Memory of 500,000,000,000% Inflation Stirred by New Zimbabwe Notes

Zimbabwe’s citizens, who fear a recurrence of the 500 billion percent inflation that plagued the southern African nation before it abandoned its dollar seven years ago, is giving a hostile reception to the tentative return to its own currency.

Central bank Governor of the country John Mangudya said that beginning with denominations worth from $2 to $5, the country will soon introduce so-called bond notes, pegged to parity with the U.S. dollar. Foreign currencies have been in short supply following a collapse in exports and this is an attempt to complement the range of foreign currencies used in the beleaguered economy since 2009.

But this is not acceptable to James Sakupwanya, who sells items such as maize meal, tinned food and blankets from his shop in Mutare, southeast of Harare. According to the central bank, the hated Zimbabwe dollar, which by the time of its demise was valued at 150 trillion to the greenback, and Sakupwanya and Zimbabweans like him see the notes as a step back to that hated dollar.

“We will reject it. They can legislate as much as they want, but it is their currency which they want to impose on us to manage the crisis they created,” Sakupwanya said.

Even after the government said the notes, which will be legal tender only in Zimbabwe, will be backed by a $200 million loan from a multilateral lender, an earlier announcement of plans to introduce the currency sparked riots in Harare. While some shops reported they’re running short of essential goods, dollars which is used in 95 percent of all transactions in the country have been limited in their withdrawals by banks to prevent hoarding of dollars.

The government in Zimbabwe has been forced to pay its workers late in recent months as the country has been gripped by a liquidity crisis. The state may cut 25,000 civil service jobs as it struggles to meet pay obligations, said Finance Minister Patrick Chinamasa on Sept. 9.

Zimbabwe missed a $1.8 billion payment in June and according to the finance ministry the country owes lenders including the International Monetary Fund, World Bank and Africa Development Bank about $9 billion.

Including the South African rand, euro, British pound and Chinese yuan, Zimbabwe also uses eight other currencies in addition to the U.S. dollar. Mangudya and the chairwoman of the Zimbabwe Revenue Authority, Willia Bonyongwe, have said that given fresh memories of a worthless currency, getting Zimbabweans to adopt the bond notes will be difficult.

“If people don’t want bond notes, they don’t have to accept them,” Mangudya told business leaders early October. The expected arrival of bond notes has led to people hoarding dollars and had caused “uncertainty in the economy”, Bonyongwe said.

Naome Chakanya, an economist with the Labour and Economic Research Institute, a Harare-based think tank said that the bond notes won’t address structural challenges facing the economy. A near decade-long recession was triggered as exports from tobacco to roses slumped by a campaign to seize white-owned commercial farms and hand them over to black subsistence farmers which resulted in the collapse of the economy.

According to the United Nations, after fleeing the economic crisis, about 3 million of Zimbabwe’s 13 million people still live abroad. According to central bank data, while 4,600 companies have closed down in the past three years, employment in the manufacturing sector has dropped to 85,000 from 200,000 in 2009, according to the Confederation of Zimbabwe Industries.

(Adapted from Bloomberg)

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Categories: Economy & Finance

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