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Yet another economic tsunami
– by Jeffrey Moyo
© Frommenwiler / picture alliance / prisma
Hyperinflation made the old Zimbabwean dollar worthless 10 years ago.
When consumer prices rise so fast, people`s savings lose their value. Poverty is worsening once again. Inflation was actually even worse a decade ago. Back then, money was being devalued at an astronomical rate of more than 200 million per cent. The authorities only got a grip on the problem by entirely abandoning the national currency. Prime Minister Morgan Tsvangirai adopted the US dollar instead. He was serving an awkward coalition government under then-President Robert Mugabe, the independent leader who recently passed away. He was an autocratic strongman who had stayed in power for almost four decades.
Zimbabwe has not had the currency of its own since 2009. Nonetheless, problems are increasing again. Two years ago, Mugabe was ousted by the military. The reason was that he had tried to install his wife Grace as his successor. Emerson Mnangagwa, his deputy of many years, and other leading members of ZANU-PF, the ruling partner, disagreed. Mnangagwa is now president.
Earlier this year, the government banned the use of the dollar. The main problem was that it had been becoming scarce quite some time. At the end of Mugabe's reign, the government had introduced dollar-denominated bonds to make up for the shortfall, but as people preferred real greenbacks to those bonds, the latter's black market exchange-rate kept deteriorating. The government later introduced a digitised equivalent called RTGS dollar, with RTGS standing for real-time gross settlement. The exchange-rate problem persisted. The US dollar kept appreciating.
Therefore, the government this year decided that neither the dollar nor other foreign currencies should be used for payments in Zimbabwe. That decision accelerated the crisis, so the country is now engulfed in another economic tsunami, which still seems to be gathering momentum. It is making headlines and repelling potential foreign investors. People are angry, with many struggling to afford even the most basic food. At the same time, the government is showing ever less respect for human rights in desperate attempts to stay in control of things. Violent force has been used to crush protests, with people being killed and wounded.
One thing that is particularly awkward, is that Zimbabweans do not know what currency they are supposed to be using. Neither the bond notes nor the RTGS dollar are a real currency. The first exist on paper, the second is electronic. The government has announced that they will reintroduce the Zimbabwean dollar, but so far, that has not happened. For the time being, the authorities consider the bond notes and the RTGS dollar Zimbabwe's legal tender.
In spite of the ban, the US dollar and other foreign currencies are still being used in secret. Not only informal traders prefer it to the domestic alternatives. About 90% of employment is in the informal sector, which only allows most people meagre livelihoods, but is largely unsupervised by government agencies. It also matters that many consumer goods are imported, either from neighbouring countries or further beyond. The dollar prices are comparatively stable, so nobody really wants to be stuck with fast depreciating monetary items of merely national relevance.
The government, of course, uses those items, and that means that its workers’ wages have been rendered worthless. Civil servants have heard promises that they will get better pay, but so far that has not happened. The situation is similarly tough for people in formalised private employment.
Back in 2009, the response to hyperinflation was the shift to the US dollar. In a similar setting today, the government is commandeering the public to revert to a so far only improvised local currency. The policy is unconvincing, to put it mildly. As John Robertson, an economist who writes the Zimbabwe Situation blog, has stated: “The value of the currency is supported by its exports and foreign currency reserves which we do not have.” Unless the country shores up its act on both fronts, he warned, “we will not be able to support a currency.” Tendai Biti, a former finance minister, agrees: “There are no fundamentals for a new currency.”
Zimbabwe's economic troubles do not look as though they will be over soon.
Jeffrey Moyo is a journalist based in Harare.