Zim’s temporary currency syndrome: What’s next?

ZIMBABWE is currently in its 42nd year as an independent country. The four decades have been marked by several currency regimes, owing to the continued downturns.

Following independence in 1980, Zimbabwe was rated among the top three best economies in Africa, with many saying it could actually be the best if progressive policies were sustained.

However, Zimbabwe’s economy has deteriorated quite significantly owing to a host of policy choices by the government.

In all of Zimbabwe’s economic woes over four decades, the country’s currency regimes have been the root cause.

Currency changes have led to wage erosion, uncompetitive exports, high inflation or hyperinflation, poor lending, rising public debt, unemployment, electricity shortages, preferred parallel forex market over the official one, increased government expenditure, and poor capital investments.

Tapiwa Sibanda, head of strategy at Trade Winds, agrees that currency changes have held back economic recovery.

“When it comes to currencies, government must be sure not to make too many changes,” he said.

“The more you change currencies, the more you affect confidence in your economy. In the case of Zimbabwe, one remembers how the collapse of the Zimbabwe dollar triggered losses of pensioners’ savings. They have never.

“Depositors who had their Zimbabwe dollar balances when the domestic currency collapsed also lost value. This is why today, you find that Zimbabweans no longer trust their own currency. They prefer to trade in other currencies.”

Asked if Zimbabweans must continue trading in the local currency today given that is has been losing traction again, Sibanda said: “It is a difficult decision to make. The local currency makes over 55% of the money on the market, and if you withdraw it again, you can expected another wave of serious currency shortages and winding queues in banking halls”.

The Zimbabwe dollar was first introduced in 1980, after independence, replacing the Rhodesian dollar.

At the time of its introduction, the dollar was worth more than the US dollar on the official exchange market.

The denominations within the currency were $2, $5, $10, and $20 notes as the currency remained generally stable during the earlier years of the period under review.

However, as inflation started to grow due to a host of poor policy choices, by 1993 the $50 and $100 notes were introduced.

“This was to be followed by new $5, $10 and $20 bills in 1997. A $500 note was introduced in 2001. A different $500 note, predominantly brown, replaced the red 2001 issue in 2003, when it was issued alongside a $1 000 bill,” local fact-checking website Zimfact said.

“As inflation raced towards 600%, cotton company Cargill, whose supplier farmers were now burdened with huge stacks of dollars as payment, came up with ‘bearer cheques’ issued by Standard Chartered Bank with authorisation from the Reserve Bank of Zimbabwe,” Zimfact said.

The first such bearer cheques were issued in June 2003 and were valid for six months.

The idea of the bearer cheques was to allow for bigger amounts to be denominated as the Zimbabwe dollar was fast losing value.

At this point, the downward spiral of the local currency was thanks to government’s land reform agenda that made banks’ ability to lend money redundant, thus weakening the Zimbabwe dollar.

This is because farms no longer had ownership and therefore could no longer be used as collateral for loans when they were repossessed by the State.

“The Cargill cheques, whose face value ranged between $5 000 and $100 000, were in circulation until October 2004,” Zimfact said.

“Three months after the Cargill bearer cheques were introduced, primarily as payment instruments for cotton farmers, the Reserve Bank of Zimbabwe issued its own set of bearer cheques.

“The first RBZ bearer cheques, with face values of $5 000 and $10 000, were issued in September 2003 and carried the signature of the then acting governor, Charles Chikaura.”

It was at this time that then central bank governor, Gideon Gono, signed subsequent issues of bearer cheques after his appointment in November 2003.

The subsequent cheques were the $20 000, $50 000 and $100 000 bearer cheques.

“With inflation having vaulted above 1 000% that April, the Reserve Bank of Zimbabwe re-denominated its currency, dropping three zeroes from the rapidly devaluing dollar,” Zimfact said.

“The re-denominated currency was designated under the International Organisation of Standardisation’s (ISO) currency codes. The currency had 14 denominations, ranging from 1 cent to $100 000, bearing Gono’s signature.”

The bearer cheques denominations in circulation were one cent, five cent, 10 cent, 50 cent, $1, $5, $10, $20, $50, $100, $500, $1 000, $10 000, and $100 000.

“The bearer cheques introduced when three zeroes were dropped under the August 2006 RBZ Sunrise 1 project were supposed to be followed in 2007 by a new series of bank notes,” Zimfact said.

