Zimbabwe Launches New Gold-Backed Currency: Will it Work? | Vantage with Palki Sharma

Our next story comes from zimbabwe they've introduced a new currency and abolished the old one. The new currency is called zig or zimbabwe gold. Before I tell you about it. Let's go back in time for a primer, the year was 2008. There was a global financial crisis, countries were struggling and so was zimbabwe. It was dealing with. Hyperinflation prices were on the rise, daily goods were becoming very expensive, so the country's reserve bank came up with a plan. A $100 trillion note this one. It was one of the world's largest denominations of currency. Still is $100 trillion. This was to match market prices. Now 100 trillion sounds like a lot of money. It has 14 zeros, but it was worth less than half a dollar around 40, and why am I telling you about this because zimbabwe has always struggled with money? They keep introducing new currencies. This week was their sixth attempt since 2008 sixth attempt. First, they introduced the zimbabwe dollar, then abolished. It then reintroduced it, and now they phased it out again and what will replace it. A new currency called the zig that is short for zimbabwe gold zig now this new currency will be backed by gold.

What does that mean? It means that its value will depend on zimbabwe's gold reserves. The new currency will come in a few denominations between 1 and 200. It will immediately replace the old currency. The people of zimbabwe have 21 days, they must exchange their old notes for the new ones and the old notes are almost worthless. Currently, $1 us is worth around $30,000 zimbabwean dollars, 1 us versus $ 30,000, zimbabwean dollars. The new zig will be valued much higher $1 us will be nearly 14 zig. Now zimbabwe says it's going to be a game changer. It will give the country a stable currency. We are doing what we are doing to ensure that our local curren does not die. As I said, we were already in a situation where almost 85% of transactions are being conducted in us dollar, because our local currency was not giving was not leing up to the function of store value.

But can the zig really do the magic? Not really you see, zimbabwe has long dealt with inflation in march annual inflation was at 50 %. The interest rate was at 130%, the economy is struggling, the zimbabwe dollar is not worth the paper it's printed on, which is why people don't use it. 80% of all transactions are done with the us dollar. Other foreign currencies are also in use in this country like the south african r, the british pound, the indian rupee, the japanese yen and the chinese yuan. All of these are in circulation in zimbabwe, but even with the zig can zimbabwe stabilize the economy. Experts are skeptical, a gold backed currency is not a new idea.

Countries have done it in the past, especially in the 19th century. It was called the gold standard countries fixed their currencies to gold it led to rampant economic growth, but that changed with the world war. Soon, gold standard became history, and that has been the case since, but now zimbabwe wants to replicate that success, though it comes with its own set of challenges. First of all, the volume of gold reserves zimbabwe is backing its currency with gold, but it doesn't have enough in reserves to prevent fluctuation. It doesn't have that kind of gold, so maintaining a stable exchange rate could be a problem. The second problem is volatility. During the gold standard, the value of gold was kept stable. You would not see major price fluctuations. Countries worked to ensure that that the gold prices remain stable, but this time zimbabwe is doing it alone, and gold does not have a stable value which exposes this currency to volatil. So does that mean that the zig will not work? Well, it's too early to say this is a first for any country in the 2st century. It's almost like an experiment. Now, currently, no other country has a currency backed by gold. Some others have tried different things like el salvador. They adopted bitcoin as an official currency. It did not change anything. 80% of el salvadorians still do not use it. The same could play out in zimbabwe. They can introduce currencies all they want to, but that will not ensure stability for that zimbabwe needs to bring its spending in line address things like fiscal deficit and sanctions. Unless that happens, this won't lead to meaningful

change

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