Why no one’s buying Zim’s new dollars

The banking system is about trust, and trust in the Zimbabwean government is in short supply

It was hard to fault the logic of Zimbabwean Finance Minister Mthuli Ncube during the shock introduction of the new Zimbabwean dollar on Monday, when he said: “It means anyone who wants to buy goods or shop or pay for services, within the borders of Zimbabwe, ought to go to a bank or a bureau de change … to change their foreign currency into domestic currency and to spend that whichever way they wish to spend. That’s what normal countries do.”

The much-maligned minister is right. This is exactly what ought to happen. That is what normal countries do. But there is nothing normal about the economic crisis in Zimbabwe, where — thanks to decades of woeful, probably criminal, mismanagement of the economy — the normal rules do not apply.

The original Zimbabwean dollar was abandoned in April 2009, when annual inflation had reached

89 700 000 000 000 000 000 000% — that’s 89.7-sextillion percent. This hyperinflation — the second-worst in recorded history — was caused when Robert Mugabe’s government began to print money to get itself out of political trouble. Once they started printing money, they could not stop, until eventually the currency was worthless.

The Zimbabwean dollar was replaced by a basket of currencies, including the US dollar and the rand. This stabilised the economy and, crucially, it greatly limited the government’s power to meddle in monetary policy. After all, there was no way that Zimbabwe’s hapless administrators could print more US dollars.

Or could they? In late 2016, the government introduced bond notes, a bearer cheque designed to address a shortage of physical US dollars in the country. Because Zimbabwe imports far more than it exports, foreign currency has an unfortunate habit of leaving the country. The bond note was not a new currency, the Reserve Bank of Zimbabwe insisted; and it was supposedly backed by a

Funny money: Zimbabwe introduced the bond note in 2016 because of a shortage of US dollars in circulation.

$200-million loan from the African Export-import Bank. But the public was not buying it. Although bond notes officially traded at 1:1 with the US dollar, unofficially they began to lose value almost as soon as they were introduced.

Earlier this year, the central bank tried again. This time, the pseudocurrency was called the real-time gross settlement (RTGS) dollar — effectively a digital currency — and the bank abandoned the pretence that it would be equivalent to the US dollar, instead suggesting that $RTGS2.5 to $1 would be an acceptable exchange rate. Again, the RTGS dollar began to lose value immediately; this week, it was trading at between 11 and 12 to the dollar.

Each attempt to introduce a new currency has failed, with the public overwhelmingly rejecting it. People are nervous that any form of currency introduced will lose its value, and quickly — and they have every reason to feel this way. Emmerson Mnangagwa replaced Mugabe in late 2017, and the current administration is not that far removed from that which presided over the collapse of the original Zimbabwe dollar, wiping out the savings of most citizens in the process.

That’s why the new Zimbabwe dollar — which combines bond notes and RTGS dollars, and makes it illegal to use foreign currency, including US dollars and rands — is unlikely to work. The new currency was introduced without prior consultation, and without implementing any of the hard reforms necessary to overhaul Zimbabwe’s economy.

“This is chaotic,” said a spokesperson for the opposition Movement for Democratic Change. “It’s nuts,” said a prominent human rights lawyer.

The foundation of any successful currency is trust. On their own, bank notes are worthless pieces of paper and bank balances little more than an encrypted string of electronic information. People have to trust that those pieces of paper are worth something. When that trust evaporates, so does the value of the pieces of paper — as anyone who has ever handled a 100-trillion Zimbabwe dollar bill can attest.

So the government can introduce as many new Zimbabwean dollars as it likes, but until Zimbabweans trust that this currency will retain its value they are unlikely to embrace it.

In a nation that is experiencing shortages of everything from bread and petrol to electricity, trust is still the commodity in shortest supply. With its long, dismal track record of economic mismanagement, this government is in no position to regain it.