Today, November 14, 2017 marks exactly 20 years to the day the Zimbabwe dollar crashed, a fate that is afflicting its modern day replacement the bond note, at an even faster rate.
For two decades, successive Finance Ministers and central bank governors tried all sorts of trickery to save the currency; from dropping zeroes to changing its name.
Today, 20 years on, The Source traces the Zimdollar’s collapse from that fateful November day.
1997 – War veterans hold a series of protests against President Robert Mugabe, pressing for gratuities and pensions. The protests include a march on State House and heckling Mugabe during his Heroes Day speech in August.
Mugabe buckles, and orders Finance Minister Herbert Murerwa to dole out ZW$50 000 each to over 50 000 war veterans. The total bill would be ZW$4.2 billion, or over US$300 million. It is 3 percent of GDP then.
None of it is in the budget. Mugabe dismisses concerns, including from Murerwa, that the spending will bankrupt the economy. He declares: “Who ever heard of a country going bankrupt?”
Separately, the government has announced its intention to list more than 1 400 farms, many of them productive, for redistribution to landless blacks. It is reported that the IMF and other donors have threatened to pull out.
Rumours spread that foreign reserves are down to just a month’s worth of imports. Speculators, panicked by the flurry of bad news, start stocking up on US dollars. Desperate, the government injects US$15 million to try and prop up the Zimdollar. But the pressure is unrelenting.
Late on Friday, November 14, the Zimbabwe dollar plunges 72 percent. The stock market crashes 46 percent. That same day, by coincidence, there is a national blackout. The day comes to be known as “Black Friday”.
In the aftermath, the government orders companies to shut down their foreign currency accounts, hoping the flow of US dollars onto the market will put brakes on the Zimdollar’s slide. But it has the opposite effect; confidence collapses even further, as does the stock market and the Zimdollar itself.
Investors head for the exits. McDonalds, the US fast food giant, abandons plans to open its first outlet in Zimbabwe.
That December, a proposal to raise a new tax to fund the pay outs is withdrawn after labour unions hold street protests.
1998 – Riots hit the country in January after the price of basic goods rises by up to 50 percent, blamed on the collapse of the Zimdollar. Maize meal prices rise by 45 percent within a week. Army is deployed for the first time in years to quell the riots. “They will not hesitate to shoot,” Home Affairs Minister Dumiso Dabengwa warns.
Government introduces price controls and a range of tariffs on imports.
In August, Zimbabwe enters the DRC war. Some estimates say the country is spending US$1m a day to fund the war, further weakening the local currency.
1999 – Running out of forex, Zimbabwe has defaulted on most of its foreign debt by mid-year. The IMF finally confirms its intention to withdraw funding. This leads to further exchange controls. The Government fixes the Zimdollar rate at $38 to USD in 1999, way above its true value.
2000 – Murerwa is reshuffled out. On August 1, new Finance Minister, Simba Makoni, bows to market pressure and devalues the Zimdollar to $55 to the US dollar, still lower than the parallel market rate of $60 for a US dollar. In the same week, unions, businesses and activists stage a nationwide stay away to protest the economic crisis.
2001 — A $500 note is issued, and is followed by another different $500 note within weeks. A $5 coin is also introduced.
2002 – Mugabe rejects Makoni’s pleas for further devaluation. “Devaluation is sinister and can only be advocated for by our saboteurs and enemies of this government,” Mugabe tells him. Makoni is soon fired, and Murerwa is reappointed.
Government shuts down all bureaux de change, accusing them of being “conduits” of illegal forex trade.
In June, the IMF suspends technical assistance because of arrears amounting to US$132 million.
2003 – The RBZ introduces what it calls traveller’s cheques, in denominations of $1 000, $5 000, $10 000, $20 000, $50 000 to $100 000. They are hugely unpopular and are soon quietly phased out.
Zimbabwe is now producing less than half its 1996 exports. Pressure is building.
That September, RBZ introduces bearer cheques in denominations of $5 000, $10 000 and $20 000. Initially, the bearer cheques are only valid up to January 31, 2004.
