AfricaNews 6 April reports, ‘Zimbabwe has launched a new currency to replace its previous one that in recent months has been battered by depreciation, and in some instances rejection by the population. Authorities hope the new measure will halt a currency crisis underlining the country’s years long economic troubles.
Reserve Bank of Zimbabwe Gov. John Mushayavanhu said the new currency will be called ZiG, and will be anchored on gold reserves and a basket of foreign currencies.
The Zimbabwe dollar has come under sustained pressure in recent weeks, making it one of the world’s worst performing currencies.
Since January, the Zimbabwe dollar lost over 70% of its value on the official market, and was plunging even further on the thriving but illegal black market.
Inflation increased from 26.5% in December last year to 34.8% this January before spiking to 55.3% in March, according to official figures.
Traders were increasingly rejecting lower denominations of the now scrapped currency, with many insisting on payment only in U.S. dollars, which are also legal tender in the southern African country.
“We are doing what we are doing to ensure that our local currency does not die. We were already in a situation where almost 85% of the transactions are being conducted in U.S dollars,” Mushayavanhu told reporters in the capital, Harare. People have three weeks to exchange the old notes with the new currency, he said.
The announcement is the latest of a cocktail of currency measures undertaken by the Zimbabwean government since the initial spectacular collapse of the Zimbabwe dollar in 2009.
The period saw the country at one point issuing a 100 trillion Zimbabwe dollar banknote before the government was forced to temporarily scrap its currency and allow the U.S. dollar to be used as legal tender.
The country re-introduced a domestic note in 2016, marking the beginning of another round of currency volatility highlighted by changes to currency policy that included the banning of foreign currencies such as the U.S dollar for domestic transactions in 2019.
This was followed by the unbanning of the greenback a while later after few ordinary people took heed to the U.S dollar ban and the black market thrived, while the local currency quickly depreciated.’
The following is from the Socialist Standard November 1980
‘A currency unit is always in the end the name for a specific amount of gold (or silver). At one time—when paper currency was convertible on demand into a fixed amount of gold—this was obvious but has now become obscured in the system of “managed currencies’’ which grew up between the wars. In nearly all countries today the currency—the actual medium of circulation—is not gold nor even a paper currency convertible into gold but inconvertible paper notes and coins. Such a currency is said to be “managed” because the amount of it in circulation depends entirely on political decisions.
Before
the era of managed currencies the link between a currency and gold
was always clear. A law defined
the meaning of the name of the currency (pound, mark, franc) in terms
of a certain amount of gold (or silver, or both). This is no longer
the case but the pound and other currencies continue to represent
in economic
reality a
certain amount of gold. Gold is still today the money-commodity, the
only real money, even though it has been replaced as the medium of
circulation by paper and metallic tokens.
With
a managed currency a government institution (Ministry of Finance,
Central Bank) has to decide how much is put into circulation. The
amount of currency needed to maintain a stable price level, however,
is fixed by economic factors outside of government control, such as
the total amount of buying and selling transactions, debts to be
settled, velocity of circulation of the currency. The government is
of course free to issue more (or less) than this amount, but if it
issues more then the currency will depreciate.
The
effect will be the same as if, under the old system, the government
had passed a law re-defining the meaning of the word pound in
terms of a lesser amount
of gold—which is equivalent to increasing the prices of all goods
expressed in the currency unit. This—overissuing an inconvertible
paper currency—is what has caused the inflationary price rises
which have gone on continuously in Britain since the beginning of the
last world war. Inflation (properly understood as inflating, or
overissuing, the currency) means that the currency has come to be
defined in terms of lesser and lesser amounts of gold.
A
managed currency only has a circulation within the borders of the
state which manages it. No state can enforce the use of its paper
currency outside its borders, though people there may choose to
accept it. Paper currencies, however, can still be exchanged with
each other. What determines their rate of exchange?
What
we have said about the paper pound being the name for a certain
amount of gold applies equally to the other paper currencies. The
paper mark and the paper franc are also names for amounts of gold,
though different amounts of course. In fact up until the end of 1971
the currencies of the member states of the International Monetary
Fund were declared to the Fund in terms of weights of gold. Thus if
the French franc was defined as 3gm of gold and the English pound as
39gm, then the rate of exchange between francs and pounds was £1 =
13 francs. The Member states of the IMF were supposed to maintain a
more or less fixed rate of exchange between their currencies and
those of the other members.
Had
it not been for the inflationary policies pursued by all states this
would have proved a relatively easy task. But in fact all states
inflated their currencies, though not to an equal extent, so that the
parities declared to the IMF came to no longer correspond to the
economic reality. Those countries which had inflated their currencies
more than average were sooner or later compelled to declare to the
IMF that their currency should now be officially regarded as
representing a lesser amount of gold. This devaluation meant
that the exchange rate with other currencies had altered: their
currency would now exchange for a lesser amount of all other
currencies. On the other hand those countries which had a below
average inflation were compelled to up-value their currency, known
as revaluation,
as happened a number of times to the D-mark and the Swiss Franc.
A
devaluation then was a recognition on the international level of a
currency depreciation that had already occurred internally. This was
why Wilson was in a sense right when he declared in his famous 1967
statement that devaluation left unchanged the value of the pounds in
our pockets. It did, because the depreciation had already taken place
before! (As the Wilson government continued the policy of currency
inflation, the pounds in our pockets did in fact continue to shrink,
but because of the continuing inflation of the currency rather than
because of the devaluation).
At
the end of 1971 the IMF system of fixed parities, with periodic
devaluations and revaluations as necessary, broke down. Instead
countries just let their currencies float. What this means is that an
internal depreciation of a currency resulting from its inflation is
now immediately reflected in its rate of exchange with other
currencies instead of building up towards an eventual devaluation.
Some
countries link their currencies to others, agreeing that they will
not let their currencies fall or rise above or below a certain margin
compared with the other currencies in the system. One such system was
the famous “snake” of European currencies, of which Britain was a
member for a short while. The European Monetary System (EMS) is
another such system.
For
such systems to work each of the states involved has to have more or
less the same rate of inflation. For if one state had a greater rate
of inflation than the others, then its currency would tend to fall
below the lower limit and in order to maintain itself in the system
it would have to use up its reserves to buy its own currency so as to
maintain its price (exchange rate with the others). The EMS does
provide for the establishment of a special fund to help states in
difficulty but its clear aim is to try to keep inflation rates down
to the German level.
The
last Labour government, presumably anxious to have a free hand to
continue inflating the pound as it wished, refused to give an
undertaking to keep inflation down that much and so Britain didn’t
join. The present Conservative government has announced its intention
to join, but is waiting for the time when (if!) the rate of inflation
in Britain is at a more internationally acceptable level.
All
these “systems” in the end are just makeshifts since none of them
openly recognise that the only real money in the world today remains
gold. Capitalists are more realistic—which explains the rise in the
price of gold, and why it likely to keep on rising: nobody wants to
be left holding worthless paper money as the international monetary
system staggers from crisis to crisis.'
Adam Buick
https://socialiststandardmyspace.blogspot.com/2016/09/international-money-chaos-1980.html
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