China View reports that Zimbabwe chooses rand as reference currency.
(emphasis mine) [my comment]
Zimbabwe chooses rand as reference currency
www.chinaview.cn 2009-03-20 20:37:26
HARARE, March 20 (Xinhua) -- The Zimbabwean government has chosen the rand as the country's reference currency but will not randify the economy, local media said.
Speaking at the launch of the Short-Term Economic Recovery Program (STERP) on Thursday, Finance Minister Tendai Biti said the government had chosen the rand because South Africa was Zimbabwe's biggest trading partner and the most competitive country for assessing prices and wages.
"Given the United States dollar price structure we are starting with, and the impossibility of restoring competitiveness through currency devaluation when we are using foreign currencies, it is important that we link ourselves to a currency that is more proximate to us," [Zimbabwe is ditching their dollar peg because they are worried the dollar is too stable and will make them uncompetitive!] said the minister.
The choice of the currency was determined by economic factors as well as the future intention of SADC to adopt a common currency [Interesting], which inevitably will have to be based on the rand given the dominance of the South African economy in the region. [South Africa is, by far, the world's largest gold producer (over 50%). So the South African rand can be considered a partially gold backed currency.]
Opting for the rand as the reference currency should in no way reduce Government's commitment to multiple currency use, the minister said.
"It is, however, the first step in anticipating an epoch when we can resume use of the Zimbabwe dollar," he said. It was, nonetheless, necessary to first restore the multi-currency economy to a reasonable and sustainable level of activity.
"STERP, responding to the hyper-inflationary environment, will permit use of multiple currencies for all business transactions, including stock exchange trading, sale of agricultural commodities and payment of salaries.
"All taxes will, therefore, be paid in foreign currency," the minister said.
The government adopted a multiple currency trading system last month where the rand, the U.S. dollar and Botswana pula operate as legal tender alongside the Zimbabwean dollar. [This is how a county gets out of hyperinflation, adopting the use of foreign currencies]
The US dollar and the rand have, however, been the two major currencies in use in the country. The move was part of efforts to achieve economic liberalisation to pull the economy out of the present challenges.
South African President Kgalema Motlanthe gave Zimbabwe the green light to adopt the rand as standard currency to address the prevailing economic challenges and to assist the inclusive government.
Economic analysts applauded the formal adoption of the rand as legal tender in the country but said this needed to be approached with caution.
My reaction: It looks like Zimbabweans will be spared the trauma of having two currencies named the dollar collapse on them.
1) The Zimbabwean government has chosen the rand as the country's reference currency
2) It is the future intention of SADC to adopt a common currency (based on the rand because of its South Africa's dominance in the region).
A month ago, I pointed out that Zimbabwe had turned to the US dollar to escape its hyperinflation:
My reaction: The poor people of Zimbabwe! They must be under the illusion that they have finally escaped hyperinflation. Unfortunately, with the US dollar's collapse imminent, hyperinflation looks set for another comeback... Anyway, here are the key points to the story:
1) Trading resumed Thursday at the Zimbabwe Stock Exchange (ZSE) after a three-month suspension with transactions carried out only in US dollars.
2) Zimbabwe honored its pledge to civil servants by paying them in US dollars to "counter the impact of the inflation".
3) Zimbabweans can now legally use foreign currencies alongside the Zimbabwe dollar.
4) Zimbabwe is buckling under economic meltdown, characterized by the world's highest inflation at 231 million percent last July.
Conclusion: You have to feel sorry for those in Zimbabwe. After suffering years of hyperinflation, they switch to a foreign currency right before that currency collapses.
I wonder if someone in Zimbabwe read my blog?
Conclusion: In my article about the fed's 15-fold increase of the US monetary base, I mentioned the currencies with the potential to displace dollars:
A) The Chinese yuan which is becoming an international currency
B) The Khaleeji, a new currency being launched by Gulf states which will be possibly backed by gold.
C) The Euro with its partial gold backing
To that list, I would now add the South African rand and SADC's future common currency based on the rand. Since South Africa is the world's largest gold producer and the region's economic powerhouse, the rand will survive this global economic crisis relatively unscarred. In supplanting the dollar as Zimbabwe's reference currency, the rand has already helped reduce the global demand for dollars.