Gideon Gono suggests gold-backed currency for Zim

We have said it before, and we will say it again: Gold is in the process of becoming the new reserve currency of the world.  Gideon Gono, the man who presided over the first hyperinflation of a sovereign fiat currency this century, made some notable statements in this regard over the weekend.

The Reserve Bank of Zimbabwe chief said the country should consider a gold-backed currency, rather than another fiat currency that always and everywhere without fail leads to hyperinflation and destruction of economies. New Zimbabwe reports:

“There is a need for us to begin thinking seriously and urgently about introducing a Gold-backed Zimbabwe currency which will not only stable but internationally acceptable,” [Gono] said in an interview with state media.

“We need to re-think our gold-mining strategy, our gold-liberalisation and marketing strategies as a country. The world needs to and will most certainly move to a gold standard and Zimbabwe must lead the way.”

Gono said the inflationary effects of United States’ deficit financing of its budget was likely to impact other countries to leading to a resistance of the green back as a base currency.

“The events of the 2008 Global Financial Crisis demand a new approach to self reliance and a stable mineral-backed currency and to me, Gold has proven over the years that it is a stable and most desired precious metal,” Gono said.

“Zimbabwe is sitting on trillions worth of gold-reserves and it is time we start thinking outside the box, for our survival and prosperity.”

While it may look like nothing major at face value, if Zimbabwe does actually introduce a gold-backed currency, it will be taking a huge stride to protecting its people and economy from the coming hyperinflationary depression on a global level.  Gono would be setting the stage for an astonishing inflow of human and technological capital to Harare in years ahead.

By implementing a gold-backed currency that is fully convertible into gold at a fixed level, the Zimbabwean government would be explicitly respecting property rights of the holders of that currency.  It would not be able to debase the currency for any prolonged period of time, as the currency would be exchanged for gold in no time.

It would limit the extent to which the Zimbabwean government could intervene in the economy, as it will not be able to generate revenues through monetary inflation.  Government borrowing would be kept at a minimum as the commercial banking system and central bank cannot monetise government borrowing.  The size of the state would have no chance to grow ever larger as it did over the past few decades.  The welfare state would not get a foothold.

Of course, there are many versions of a gold-standard, and all of the above assumes that the Zimbabwean government would actually introduce a currency that is fully convertible to gold at a fixed price (classic gold standard).  These guys clearly don’t have the best track record of economic policy, but it may just be that they have actually learned from their Keynesian experiment and are moving back toward sound, free-market economic principles.

Also note how Gono hits the nail on the head with regard to the Bernank’s policy in the US – you should take note – Gono knows what he’s talking about it when it comes to creating hyperinflation! Now wouldn’t it be something for the history books if Mugabe actually lives to see the day the US government destroys its currency through hyperinflation while having the protection of his own gold-backed currency to weather the storm?!

Also important to point out that should we see such a new-found respect for property rights in Zimbabwe, there is a very good probability that the road below becomes much more travelled, mainly in a northerly direction, as South Africans look to live and prosper in Zimbabwe.