Zimbabwe to link exchange rate to hard assets, create currency board

Zimbabwe is working on new measures to stabilise its local currency including linking the exchange rate to hard assets such as gold and creating a currency board, Finance Minister Mthuli Ncube said on Monday.

The Zimbabwean dollar has fallen about 40% since the start of the year, hurt by increased foreign-currency demand from civil servants being paid December bonuses and weaker commodity prices denting inflows.

Last week President Emmerson Mnangagwa said authorities were looking to introduce a "structured currency", without explaining how that would work, and the central bank governor that work was ongoing.

"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," said Ncube.

"To do that you have 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 said in a press briefing.

More announcements will come in due course, he said, adding that he believed the new measures would offer "a lasting solution to the currency volatility".

The Southern African country is still scarred by memories of hyperinflation under longtime leader Robert Mugabe.

The government relaunched a local currency in 2019 after a decade of dollarisation, but it rapidly lost value and authorities reauthorised the use of foreign currencies in domestic transactions soon after.

This article originally appeared on Reuters

Image: Reuters