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Why Zimbabwe is killing its currency

December 11, 2019


35 quadrillion Zim dollars. That’s what one US dollar will cost you in
Zimbabwe. The country has finally laid its worthless
local currency to rest – giving Zimbabweans until September to make the switch to the
American dollar. The move doesn’t come as a suprise to many
as 90 per cent of the economy has been based on the US dollar since 2009, when it abandoned
its own. A multi currency system has been in use for
the last six years, with the South African rand also doing the rounds since 2009, and
the Australian dollar, Japanese Yen and Indian rupee joining the list in 2014. The Zimbabwean dollar has mainly featured
as a souvenir – turning many a delighted tourist into an instant millionaire. But why exactly has the country been forced
to demonetize its currency – the answer is hyperinflation. In 2000, President Robert Mugabe decided to
change his country’s economic policy, implementing land reform. This meant that land owned by white citizens
– was given to black citizens – who were unskilled in farming practices. Not only did mass violence ensue, but the
country turned from an argicultural exporter into an importer, gaining a unemployment rate
of 94%. That’s when hyperinflation set in. By 2008, the monthly inflation rate hit 3.5
million per cent… meaning a single egg cost 50 billion dollars, a bus ticket 100 trillion
dollars – and a loaf of bread the equivalent of 12 new cars 10 years before. Prices doubled every 25 hours, so the government
kept printing more money to try to counteract the problem until the currency became worthless. Thus, Zimbabwe had the second worst hyperinflation
in history, after Hungary post World War 2. So, this official currency switch will mean
that Zimbabwe won’t have its own independent monetary policy any longer. But it will be able to clean up the banking
system and bury its worthless currency that has long since been dead. The government has set aside $20 million to
mop up any remaining notes and to compensate bank accounts that existed pre-2009. People with accounts of up to 175 quadrillion
Zimbabwean dollars will be paid $5. Those who preserved bills at home will receive
a rate of 1 US for 250 trillion of the local currency. However, they may get more for their money
on eBay. The unloved currency is making a comeback
online as bidders battle for the final notes that could make them a billion or even trillionaire
instantly.

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