Zimbabwe ditches US dollar in favor of the rand

China View reports that Zimbabwe chooses rand as reference currency.

(emphasis mine) [my comment]

Zimbabwe chooses rand as reference currency
www.chinaview.cn http://imgs.xinhuanet.com/icon/2006english/2007korea/space.gif2009-03-20 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.
The Euro with its partial gold backing
D) Gold

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.

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14 Responses to Zimbabwe ditches US dollar in favor of the rand

  1. Bowtie says:

    My bet is on the yuan. I wish it was gold, but gold is just not going to be seen as a currency.

  2. Anonymous says:

    It really don't see the Euro in the long term.

    I am waiting for the ECB to do the same as the US (buy member state debt). All the Eurozone countries budgets are getting tight. Also: In case the German state backed banks pull on their state guarantees no one knows of where the money shall come from. This item is not disclosed nor discussed in the press.

    As in the US the German parliament and the people are in the dark of what the SOFIN (the state organization that supplies the bail-out money to the banks and financial institutions) really does and what the current risks are.

    It it is calming that you have a lot of trust in the Euro and I hope it will not be betrayed.

  3. It was rumored in Zimbabwe that BOE is silently buying into Nigerian government bonds (http://en.wikipedia.org/wiki/Access_Bank_Nigerian_Government_Bond_Index), so they moved to Rand just piss off poms.

  4. Martijn says:

    The ECB has already admitted to be willing to take steps. So they might join the money debasing competion soon...

  5. Boris says:

    Anonymous said:
    I am waiting for the ECB to do the same as the US (buy member state debt).
    Impossible by EU regulation. That's why some economists suggested issuing of Euro bonds (again impossible).

    All the Eurozone countries budgets are getting tight. Also: In case the German state backed banks pull on their state guarantees no one knows of where the money shall come from.

    Money will come from bunds.

    It seems that ECB is not sole central bank which won't print money - Bank of Russia won't too.

    Putin Warns Against Printing Money to Cover Deficit

    March 19 (Bloomberg) -- Russia won’t resort to printing money to cover budget deficits that Prime Minister Vladimir Putin said are likely to continue for the “next few years.”

    The government should tackle the deficit “by using the reserves that have been accumulated in recent years, or if necessary by borrowing under market conditions,” Putin told the Cabinet in Moscow today, adding that Russia doesn’t yet need to borrow and won’t seek loans abroad. “Resorting to a printing press would be unwise and extremely dangerous.”



  6. Martijn says:


    Check these links:

    Chancellor Angela Merkel’s coalition mobilized its parliamentary majority to push through a law enabling the state to seize Hypo Real Estate Holding AG, moving closer to Germany’s first bank nationalization since the 1930s.

    European Union countries that run into a financial crisis can count on international help, German Chancellor Angela Merkel said, pledging “solidarity” with former communist states in eastern Europe.

    European Union leaders agreed to boost funding to the International Monetary Fund and are set to double a credit line for member states in financial distress as the economic crisis escalates.

    And for those arguing that the ECB is not allowed to buy up treasuries and monetize debt: although article 21 prohibits doing so, article 20 allows the ECB to use all measures it deams necessary as long as there is a majority of 2/3.

    We might see that two-third majority anytime soon...

  7. then Nicolas might have a new haircut. The French just roll out some unused stuff from the Louvre over weekends ;)

  8. Anonymous says:

    The Louvre is where Max Keiser is hiding...

  9. The nightmare of Weimar 2 is coming, probably faster than we can imagine. G20 meeting will be a determining factor...



  10. Anonymous says:

    You are discounting the fact that a new currency could arise from North America and be backed by silver and or gold.
    Such a currency could potentially
    gain acceptance around the world very quickly.
    the reason being
    1) backed by precious metal
    2) tied to the biggest market in the world North America.
    3) under pinned by the biggest lode of Natural resources known to man.
    A new currency arising in this fashion of course would have to be
    regulated by the world and not America . the US can no longer be trusted to handle money ever again.
    Some may be under the illusion that the US banks did this ,I on the other hand know it was the American Govt that was behind it,or went along with the fraudulent scheme.
    I personally think a North American currency will prevail simply due to the fact the biggest markets are in North America.
    Also the US will not settle for less than a North American currency
    but even they can not bluff the world into allowing them control over it those days are gone forever.

  11. Anonymous says:

    Gee, I thought China just became the world's largest producer?

  12. Anonymous says:

    China is the #1 producer of gold in the world with 282 tonnes (9M ounces) in 2008. I am surprised to see this obvious error from such a financial expert.

  13. Anonymous says:

    G20 will not accept gold as new reserve currency because then they will not be able to print print print ....
    So my guess is they will introduce new "paper" currency and try to reach an agreement on who can print how much of it

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