New Finance Minister Plans to Reintroduce Zimbabwe Dollar
Last week, Zimbabwe’s newly sworn-in finance minister, Mthuli Ncube, announced long-term plans to reintroduce the Zimbabwe dollar. This comes as part of a greater project to revive the country’s battered economy.
Ncube believes that a calculated combination of currency reform and fiscal policy is the best way to revive an economy which has experienced enormous struggle over recent decades.
The Zimbabwe dollar was the official currency of Zimbabwe between 1980 and 2009. However, in the years leading up to 2009, periods of above-average inflation and hyperinflation caused the country to abandon its currency. At its height, inflation was so severe that the Reserve Bank of Zimbabwe (RBZ) was printing notes with a valuation of 100 trillion Zimbabwe dollars. In mid-November of 2008, money lost half of its value every 24 hours and 42 minutes. In early 2009, The IMF estimated that inflation had topped 500 billion percent.
The use of foreign currencies was legalized in January 2009 in an attempt to regain a degree of stability.
The Zimbabwe central bank announced in January 2014 that the US dollar, South African rand, Euro, Chinese yuan, Botswana pula, Pound sterling, Indian rupee, and Japanese yen would be accepted within the country as legal currencies.
With this, the country’s fiscal woes were far from resolved. Primarily in response to shortages of cash, bond notes were introduced in November 2016 to fill in some of the gaps. The notes, which can be used just like cash, are backed by U.S. dollars which have been loaned to the government by the Africa Export and Import Bank. One note is supposedly equivalent to 1 USD within the country, but many economists have claimed that the bond note is not in fact trading at par with the US dollar.
Of the $345 million bond notes initially issued by the RBZ, only $24 million remained in circulation by December 31, 2017. “In essence, Zimbabweans no longer deposit money,” Equity said on Twitter early this year. “From an effective circulation rate of 35 percent in 2016 to seven percent at the end of 2017, the decline supports the notion.”
In response, the country has built a thriving electronic economy, and more than 96% of transactions happen through plastic money or mobile banking systems. However, cash is necessary to pay for things like public transportation or goods at markets, and electronic methods of payment have proven to be unreliable at times.
Despite these temporary fixes, Ncube is determined to pursue currency reforms in order to put Zimbabwe’s economy back on track. “The current currency approach is not working,” he said in an interview last week.
In particular, the new finance minister introduced three potential courses of action: 1. to become a part of the South African rand union; 2. to use only the U.S. dollar while phasing out circulation of bond notes; 3. to reintroduce the Zimbabwean dollar.
For some time, Ncube supported Zimbabwe adopting the rand and joining the Rand Monetary Union for a temporary period. South Africa accounts for 80 percent of Zimbabwe’s trade; he thus supported adopting a currency that was linked to the country’s greatest trading partner. Reintroducing the “Zim dollar” is Ncube’s ultimate goal, though he says that this is only possible when the country exhibits signs of macroeconomic stability. The first step is to remove the bond notes from circulation in favor of something with more “macro-economic credibility.”
“Ultimately, I want to be very clear, I want to see the Zimbabwe dollar come back, the sovereign currency,” Ncube told reporters shortly after he was sworn in on September 10. “We have plans that we want to make sure that the international financial institutions such as the African Development Bank and the World Bank are fully on board to work with us to resolve the arrears.”