by Justice Zhou
Alarmist opinion about the early return of the
Zimdollar is rearing its head again. This is despite the central bank authorities
reassuring the public they will only be able to reintroduce it once they have
enough foreign exchange (forex) or gold reserves to back it.
Forex reserves are deposits of foreign currency held by the central
bank of a country, while gold reserves refer to a quantity of
gold held to support the issue of currency.
Statistics on how much the bank holds in forex and
gold reserves are not precise, but it’s anyone’s guess that not much has been
done in terms of rebuilding them.
However, the local dollar will definitely bounce
back at some point in future and hence there should be proper contingency plans
and sufficient resources for its safe return. Isn’t time ripe for Zimbabwe to
shore up gold reserves, then?
One of the most important suggestions put forward by
economic and financial experts is for the Reserve Bank of Zimbabwe to consider
building gold reserves to diversify its holdings in the run-up to the reintroduction
of the local dollar.
At a time when a number of central banks are boosting
their gold stocks due to its status as a safe haven amid geopolitical concerns
and economic headwinds, it boggles the mind why Zimbabwe has not followed the
same route.
Rather, it appears much joy is derived from seeing
more of the yellow metal being commercially mined for the purposes of export,
ignoring the fact that its property as a store of value can also be taken advantage
of to buttress the local currency.
Bullion is reportedly Zimbabwe’s biggest mineral
foreign currency earner, accounting for over 50 percent of the country’s total
annual export earnings together with platinum.
Reserves
play a key role in instilling confidence in the monetary and exchange rate
policies of a country, and it seems gold has an edge over foreign currencies
because currencies’ are more vulnerable to external risks as they fluctuate from
time to time.
On the
other hand, gold is a haven for investors who seek to avoid currency risk;
hence its value always appreciates in times of crisis.
Nonetheless,
the same should apply with forex reserves. Zimbabwe’s forex reserves also need
to be propped up to provide a way in which the central bank could intervene in
the foreign exchange market and manage exchange rate fluctuations, promoting a
stable environment for economic growth.
In times
of crisis, foreign exchange reserves have proved to be useful in absorbing the misery
related to economic and currency meltdown.Investors
also have more confidence or are willing to put their money in countries that
have strong foreign exchange reserves and stable currencies.
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