Now Zimbabwe talks of a gold standard while warning of U.S. dollar devaluation
Zimbabwe's Central Bank governor has gone on record as warning about the fall in value of the U.S. dollar while suggesting that his country should move towards a gold backing for its own currency.
Posted: Monday , 16 May 2011
The southern African state of Zimbabwe, where President Robert Mugabe's dogmatic pursuit of white controlled farms, and now the mining industry, coupled perhaps with a serious degree of ineptitude and corruption, brought the country's economy to its knees, is now doubting the future value of the U.S. dollar - a currency which it has relied upon to end its disastrous hyperinflationary episode.
According to New Zimbabwe.com - a U.K.-based Zimbabwe news portal - the Reserve Bank of Zimbabwe's Governor, Gideon Gono, is reported as saying:
"There is a need for us to begin thinking seriously and urgently about introducing a gold-backed Zimbabwe currency that will not only be stable but internationally acceptable," Gono said in an interview with state media. "We need to rethink our gold-mining strategy, our gold-liberalisation and marketing strategies as a country. The world needs to and will most certainly move to a gold standard and Zimbabwe must lead the way."
Gono reportedly said the inflationary effects of United States' deficit financing of its budget were likely to impact other countries, leading to resistance of the greenback as a base currency.
"The events of the 2008 global financial crisis demand a new approach to self-reliance and a stable mineral-backed currency, and to me gold has proven over the years that it is a stable and most desired precious metal," Gono said. "Zimbabwe is sitting on trillions worth of gold reserves and it is time we start thinking outside the box, for our survival and prosperity."
When a country like Zimbabwe, which has experienced one of the worst hyperinflationary episodes ever with multi-billion Zimbabwe dollar notes being virtually worthless (the country even printed a 100 trillion dollar note at its inflationary peak), starts casting doubts on U.S. dollar inflation, perhaps we should start to worry a little, although one has to say Gono's financial credentials are shaky, to say the least. He presided over an inflationary period when at one time Zimbabwean inflation was said to be running at over a billion percent a month!
But he may have a point. Zimbabwe does have excellent gold reserves, although the country has seen its annual production decimated due to its financial policies and, at one time, withholding payment to its gold mines which have to sell to the Central Bank. As a consequence Zimbabwe's gold production dropped over a period of years to a low of 4 tonnes in 2008. At peak the country's gold output neared 30 tonnes. Since 2008, a relaxation on gold sales allowing mines to sell at global market prices has led to a revival, but still remains at less than half peak production levels.
Gono and Mugabe's money printing policy in Zimbabwe is the prime cause of the country's descent into the world's second worst ever hyperinflationary episode, so he has a strong personal knowledge of what can happen to a currency if the Central Bank keeps on churning out more and more paper money. Maybe he recognises in Ben Bernanke a man after his own heart!