh well.
From Commodity Online:
The Zimbabwean dollar is no longer in active use after it was officially suspended by the government due to hyperinflation. The United States dollar, South African rand, Botswanan pula, Pound sterling, and Euro are now used instead. The US dollar has been adopted as the official currency for all government transactions with the new power-sharing regime, says Wikipedia.
But the central bank of Zimbabwe—Reserve Bank of Zimbabwe (RBZ)—believes that the US dollar is no longer stable.
According to Dr Gideon Gono, RBZ Chief, the inflationary effects of United States’ deficit financing of its budget may impact foreign countries and would lead to a resistance of the green back as a base currency; cited newzimbabwe.com.
Writing in a blog in New Zimbabwe, Gilbert Muponda, an entrepreneur based out of Zimbabwe has welcomed the proposal of a gold-backed Zimbabwean currency. He has applauded the proposal of the central bank governor to sell diamonds for gold.
On the other hand, for the country to move to some semblance of a gold standard, it may wish to consider shifting form a despotic dictatorship controlled by Robert Mugabe to something a little less "centrally planned."
The government’s protectionist measures have kept the mining companies at bay. The government wants the foreign miners to sell controlling stake in ventures to local blacks, which is obviously frowned up on by all. The companies, given the uncertain situation, have refrained from investing further in expansion activities in Zimbabwe.
The country cannot access foreign credit as the ZIDERA Act passed by the United States in 2001 blocks US entities from trading with certain Zimbabwean institutions and individuals This has forced the US representatives in lending agencies like World Bank, IMF, IFC, and ADB to take a favorable stance when it comes to Zimbabwean credit requests.
That said, where there's a will there's a way. And since this story refuses to go away, it probably means that Zimbabwe will definitely give it the old college try. Once again, the question is not what happens in Zimbabwe, but elsewhere, should the experiment prove to be even remotely successful.