“Raging hyperinflation forced the central bank’s hand. Instead of issuing the 2007 bank note series — ranging from $1 to $1 000, the RBZ introduced bearer cheques valued between $5 000 and $750 000.”

Between March and December 2007, the central bank introduced bearer cheques ranging from $5 000 to $750 000 as inflation started to bite.

The notes in this series were the $5 000, $50 000, $200 000, $250 000, $500 000, and $750 000.

The notes in series at the time were $1 million, $5 million, $10 million, $25 million, $50 million, $100 million, $250 million and $500 million.

“As hyperinflation devoured the bearer cheques issued in 2007, the central bank introduced ‘special agricultural cheques’ — meant primarily to facilitate farmer payments. The agro cheques, which ranged from $5 billion to $100 billion, were injected into circulation between May and July 2008,” Zimfact said.

The notes under the $5 billion to $100 billion series were the $5 billion, $25 billion, $50 billion, and $100 billion.

By the start of August 2008, hyperinflation was in full swing resulting in the central bank cutting 10 zeroes from the currency.

The notes were the $10 000, $20 000 and $50 000 bearer cheques.

Hyperinflation continued its free fall forcing the RBZ to introduce $100 000, $500 000, $1 million, $10 million, $50 million, $100 million, $200 million, $500 million, $1 billion, and $5 billion bearer cheques.

By the end of 2008, the biggest note was $10 billion.

However, the notes denominations increased in early 2009, as the RBZ was now introducing bigger notes to make transactions easier as inflation was running away.

So, after the $10 billion bearer cheque came the $20 billion, $50 billion, $10 trillion, $20 trillion, $50 trillion, and $100 trillion.

Despite the higher denominations, the $100 trillion note was not enough for a loaf of bread as the Zimbabwe dollar was essentially worthless.

“It important to note that the present economic crisis is following the same path that Zimbabwe was navigating through from 2000 to 2008, and government must be worried,” says Sibanda.

“New measures must be announced to stop the pace of economic decline now, otherwise Zimbabwe may face the same level of crisis again,” he says.

The country dollarised in February 2009 just before the government of national unity.

But in the 2013 elections, the Movement for Democratic Change (MDC) opposition party lost and Zanu PF once again assumed control over government.

Later, poor policies and corruption ensued leading to shortages of foreign currency, forcing the central bank to introduce bond notes and coins from 2014.

In 2014, the central bank first introduced the bond coins that were backed by the African Import and Export Bank (Afreximbank) where the coins would be local units equal to the US dollar.

By November 2016, after seeing the market accept bond coins, the RBZ got a US$200 million facility from Afreximbank and introduced bond notes.

The bank added the denominations of $2, $5, $10, $20, and eventually $50 of the bonded currency into circulation.

By late February 2019, government introduced the RTGS dollar through Statutory Instrument 33 of 2019 which turned electronic money into a currency.

This was due to not having enough US dollars to support the electronic money sitting in the banks at a one-toone exchange rate.

June 26, 2019 to March 2020

Treasury officially reintroduced the Zimbabwe dollar as ZWL on June 26, 2019 effectively turning the RTGS dollars into local currency.

Additionally, the government banned the multicurrency regime to allow the ZWL to develop some strength.

Things, however, did not go as planned and by March 2020, the US dollar was brought back as legal tender to be used alongside the ZWL.

Since the US dollar’s return, legal tender in Zimbabwe involves the US dollar and ZWL.

However, the ZWL has continued to depreciate to its current forex rate of US$1:ZWL112,82 from a rate of US$1:ZWL6,36 in June 2019 when it was reintroduced.

The depreciation is due to not having enough foreign currency, commodity or market confidence backing as people have rejected ZWL as a valueless currency.

On the parallel market, the forex rate has depreciated even worse than the official one to US$1:ZWL230 from ZWL10 in June 2019.

The parallel forex rate is largely believed to hold the true value of the ZWL.

Renowned American economist Steve Hanke rates the ZWL as the third worst currency, behind the Venezuelan Bolivar and Lebanese Pound, in the world.

In order to strengthen the ZWL, analysts, economists and business have called on the government to fully dollarise saying the market has enough US dollars.

The central bank reported on Monday that foreign currency receipts from exports, remittances and loans reached US$9,7 billion in 2021.

All that is needed is to get the market to trust government enough to allow for the free flow of the US dollar which can be done by dealing with corruption, installing pro-business policies and promoting a free market.

⬤This article first appeared in Weekly Digest, an Alpha Media Holdings publication