Zimbabwe’s reserves are down to under US$20 million, about 3 days’ worth of imports cover then.
In November, the IMF begins compulsory withdrawal procedures for Zimbabwe; IMF-speak of kicking Zimbabwe out.
In December 2003, Gideon Gono is appointed governor. It is a decision that is to have a major impact on the future of the currency. Later, a leaked US embassy cable was to quote IMF mission chief Sharmini Coorey describing Gono as “the world’s worst central banker by far”.
One of Gono’s first decisions is to tighten control of central bank’s accommodation of banks. This leaves many banks in crisis.
2004 – Still unwilling to float the currency, the government comes up with a Managed Foreign Exchange Auction System that January. Exporters sell a quarter of their forex at a fixed rate of Z$824 and another 25 percent at an auction rate. Exporters keep the other half in their foreign currency accounts for up to 21 days, after which they must offload the remainder at the auction rate.
The system is initially welcomed by exporters, but they soon reject it as it becomes clear that RBZ is keen to control the rates, resulting in losses for exporters.
Gono’s financial sector measures start taking their toll on banks. On January 3, Century Discount House shuts down. That January, eight other banks are kicked out of the clearing system for failure to fund their RTGS positions. So begins the weakening of confidence in banks.
More bearer cheques arrive in January, with a June expiry date. That same June, another batch comes, this time with a December 31 expiry date. However, even those cheques with a June expiry date remain legal tender.
The cheques are mocked by the public. At the launch of Barbican Bank, Murerwa jokes: “I know you are all concerned about the current cash crisis. I am too. I am however more concerned because I am now being called Mr Burial Cheques.”
2005 – The forex auction system isn’t working. So, on October 21, Government replaces it with the Tradable Foreign Currency Balances System (TFCBS). Under this system, there is a dual exchange rate system; market transactions are done at an interbank rate, while Government transactions are done at the fixed official rate. It obviously doesn’t work.
2006 – The dual exchange rate system is replaced in April, and all transactions are now at the interbank rate. The rate collapses. The Zimdollar is devalued again in July to $250.
New bearer cheques arrive, in a series of 1 cent, 5 cents, 10 cents, 50 cents, $1, $10, $20, $50, $100, $500, $1 000, $10 000 and $100 000.
Then, on August 1, the madness begins. Desperate, RBZ lops off three zeros from the currency. Gono launches a massive marketing campaign, dubbed “Operation Sunrise”, hoping to package this as a good thing.
“Say no to zero and hello to hero,” Gono says.
2007 – On the 7th of September, the Zimdollar is devalued again to $30 000. Still, the government is playing catch-up; on the black market, the Zimdollar is ten times weaker at $300 000 per US dollar on the parallel market.
Desperate, the government tries to ban inflation; retailers are ordered to cut prices by half. It does nothing to stop inflation and shop shelves go empty. The Government stops publishing inflation stats regularly.
On July 1, a $500 000 note is introduced, but it is valued at just US$12 even at the official exchange rate. On New Year’s Eve, RBZ launches a $750 000 note.
2008 – This is the year Zimbabweans wish they could forget. Gono’s money printing presses are running overtime, so much that the RBZ runs out of ink and paper. Inflation is at its peak, which the World Bank put at 500 billion percent. The Zimdollar is now worthless, with an egg costing $50 billion.
On January 1, the $1 million, $5 million and $10 million denominations make their debut.
A few months later, in April, new $25 million and $50 million bills are printed. On May 2, the $100 million, $250 million and $500 million notes are released. Just two weeks later, on May 15, new notes in denominations of $5 billion, $25 billion and $50 billion notes debut.
The RBZ’s printing press, at this time, is failing to keep up. Ten zeroes are removed from the currency, and the $10 000 and $20 000 notes are released in September. Weeks later, on October 13, a new $50 000 bill is on the market. Before long, on November 5, new $100 000 and $500 000 bills appear.
Then, on December 4, Zimbabwe gets even more notes; $1 million, $10 million, $50 million and $100 million. Within two weeks, the $200 million and $500 million notes are released. These are soon followed by the $1 billion, $5 billion and $10 billion notes, just a week before Christmas.
