A New Flow of Cash…
On Tuesday, November 12, the Zimbabwean government gave the economy a cash infusion with the promises of alleviating the financial strain that many societal sectors had been feeling in the past few months and years. Since hyperinflation hit an all-time high in 2008, foreign currency, particularly the U.S. dollar and the South African rand, had become norms for physical financial transactions. However, the Zimbabwean government has tried to suppress such reliance on external cash since 2015, and the ensuing shortage has hit many Zimbabweans quite hard (“Can the New Zimbabwean Dollar Relieve a Chronic Cash Crunch?”). There have been many attempts to curb inflation and bolster the economy since 2008, but these efforts have all been flawed. Online transactions became much more prevalent, but many businesses in cities like Harare will still only accept cash. Earlier in 2019, the government combined physical and electronic funds to create the Real Time Gross Settlement (RTGS) dollar, also known as the Zim Dollar, but this form of currency was only available electronically and was quickly undermined by the black market (“Zimbabwe Dollar Notes Issued for First Time in a Decade”). The Zimbabwean dollar that was released last week is supposed to be the beginning of one billion Zimbabwean dollars being sent into circulation, a process will continue in the coming months. Economists are skeptical of the efficacy of such a plan, however, given Zimbabwe’s history with inflation.
Background to this New Generation of the Zimbabwe Dollar…
Zimbabwe’s current problems with inflation can be traced to the land reform programs of the 1990s. The government instituted land reforms in order to promote equality in the country, but many of the people who received land were simply political supporters of Mugabe, the leader of ZANU-PF and Zimbabwe since 1980, and therefore had no prior experience farming. This lack of expertise led to a decrease in food production, which in turn helped create sky-rocketing inflation rates and a plummeting GDP, which dropped 4.5 percent in 2000 and 7.5 percent the next year (“Zimbabwe: Focus on Economic Impact of Land Reform”). The government slashed the ability of the agricultural sector to perform, which in turn brought down the entire country’s economy. There may have been some rejuvenation after the Zimbabwean dollar was abandoned in 2009, which brings up valid concerns for the re-entrance of the domestic currency into the economy. Inflation reached its peak since 2008 in August of this year, hitting a whopping 300 percent (“”Can the New Zimbabwean Dollar Relieve a Chronic Cash Crunch?”). Many experts are concerned that the recent reintroduction will only serve to create another hyperinflationary scenario, much like what was witnessed in the late 2000s.
Showcase of Authoritarian Rule…
The revival of this type of cash in the form of the Zimbabwean dollar is directly related to the political climate in Zimbabwe. After the coup of 2017 that ousted longtime ruler Robert Mugabe and brought Emerson Mnangagwa to power, many Zimbabweans were hopeful that the economic policies that had negatively impacted their lives would be changed. While Mnangagwa promised to revitalize ordinary Zimbabweans’ lives, he has fallen short of his promises. His ban of U.S. dollars in June only served to cripple the economy further, and prices for food and other basic necessities have risen while wages have stagnated (“Two Years after Coup, Zimbabweans Still Long for Economic Change”). Many citizens feel as if they had been used by Mnangagwa, as they had been fed false promises in order to garner their support. Mnangagwa is still using tactics from the menu of manipulation, choosing to coerce people into supporting him through patronage and clientelism. Most recently, he bribed Zimbabweans into protesting sanctions against Zimbabwe, and “[t]hose who protested were given fried chicken, French fries and a soft drink from a popular fast food outlet–a luxury meal in a country ravaged by hunger” (“Two Years after Coup, Zimbabweans Still Long for Economic Change”). Mnangagwa will give paltry benefits to those who show public support for his actions, even though his current economic policies are potentially catastrophic for the livelihoods of those who are desperate enough to have their endorsements bought in this fashion.
This ongoing economic crisis in Zimbabwe also brings up the question of redistributing wealth. Zimbabwe has abundant natural resource capital in the form of diamonds, but that prosperity has been concentrated in the hands of a powerful few. The many failed attempts at solving Zimbabwe’s inflation issue, with political scientists waiting to see how this most recent venture will pan out, leads many to question what could be done about inflation through other means. The main issue with Zimbabwe’s currency is that is not based on any real value, even though Zimbabwe’s resources have the potential to provide it with legitimate backing. Zimbabwe’s leaders and their hoarding of the diamond wealth is reminiscent of other countries around the world that are plagued by a resource curse. Venezuela finds itself in a very similar situation because of oil, and it has also suffered from staggering rates of inflation in recent years. Both Zimbabwe and Venezuela have suffered from authoritarian rulers that have abused their power to become more affluent, and the toll that these policies have taken on common people in the form of scarcity and hunger is apparent.
The Way Forward…
The reintroduction of the Zimbabwean dollar is unlikely to be the panacea to all of Zimbabwe’s economic ills. Inflation rates will most likely continue to rise, and living conditions for the average Zimbabwean will most likely not improve. What economic policy would benefit Zimbabwe in a meaningful way? Are there other programs that could be paired with the Zimbabwean dollar’s return that could help bring down inflation? Will any of these changes be possible under Mnangagwa and the legacy of Mugabe?
Muronzi, Chris. “Can the New Zimbabwean Dollar Relieve a Chronic Cash Crunch?” Al Jazeera, 12 Nov. 2019. Accessed 18 Nov. 2019.
—. “Two Years after Coup, Zimbabweans Still Long for Economic Change.” Al Jazeera, 14 Nov. 2019. Accessed 18 Nov. 2019.
“Zimbabwe Dollar Notes Issued for First Time in a Decade.” BBC World News, 12 Nov. 2019. Accessed 18 Nov. 2019.
“Zimbabwe: Focus on Economic Impact of Land Reform.” Relief Web, United Nations Office for the Coordination of Humanitarian Affairs, 3 Oct. 2002. Accessed 18 Nov. 2019.