HARARE – One of Zimbabwe’s leading investment firms, Tetrad, has warned against calls by Reserve Bank of Zimbabwe governor Gideon Gono for the reintroduction of a Zimbabwe dollar pegged on gold, saying such a move was fraught with problems especially because of limited supply of the yellow metal.

"Adoption of the gold standard will likely result in cash shortages," Tetrad said, speaking after calls by Gono in recent weeks for the government to adopt the gold standard to value a new Zimbabwe dollar.

"History has shown that when cash is in short supply, it does not circulate freely in the economy. This would further stifle economic growth as very few people use plastic money," the investment company said in its weekly economic bulletin released at the weekend.

The gold standard is when a country pegs its domestic currency in terms of a specific amount of gold held.

Tetrad said Zimbabwe is expecting to produce 13,500 kg of gold in 2011, which translates to approximately 434,035 troy ounces.

"If this is converted at the current market price of the bullion of approximately US1,500 the money to be printed would amount to approximately US$651 million.

"This is insufficient for our economy. Deposits in the banking sector estimated are still not enough for the needs of the whole economy."

Tetrad also warned that "the introduction of the Zimbabwean dollar is likely to be met with resistance. For starters, the government is yet to reimburse individuals Zimdollar balances that were in their bank accounts when the economy dollarised."

According to the Chamber of Mines, yellow metal production would hit between 12 and 15 tonnes this year from 9.6 tonnes last year as the mining industry slowly recovers from a decade of decline.

Currently, no country in the world is using gold to value its currency after it was abandoned by USA government in 1971.

Zimbabwe abandoned its inflation-ravaged dollar in January 2009 to adopt a basket of foreign currencies – mainly the South African rand and the United States dollar – to try to pluck the once prosperous country out of a crisis brought about by a decade-long economic recession.

The use of more stable foreign currencies has helped stabilise prices after a decade of hyperinflation.

The unity government of President Robert Mugabe and Prime Minister Morgan Tsvangirai has said it wants the local dollar to be reintroduced only when industrial output reaches about 60 percent of capacity from the current levels of between 30 and 40 percent

By Zimonline

Comments(1):

1. WILL WE BE PAID OUR ZIMDOLLER

   Is there any chance that Mr Biti and Mr Gono will pay us for our Zimdoller that was seized by them when we changed from Zimdoller to Multi currency. Please advise.

   Tuesday, May 31, 2011 Feisal