Zimbabwe and the dollar crisis
The Zimbabwean dollar was introduced in August 2006, equal to 1000 of the prior Zimbabwean. However, Zimbabwe’s downwardly spiralling economy and hyperinflation caused by Zimbabwe’s involvement in the war in the Democratic Republic of Congo has left its local currency worthless. During the start of the war, inflation was at an annual rate of 32% but later rose to a mind - boggling 231,000,000% in July 2008, forcing the Central Bank of Zimbabwe to introduce a new 100 billion dollar note.
The country now has the highest inflation rate in the world. This means that its own currency, which was once on par with the British pound, has now been reduced to nothing. This has forced Zimbabweans to pay trillions of dollars for buying a loaf of bread. But the worst is yet to come for the Zimbabweans as the prices are doubling every 1.3 days.
The government of Zimbabwe is left with various economic problems, after having abandoned earlier efforts to develop a market-oriented economy. Local residents, having left with no option, were forced to buy food and other essentials from neighbouring Botswana, South Africa and Zambia.
The falling economy meant that the exchange rate for the Zimbabwean dollar fell from 24 old Zimbabwean dollars per U.S dollar (USD) in 1998 to to 250,000 prior or 250 new Zimbabwean dollars per US Dollar at the official rate. This was equivalent to 120,000,000 old or 120,000 revalued Zimbabwean dollars per US Dollar on the parallel market, in June 2007.
In the wake of the crisis, Zimbabwe introduced the new Z$100 trillion banknote, and announced that Zimbabweans would be allowed to use other, more stable currencies (e: g the Euro) to do business, alongside the Zimbabwean dollar. However during this period Civil servants were not being paid their salaries and there was widespread discontent among Civil servants, with teachers refusing to attend schools because they were not being paid. Nurses and doctors followed suit and the government was put under extreme pressure.
In an effort to curb the inflation, the RBZ announced that a further 12 zeros were to be taken off the currency – reducing one trillion dollars to one dollar. Meanwhile, as unrests continued to grow among the working class, the government announced that civil servants would be paid in foreign currency and appealed for them to return to work. It was agreed that soldiers and civil servants would be paid in US dollars to help revive the shattered economy. Some 130,000 government employees were paid $100 a month tax-free, replacing their local salaries. Soldiers were the first to be paid in vouchers redeemable for cash. Analysts felt that this was the first concrete step from the new government to prevent a collapse of the system, and restore sanity and trust among the people, for the government.
Poor health, corruption and controversial programmes introduced by the government have seen Zimbabwe dropping from being Africa’s strongest economies to one of the worst economies in the world. The advent of the dollar in the Zimbabwean economy was seen as a ray of hope for the people of Zimbabwe. Zimbabweans have a long way to go to restore the lost pride of its nation. In the dollar, Zimbabweans can look at the world’s dominant economy as a guiding star to lead Zimbabwe out of its economic crisis and pave the way for a better future for the people of Zimbabwe.