Copper Currency Anchor: The solution to Inflation and Debt

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Zambia’s dependence on copper mining, both the world copper price and the possible withdrawal of investment from the mining sector seriously threaten economic growth and stability. Zambia, like other copper producers, took the high late 1960s copper price as the norm and regarded the mid-1970s mineral price fall as an aberration. It adjusted by foreign borrowing rather than by structural change. Consequently, when the early 1980s price shock drove copper revenues even lower, Zambia had little room for maneuver.

Commodity currencies have been stood against fiat money in the discourses on the history of money, implying a development from primitive forms of money which needed anchor in a real commodity to gain acceptance, for instance gold, silver or copper to a more sophisticated monetary regime based solely on confidence and trust. This paper argues that the idea of a gradual replacement of the former form of money by the latter is an a historic construct: commodity and fiat monies have replaced each other over the millennia, and the latest craze for commodity currency was as recent as the 1920’s when numerous European currencies were based on gold.

In this paper an EAZ researcher presents a new view on how Zambia can tackle both debt and inflation using this strategy. The idea proposed here is not a conventional Sovereign wealth fund but it does operate on similar lines as it will be a government investment vehicle that invests in domestic currency denominated assets and whose management is distinct from that of official reserves. The key here is to anchor the Zambian currency in copper reserves, a commodity which Zambia has a natural endowment and not necessarily a comparative advantage. This stock of copper reserves will forever be changing with regards to international transactions. In essence the Zambian Government must begin to buy and sell copper on the international market using an exchange medium.

Download the working paper at links below

Copper Currency Anchor – The solution to inflation and debt


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