Where do you go when the ATM runs out of cash? Has your bank ever failed to provide your requested withdrawal amount? Zimbabweans today continue to endure the complicated relationship their government has with money. The current recession in this southern African nation has highlighted the government’s inability to seize control of its crippling economy. Since the mid-2000s, the rise and fall of Zimbabwe’s inflation has been met with desperate attempts to save the country’s currency and address overwhelming cash shortages. Encapsulating the severity of the situation, Zimbabweans once carried banknotes labeled “Twenty Billion Dollars,” which amounts to an inconceivable $0.00008. Moreover, the depreciated value of their former 100 trillion dollar bill ($0.40) could not even pay for a few groceries. The financial hyperboles in Zimbabwean banknotes were counteracted by a move to solely accept foreign currencies for local transactions. Unfortunately, this multi-currency practice proved unsustainable, leaving Zimbabwe under the will of US pricing, which further spiked inflation. However, in a recent attempt to revive the economy, the government announced plans to return to its original currency—the Zimbabwean dollar (Zimdollar). This reintroduced sovereign currency will soon be the only acceptable currency for future transactions. In enacting such a bold, fiscal move, one must consider the consequent implications.
In December 2018, I became keenly aware of the financial peril Zimbabweans are facing during a simple trip to the supermarket. As an American traveling in Zimbabwe, I was privileged to have US currency on hand to complete local transactions. At the time, the US dollar was among the acceptable currencies in the country, along with the euro and South African rand. Unaware of the high consumer costs, I begrudgingly handed the cashier $20 for five apples, four bananas, two pastries, and one cup of yogurt. Astonished by the high total, I had no choice but to pay the amount due to scarce food sources in the immediate region. Exiting the grocery store, I became a target for people attempting to sell unusable Zimbabwean currency. One man pleaded, “Look! A $250,000 bill! Please use this as a souvenir.” The impending future of the reinstated Zimdollar must not be reduced to a souvenir of its pastime.
In these situations, consumers are left wondering whether Zimbabwe’s economic reform will be restricted to the mere liberation of financial institutions. Will regard to citizen livelihood, like the cost of living, also be taken into account? For Zimbabweans, addressing the devaluation problem could be a way to address broader economic problems.
Economic reform is no easy mountain to climb. During the 2009-2019 abolishment of the Zimdollar, strides in reformation came in the form of Ecocash—Zimbabwe’s mobile-money system for electronic transactions. Hyperinflation was the root cause of the abolishment and has remained an unfortunate trend in Zimbabwe as the inflation rate experiences dangerous periods of escalation. The landlocked nation suffers poor monetary policy, making it exceedingly expensive to produce goods.
Therefore, many local businesses opt to import foreign goods at the expense of affordability. According to the International Monetary Fund’s (IMF) recent data, Zimbabwean currency experienced a striking sub-200 percent inflation in August 2019. This is considered the highest inflation rate in the world. Zimbabwean financial journalist, Chris Muronzi reports, “This is not the first time Zimbabwe has experienced high inflation. Government figures show Zimbabwe’s peak inflation rate was 79.6 billion percent month-on-month and 89.7 sextillion percent year-on-year in mid-November 2009.
Hyperinflation only ended the following year with the adoption of the US dollar.” The value of the Zimdollar consistently plummets compared to other currencies. The drastic differences have stimulated a growing black market of exchange for foreign currencies. Muronzi adds, “…it took 20 Zimdollars to buy one U.S. dollar hard currency note on Harare’s (capital of Zimbabwe) black-market exchanges.” A debilitated currency coupled with an unstable black market stimulates the rising consumer costs of goods. What Zimbabwe needs is adequate IMF assistance void of interest loans, the absolve of foreign debt, and reformed economic policies, which will stifle the growth of the currency black market.
Financial assistance, though not the sole solution to Zimbabwe’s troubles, is a starting point for tackling the fiscal deficit. November 2019 will mark the re-debut of the Zimdollar in banknote form. Zimbabwe’s Monetary Policy Committee predicts that this debut will resuscitate the economy. Financial sustainability must be a priority moving forward in economic reform to prevent a further downward spiral. Zimbabwe currently owes foreign countries over $8 billion in arrears. It is evident that these debts will not be settled any time soon. Therefore, absolving foreign debts is necessary despite donor countries experiencing their own financial shortfalls. To recover what is left of Zimbabwe’s economy, foreign leaders must impart charitable judgement on this occasion. Sustainable economic change is impractical with a black market consisting of foreign currency. Any structural reform needs to encourage both public and private sector growth. The viability of IMF support in Zimbabwe is unclear as the global economy continues to battle its separate, yet related challenges. Challenges such as global poverty, economic development inequalities, and adverse impacts of global corporations are felt on a universal scale. As Zimbabwe continues to undergo trial-and-error processes, one hopes that this new path to economic liberalization comes with rewards.Post published in: Business