The government’s latest policy raises the spectre of hyperinflation againby Christian Westerlind Wigstrom / December 2, 2016 / Leave a comment
In Zimbabwe, everyone is a currency trader. Two decades of disastrous policies have crippled one of Africa’s most promising economies and inadvertently created a society of foreign exchange specialists. In 2008-09, during the second worst hyperinflation in world history, Zimbabweans hedged their exposure to the national currency, the Zimbabwe dollar, by resorting to barter and building up reserves of foreign cash.
The Zimbabwean dollar was eventually abandoned. In the subsequent system, nine different currencies became legal tender, including the euro, the British pound, though the South African rand and US dollar were by far the most commonly used. Even the simplest grocery purchase often involved transacting in two currencies simultaneously. Later, as the South African rand fell in value, Zimbabweans traded out of rand and the economy became based on the US dollar. Zimbabweans thought that they had seen it all—until this week.
On Monday, Robert Mugabe’s government introduced a local parallel currency called “bond notes,” the last straw in a succession of last straws. For years, a combination of illicit capital flight and an ever-widening trade deficit has drained Zimbabwe of cash. Over the course of 2016, the daily withdrawal limit from cash machines has been slashed from $10,000 to $20. But more importantly, in a country in which most people don’t have bank accounts, the absence of cash means the absence of transactions. The economy grinds to a halt.