Behind Zimbabwe’s currency woes
The results of the gloomy picture of the country’s inflationary nightmares
Pummeled by inflation left, right, and center, by 2003, Zimbabwe’s currency became the bearer cheques as the country clung to its currency with greater tenacity. Then, for almost seven years, Zimbabweans endured transacting with the bearer cheques, with the highest denominations being printed in 2007 and 2008 before the country dumped its legal tender, opting for US dollars among other currencies.
The Z$750 000 note shocked many as a bigger banknote, but the Z$100 billion-dollar note in 2008 stole the show, which remains named as the Guinness record world's highest denomination banknote notwithstanding the ensuing introduction of a Z$100 trillion dollar note. The 100 trillion-dollar note became part of Zimbabwe’s former central bank chief Gideon Gono's failed efforts at saving an economic Armageddon characterised by a feisty inflation and deficits of basic goods and services. The 100 trillion-dollar note never lasted before a switch to foreign currencies came into force during Zimbabwe’s unity government from 2009 to 2013.
Yet again, the honeymoon did not last. In 2016, the Zimbabwean government introduced the bond notes and coins which authorities claimed were at par with the US dollar, this to make up for the US dollar shortages in the country.
But that only worked for a short while before history repeated itself as black-market money changers began trading off the local currency against the USD. Displeased as the local currency lost value under his nose, in 2019, desperate to defend the fledgling currency against black market speculation, Zimbabwe’s treasury boss, Mthuli Ncube outlawed the use of the US dollar and other foreign currencies.
But again, it was not long before authorities switched back to the USD ostensibly owing to the advent of coronavirus in the country in 2020, saying with coronavirus effects, people were now allowed to transact in USD.
For economists, that only marked a return to the hyper-inflationary Zimbabwe had ditched years before, a case of history repeating itself. More than a decade after abandoning the inflation-chewed bearer cheques, Zimbabwe now finds itself traversing a similar rugged terrain, with inflation galloping as authorities insist on clinging to the inflation-hit local currency- the bond notes. Introduced last month, Zimbabwe’s current biggest note is the 100-Bond, coming barely eight months after the 50-Bond was introduced, further accelerating inflation.
“The currency crisis in Zimbabwe has its roots in money supply growth by the central bank and the lack of fiscal discipline on the part of the government.”
Last month, Zimbabwe’s Central Bank claimed inflation climbed to 96. 4 percent, from 72. 7 percent in March, reaching the highest since June last year. According to the Reserve Bank of Zimbabwe, the main upward inflationary pressure came from prices of transportation (106.1 % versus 84. 3 % in March), of which fuels and food (104% versus 75.1%), this as Russia’s invasion of Ukraine has led to bread prices soaring in importing countries like Zimbabwe. As a result, Zimbabwe’s central bank has gone on record in the media saying the country’s consumer prices jumped 15.5%, the most since July of 2020. For this, the blame has largely been pinned on the local currency distrusted by many here. “As a country, we don’t have reserves to support our currency. Our currency is fictitious. We have too much money chasing a few commodities priced in US dollars. We also have an ambitious fiscal agenda.
"There is no political confidence to then inspire confidence with the local currency,” said Tendai Biti, Zimbabwe’s former treasury chief during the country’s unity government from 2009 to 2013. For Biti, as inflation threatens to erode the local currency, “the solution in short term is to re-dollarize.” Nonetheless, for diehard ruling Zanu-PF supporters here like Taurai Kandishaya, that is a none-starter. “Giving up our currency is abdicating our sovereignty and that will not work. We have to stick to our currency come rain, thunder, or sunshine,” Kandishaya said. Zanu-PF stands for the Zimbabwe Africa National Union-Patriotic Front, this country’s governing party for the past 42 years. Biti who is also a legislator for the Harare East constituency and the vice president of the opposition Citizens Coalition for Change led by the youthful 44-year-old Nelson Chamisa has not taken lightly to Zanu-PF’s insistence to use the local currency despite it being chewed by inflation. “We have always argued that Zanu-PF and its leader pose the biggest existential threat to Zimbabwe. Them, not foreigners or anyone else, a group that believes in violence, the dark arts and shuns data and critical analysis- pose an unimaginable danger to its people. It’s a crisis of leadership!” Biti said.
As Zimbabwe’s currency woes mount, economists like Christopher Mugaga, the Chief Executive Officer of the Zimbabwe National Chamber of Commerce (ZNCC), have painted a gloomy picture of the country’s inflationary nightmares. ZNCC is a non-profit making membership-based organisation that provides services designed to support its members in business development. On May 7, Zimbabwe's government ordered banks to stop lending with immediate effect in a desperate bid to stop speculation against the local currency, part of a raft of measures to defeat the currency’s rapid devaluation on the black market. To this, Mugaga said, “if you follow closely the move to stop lending by banks, it can be viewed in many ways, but certainly it doesn’t send a positive signal to investors who are looking at Zimbabwe as an investment destination.”
Even with the government’s desperate measures being announced, the local currency has continued to suffer nevertheless, officially quoted at 165.94 against the U.S. dollar while sliding continuously on the black market, where it is currently trading between 330 and 400 to the US dollar. "Lending by banks to both the government and the private sector is hereby suspended with immediate effect, until further notice," Mnangagwa said in a statement on May 7 as he stood flanked by his treasury chief Mthuli Ncube and central bank chief John Mangudya. This is not the panacea, but a disaster for Zimbabwe, according to Mugaga. “No one in business would want just a decree on a key institution like a bank to stop lending whatsoever the reason is that lending is what we call banking. Lending is the lifeline of commerce, not anything else,” Mugaga said. But Kandishaya hears and sees no evil as he claimed that “people were lending money from banks to trade it on the black market, resulting in speculative exchange rates accumulating, subsequently eroding the value of the local currency.”
Yet Zimbabwe’s civil society activists like Claris Madhuku who heads the Platform for Youth and Community Development (PYCD), see otherwise. “The local currency is being used by desperate ruling party leaders to sustain their control over a suffering populace. By enforcing the use or no use of the local currency at one time or another, the regime can continuously exert control on the ordinary people,” Madhuku said.
For Zimbabwean economists like Prosper Chitambara, confidence issues have fuelled Zimbabwe’s currency woes. “I think most importantly, is the fact that because of the chronic high inflation, obviously, the Zimbabwean dollar itself has lost value because of inflation and because of that loss of value, people have lost confidence in the Zimbabwean dollar as a store of value and as a medium of exchange. So, you see there is a huge and growing demand for the US dollars because the USD is a stable currency that can preserve its value,” said Chitambara. Chitambara is the senior research economist and policy advisor at the Labor and Economic Development Research Institute of Zimbabwe (LEDRIZ), a research-based think-tank formed in 2003. He (Chitambara) said “as long as we are not able to deal with the chronic inflationary trends, then it would be difficult to term the currency woes.”
Farai Gwenhure, an independent economic analyst in Zimbabwe said the African country has none other than itself to blame for its perpetual currency woes. “The government of Zimbabwe has been printing money. You and I know that recently the government introduced a new 100 bond note and so on--they are printing money. So that printing of money if you go to official figures of broad money supply, you will realise that there has been an increase of more circulation of money whether electronically or in the form of the notes that they are printing,” Gwenhure said.
Like Gwenhure, renowned Zimbabwean business journalist, Chris Muronzi said “the currency crisis in Zimbabwe has its roots in money supply growth by the central bank and the lack of fiscal discipline on the part of the government.”
The article is written by freelance journalist Jeffrey Moyo on behalf of the Friedrich Naumann Foundation for Freedom in sub-Saharan Africa.