Daily Current Affairs : 29-May-2024
In a bid to cope with its ongoing monetary challenges, Zimbabwe has launched a brand new currency, the ZiG, on April 5, 2024. This gold-backed currency is designed to tackle the country’s long-standing issues of currency instability and hyperinflation. It will circulate alongside other foreign currencies within the financial system, including the US dollar and South African rand, presenting a new alternative for local transactions.
What is a Gold-Backed Currency?
A gold-backed currency is one that has its value directly tied to a physical asset—gold. In this case, each ZiG note is linked to a specific amount of gold, meaning that it can be exchanged for gold at a fixed rate. This connection gives the currency intrinsic value, which helps stabilize its worth over time.
Key Features of Gold-Backed Currency:
- Tied to Gold: The value of the currency is directly linked to the amount of gold reserves the country holds.
- Convertible: People can exchange ZiG notes for gold, providing tangible backing for the money.
- Limited Supply: The money supply is controlled by the country’s available gold reserves, limiting the risk of overprinting and inflation.
This gold-backed approach contrasts sharply with fiat currencies, which do not have intrinsic value and are not linked to any physical commodity like gold. Fiat money derives its value from the government’s declaration that it is legal tender and is subject to supply and demand.
How Does It Compare to Fiat Currency?
A fiat currency is essentially paper money that holds value because a government says it does, rather than being backed by a physical asset like gold. Central banks have more control over fiat money since they can print as much as needed, which often leads to inflation.
Key Differences Between Gold-Backed and Fiat Currency:
- Intrinsic Value: Gold-backed currency has real, tangible value, while fiat currency relies on trust and supply-demand dynamics.
- Inflation Control: The ZiG, with its limited supply tied to gold, is less likely to lose value through overprinting, which often happens with fiat currencies.
Why Is Zimbabwe Using ZiG?
Zimbabwe has faced intense economic challenges, including hyperinflation in the past, when the value of the Zimbabwean dollar collapsed. By introducing the ZiG, the government hopes to stabilize the economy, reduce inflation, and restore confidence in the local currency. This move is part of a broader effort to address the country’s financial instability and foster long-term economic growth.
Important Points:
Intrinsic Value: Gold-backed currency has real value, while fiat currency relies on government trust and supply-demand dynamics.
Inflation Control: The ZiG’s limited supply tied to gold helps prevent inflation, unlike fiat currencies that can lose value through excessive printing.
Addressing Hyperinflation: Zimbabwe aims to stabilize the economy and reduce inflation, which has caused previous economic crises.
Restoring Confidence: The government hopes the ZiG will restore trust in the local currency and create long-term financial stability.
Why In News
Sure! Here’s a modified version with an additional sentence:
Zimbabwe has launched its newest currency, the ZiG, which is backed by gold and aimed at addressing the country’s long-standing issues with currency instability and hyperinflation. By pegging the currency to gold, the government hopes to restore confidence in the local economy and provide a more stable alternative to the volatile fiat currencies currently in circulation.
MCQs about Zimbabwe Launches New Gold-Backed Currency: The ZiG
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What is the primary goal of launching the ZiG currency in Zimbabwe?
A. To increase government revenue
B. To address currency instability and hyperinflation
C. To promote international trade
D. To reduce the use of gold in the economy
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How is the value of the ZiG currency determined?
A. It is based on the government’s fiscal policy.
B. It is linked to the country’s available gold reserves.
C. It is determined by the exchange rates with foreign currencies.
D. It is set by international financial institutions.
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What is one of the main differences between gold-backed currency and fiat currency?
A. Gold-backed currency is controlled by central banks, while fiat currency is not.
B. Fiat currency is tied to gold reserves, while gold-backed currency is not.
C. Gold-backed currency has intrinsic value, while fiat currency does not.
D. Gold-backed currency is only used for international trade, while fiat currency is used locally.
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Why does the Zimbabwean government hope to introduce the ZiG?
A. To reduce the demand for foreign currencies
B. To stabilize the economy and restore confidence in the local currency
C. To promote the use of gold in everyday transactions
D. To encourage foreign investment in Zimbabwe
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