Gono even puts old worthless coins, last used six years earlier, back into circulation. This sends many burrowing into wardrobes and in the back of sofas for old coins.
“Go back and look for those coins because we never demonetized them in the first place,” Gono says. Suddenly, an old one dollar coin is now worth 10 billion of the new dollars.
Already, retailers have been quoting in foreign currency, although the word “points” is used to denote one US dollar.
Clearly, something has to give. Grudgingly, that April, RBZ finally begin to let go, forced by the market.
On September 13, Gono introduces the Foreign Exchange Licensed Warehouses and Retail Shops (Foliwars), Foreign Exchange Licence Oil Companies (Felocs) and Foreign Exchange Licensed Outlets for Petrol and Diesel (Felopads). The grandiose abbreviations, typical of the Gono era, are just big words announcing the legalisation of the widespread use of forex. Some 1 000 retailers and 250 wholesalers are now allowed to freely trade in forex.
Still, Gono insists that this was not dollarisation. “It is imperative to note that the current measures are neither a condonation nor a direct introduction of the dollarisation of the economy,” Gono says. He admits, though, that the change is a “pragmatic response to the realities obtaining in the economy.”
At the time, as was to happen almost a decade later, there are three prices for goods and services; cheque, RTGS and cash. A catalogue from that era shows a 6-pack carton of Mazoe trading at $15 000 for cash, $175 000 by RTGS and $30 000 via cheque.
On the last day of that year, one US dollar was trading at $4 million on the official market. In reality, the rate was far higher.
An RBZ statement reports that bank computer systems are now “failing to cope with the number of digits arising from large transaction values”. Gono tells a meeting that the RBZ will now buy forex at the UN rate, really an informal rate used by NGOs.
2009 – On January 16, Zimbabwe makes history; it releases a $100 trillion note, the largest denomination ever seen in the world. It is later to become a collectible, and a symbol of failed economic management.
Zimbabwe effectively dollarises on January 29, when, for the first time ever, a budget is presented in both US dollars and Zimdollars. Acting Finance Minister Patrick Chinamasa reels off the dizzy numbers, including $175 quadrillion for grain imports. His budget speech is accompanied by howls of laughter and derision from MPs.
The move to USD overnight eradicates hyperinflation, but the economy soon swaps hyperinflation for deflation.
The Zimdollar remains in circulation, although nobody is using it. On 2 February, the RBZ removes a further 12 zeros off the currency. In total, 25 zeroes were removed from the Zimdollar.
This was the beginning of the end of a currency that at Independence in 1980, was stronger than the US dollar, trading at 1ZWD: US$1.54.
In August, Gono proposes return of Zimdollar. He is criticised sharply, even by The Herald, which calls him out of touch and unable to “read the national mood”.
In his mid-year budget, Finance Minister Tendai Biti, appointed in February as part of the unity government, announces the local currency will be demonetaised, saying he is “putting a tombstone on the grave of the Zimbabwe dollar”.
2013 – In March 2013, concern grows as Zimbabwe slips into deflation.
2014 – RBZ authorises use of a dozen currencies to trade alongside the dominant US dollar. The currencies include the Indian rupee, the Japanese yen and the Chinese yuan. The bond coin is introduced, as a means of ending the shortage of small change.
2015 – The Zimdollar is finally demonetised, with depositors getting US$5 for every 175 000 000 000 000 000 (that’s 175 quadrillion) Zimbabwe dollars held. Each 250 trillion Zimdollars gets $1.
2016 – The RBZ announces it will launch a bond note, which would be at par with the US dollar. The bank calls it an export incentive, a deliberate twist of PR meant to ease fears in an economy still traumatised by memories of 2008. It is months before the first notes appear.
2017 – Bond notes and US dollars start disappearing from the market. Government spending is rising, fuelling inflation. In September, consumers go panic buying after rumours of shortages. Prices rise foreign currency shortages deepen. Inflation, once again, is back on the march. – Insider