The Zimbabwe Swiss Banking Connection

Bankers rule the financial roost. Dr Gideon Gono, the Central Bank Governor, is considering options for Zimbabwe’s currency.  Dr Gono is considering a gold backed Zim dollar. This will move the country away from its current US Dollar monetization.

3 years ago, the Zimbabwe dollar experienced hyperinflations. The Central bank of Zimbabwe or The Reserve Bank of Zimbabwe, aka Rezas, said, at the time, ‘it was copying US and UK style quantitative easing’. They were however, major structural differences between Zimbabwe style money printing and UK plus US quantitative easing.

Zimbabwe, if it were to adopt a Gold backed Zim dollar, will put a new spin on Gold Standard. The central problem for Rezas, is its guiding legislation and codes of governance. It cannot extricate itself from government and make autonomous decisions. Legally, politically and historically, the bank has been in the pocket of the ruling party.

The Swiss Franc is 40% gold backed. Switzerland has a well-run central bank. They are clear separations of authority between Swiss Central Bank and the ruling party. Switzerland is also politically stable, and the country has strong economic fundamentals. Switzerland has well-defined property rights, the rule of law and very good infrastructure. Switzerland is also uniquely financially transparent, has low levels of corruption and no Central Bank-State duopoly. Swiss bankers are highly financially literate and competent. Swiss banking is ‘gold standard’, even in the midst of current European financial crisis.

Adopting gold backed Zim dollar will be disastrous given the current state of affairs. Resaz has structural issues which need to be rectified, before complicating things further with the technicalities of gold backed Zimbabwe dollar. Furthermore, as Resaz is bankrupt, where will it get the resources to put in place gold backed currency? Swiss Central bank, The Fed and The Bank of England are all well-resourced institutions. The Fed is funded by global money into its T-bills. The Bank of England is well supported by capital flows into The Square Mile. The latter remains the currency trading capital of all nations.  Resaz has persistent solvency challenges. Zimbabwe needs to change its Central Banking legislation, supported by a more effective rule of law. That is where the problem is. Resaz then needs to build its pedigree to Swiss standards, before going gold.