The planned October introduction of a token currency in Zimbabwe, called bond notes, has stoked fears of the return of a much-loathed local currency by stealth.
Zimbabweans have nightmarish memories of the last time they had a currency of their own, whose biggest denomination was a $100 trillion note that was not enough to buy a loaf of bread as hyperinflation reached 500 billion percent in December 2008.
By the time government adopted multiple foreign currencies in 2009, Zimbabwe’s transacting public had long abandoned the inflation-ravaged local dollar.
While the unofficial dollarisation brought some respite, it could not mask Zimbabwe’s structural economic problems for long – an agriculture sector struggling to recover from the redistribution of land from white commercial farmers to landless blacks, an uncompetitive manufacturing sector running on obsolete plant and feeling the strain of the sharp decline in farm output, as well as a chronic energy deficit.
While ostensibly running on a basket of foreign currencies, Zimbabwe had, by 2016, effectively rejected all the other currencies in favour of the US dollar which currently accounts for over 95 percent of all transactions.
It did not help matters that Zimbabwe’s main trading partner, South Africa’s currency devalued by as much as 50 percent against the greenback between 2009 and 2016.
All these factors combined to produce Zimbabwe’s cumulative $20 billion trade gap over the past six years, more than the country’s $14 billion nominal GDP. In graphic terms, Zimbabwe has shipped out more than its entire economy, in dollar terms, over the period.
There has been no Foreign Direct Investment (FDI) fillip to inject some cash into the economy. Zimbabwe remains the regional leper in terms of attracting investment and, with just over $2 billion in FDI flows since 2010 — the country only just beats strife-torn Somalia, which has seen $1.7 billion foreign investment over the same period.
By early 2016, a perfect storm long in the making finally hit Zimbabwe. Bank note shortages triggered long lines at the banks — a common feature of the dark days of hyperinflation — amid panic buying of basic foodstuffs driven by rumours of impending shortages which mothballed into a self-fulfilling prophesy.
Then in June, government defaulted on salaries for the bulk of its workers, only managing to pay the security forces.
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