The era of Dollar dominance in Africa could soon be decimated if nations opt to ditch their reliance on the USD and peg their currency to gold just like Zimbabwe.
Zimbabwe recently announced that it will begin issuing gold coins to its citizens as a hedge against inflation this month.
On Monday, the central bank disbursed 2,000 gold coins to commercial banks. The first batch of the coins was minted outside the country but eventually they will be produced locally, according to the governor of the Reserve Bank of Zimbabwe.
This move means that as a global inflationary wave continues to send costs soaring for everything from fuel to groceries, some governments are getting creative in reining in prices.
The gold coins are known as Mosi-oa-Tunya (the original and local name of the famous Zambezi River Falls given the colonial name “Victoria Falls”. Mosi-oa-Tunya coins can be converted into cash and sold locally and internationally.
Central Bank Governor John Mangudya said the gold coins would reduce pressure on the US dollar in the open market, which the authorities blame for the depreciation of the Zimbabwe dollar.
“As you are aware, the US dollar has largely been used for two things; for the importation of goods and store of value,” he said.
“The gold coins will provide an alternative investment option to the US dollar as a store of value.”
The central bank boss said investors that purchase gold coins will be able to preserve value and make good profits when gold prices rise. He said the coins will contain one troy ounce of gold and would be sold through normal banking channels.
For Zimbabwe, a country of less than 15 million people in southern Africa, the gold coins will be a “store of value,” according to a statement by the central bank governor Mangudya.
In essence, Zimbabweans can exchange them in the future without worrying about the coins deteriorating in value as has happened with the local Zimbabwean dollar, which has been devalued by over 40% since the beginning of the year.
They coins will be sold “based on the prevailing international price of gold and the cost of production.”
Zimbabwe, which has experienced hyperinflation since 2007, is in the midst of an economic crisis marked by high inflation, a swift depreciation of the local currency, 90 per cent unemployment, and falling manufacturing production.
The first U.S. dollar was printed in 1914 after the Federal Reserve Bank was created. It has long played an outsized role in global markets. It continues to do so even as the American economy has been producing a shrinking share of global output over the last two decades.
Last month, Kenya experienced a USD shortage as the Kenyan shilling depreciated, exacerbating the economic pain as manufacturers complained of rising production costs due to the persistent dollar shortage.
With years of defying predictions of its demise, the U.S. dollar has been the world’s dominant currency. Nearly 60% of the world’s foreign exchange reserves are in dollars, but that share has been falling gradually, and the evolution of markets and technology have weakened the dollar’s market share in global payments.
With Zimbabwe pioneering the shift from USD to gold coins, many other African countries could eventually follow a similar path, shrinking their reliance on the US currency.
For instance, Sudan, Ethiopia, and Angola, which are currently adjusted to inflation rates of 245 per cent, 35 per cent, and 24 per cent, respectively, could relieve their economies by pegging their currencies to gold and thereby hedging inflation.