Surrogate Currency in Zimbabwe Causes Fears of Inflation

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HARARE, Zimbabwe — Robert Mugabe’s government announced it will circulate $75 million in the form of bond notes as a surrogate currency in Zimbabwe. The country has been facing a severe liquidity crisis in the past months.

Officials are hoping the bond notes will act as a surrogate currency in Zimbabwe for the missing cash. People have been hoarding U.S. dollars as they feel that the bond notes will soon be worth very little.

Problems with currency in Zimbabwe are not new. In 2008, hyperinflation reached 500 percent. The next year, the government switched to U.S. dollars, African rands and Euros for transactions. “I had 17 trillion Zimbabwean dollars in my bank account and I lost everything when the government switched to foreign currency,” Petros Chirenje, an electrician based in Harare told the French Press Agency.

Seven years later, Zimbabwe owes $9 billion to lenders, including the IMF, the World Bank and the African Development Bank. The foreign currencies have run out, and the government is unable to pay civil service workers and soldiers. What little business is left is slowing down. At least 4,600 enterprises have closed down in the past year, according to Bloomberg News.

The Zimbabwean Stock Exchange noted its lowest turnover in seven years this past August, which has been interpreted as a strong sign that the nation is sliding into another recession. ATM limits have been decreasing and people are not able to reach their money.

The announcement of the new currency in Zimbabwe sparked riots in the capital, Harare. “My fear is that we will have a repeat of 2009,” said Chirenje. “The government says the bond notes will be equivalent to U.S. dollars, but my question is ‘how?’,” he continued.

While the IMF claims it is positive about the future of the country, people are afraid they will see the value of their money rapidly decreasing as hyperinflation hits the nation again. The measure is supposed to make Zimbabwe attractive to foreign investors, but the IMF is set on reforms for the end result to come about.

The dictatorial government of Robert Mugabe is notoriously corrupt and spends about 80 percent of its budget on civil service fees. The IMF has asked for a viable debt clearance strategy, including fiscal reform and measures aiming at better governance.

The new currency in Zimbabwe was set to be rolled out in October, but the date has been pushed back to November. No specific date has been announced as yet.

“No one can trust the government,” Professor Tony Hawkins of the University of Zimbabwe said. A farmer in the West Province holding 2,000 acres of land saw hundreds of youths sent by the government destroying his property and beating his workers. This is a common strategy employed by the authoritarian government against anyone who speaks out against them.

The political and economic uncertainty is hurting business, but people are switching to cashless transactions very fast. People are increasingly using debit cards, for anything from groceries to church offerings.

Even though this surrogate currency in Zimbabwe is a temporary solution to the cash shortages, it will not be of help of hyperinflation kicks in. As the people of Zimbabwe desperately hope for some sound economic policies after years of policies that missed the mark, the world is watching.

Eliza Gkritsi

Photo: Flickr

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Eliza Gkritsi

Eliza writes for The Borgen Project from Athens, Greece. She has a BA in Philosophy, Politics and Economics from the University of York in the UK. Eliza volunteers in refugee camps in Greece and plays the piano.

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