Zimbabwe has been experiencing hyperinflation for some time, leading to a loss of trust in the national currency. In response, the central bank has decided to reintroduce the gold standard. Prices in the African country have risen by over 190% in one year. By comparison, inflation in the Netherlands stands at 9.6%. The Zimbabwean dollar has depreciated so dramatically that the Reserve Bank of Zimbabwe has decided to combat hyperinflation by minting 22-karat gold coins. Previously, the country raised its policy interest rate to 200% in hopes that people would keep their money in savings accounts. In the Netherlands, the European Central Bank (ECB) recently raised interest rates from -0.50% to -0.25%.
 

Gold Standard

With the introduction of the gold coins, people can exchange their money for a gold coin weighing one troy ounce (31.10 grams). The coins will be worth roughly the same as the current gold price. State-owned Fidelity Gold Refineries will mint the coins. The initiative is reminiscent of the Krugerrand, the well-known gold coin minted in South Africa. The gold Krugerrand has become a globally recognized investment alternative due to its high purity level of 91.67% (22 karat). The new coin will be called 'Mosi-oa-Tunya,' which roughly translates to 'the smoke that thunders,' a reference to the Victoria Falls on the border between Zimbabwe and Zambia. The coins can be purchased through the central bank.
 

Safe Haven

Gold is considered a safe haven in times of economic uncertainty and as protection against inflation. The hope is that the Zimbabwean gold coins will provide a more stable store of value compared to the Zimbabwean dollar.
 
The introduction of the gold coins brings mixed feelings. Zimbabweans' experience with the central bank has been fraught with concerns and uncertainty. Many Zimbabweans lost their savings, including pensions, when the Zimbabwean dollar crashed in 2009 due to years of hyperinflation, which ultimately reached as high as 500 billion percent.
 
Since the end of the 'Zimdollar,' the country has frequently used foreign currencies, mainly the U.S. dollar. Several attempts have been made to revive the local currency, but they have been unsuccessful as the currency's value has plummeted again. Issuing gold coins is intended to curb hyperinflation and create a more stable store of value for residents.
 
Disclaimer: The Silver Mountain does not provide investment advice, and this article should not be considered as such. Past performance does not guarantee future results.