The Zimbabwe central bank issued its first currency since 2009 on Monday, in an effort to ease the nation’s shortage of US dollars, which is their primary tender. This move, which was first announced back in May, has sparked outrage across the nation, leading to several violent anti-government protests and demonstrations. In order to understand the indignation of the Zimbabwean people, one must look at the past decade of currency history within the South African nation.
In 2006, the Reserve Bank of Zimbabwe revalued their national currency, the Zimbabwean dollar, colloquially known as the Zim dollar. The currency quickly faced extreme inflation issues and by 2008 the central bank was printing so much money that unprecedented and absurd rates of hyperinflation reached over 231,000,000%. This effectively wiped out the life savings of most citizens. For reference, at the height of the hyperinflation, a loaf of bread cost the same as 12 new cars would have cost only a decade previously. At one point, the government began printing 100 trillion dollar notes, which were effectively worth the value of a bus ticket. Following the near comical collapse of the Zimbabwean dollar, the currency was scrapped in 2009. The national tender became a basket of nine currencies, which included the US dollar, Australian dollar, South African rand, Botswana pula, euro, British pound, Japanese yen, Chinese yuan, and Indian rupee. These currencies had already been exchanged unofficially in the nation for years due to the glaring issues with the Zimbabwean Dollar. Since the implementation of the multicurrency framework was adopted in 2009, the US dollar has risen as the primary currency within the nation.
Over the past year Zimbabwe has been faced with a shortage of US dollars due to a collapse in the nation’s imports and an increase in cash flows out of the country. Simply put, there are not enough physical US dollars in the nation to support the economy. The government has been unable to pay its employees, including the police and army, on time, and banks have been forced to implement restrictions on withdraws of US dollars, some as low as $20 a day. Citizens have taken to literally sleeping outside banks in order to withdraw as much of their wealth in USD as possible.
In an attempt to combat this issue the central bank has issued a new currency, dubbed ‘bond notes’. The currency is pegged at par with the US dollar and is backed by a $200 million bond facility from the African Import and Export bank, or Afreximbank. The central bank aims to issue $200 million in bond notes in $1, $2, and $5 denominations via controlled releases. They have also limited weekly withdraws of the currency to $150.
Currently, the new currency is being accepted by vendors in the nation, but with extreme hesitancy and skepticism. While, in theory, the bond notes will be much more stable and controlled than their Zim dollar predecessor, there is still an overwhelming lack of confidence amongst citizens who have vivid memories of losing their life savings due to hyperinflation only 7 years prior.
John Roberson, a Zimbabwe based economic consultant, predicts that the introduction of bond notes could lead to shortages of commodities resulting in price hikes. He warned that “Anyone who needs foreign currency for imports will have to go to the black market. Inevitably the bond notes will lose their value… It is back to the Zimbabwe dollar scenario.”