One Paper Currency Is Officially Extinct
While the hyperinflationary episode technically peaked in Zimbabwe in 2008, its national fiat currency has finally reached its painful end.
While the hyperinflationary episode technically peaked in Zimbabwe in 2008, its national fiat currency has finally reached its painful end. At the current rate, one US dollar will buy you 35 quadrillion Zimbabwean dollars - toilet paper is worth more.
Zimbabwe was the first country in the 21st century to suffer hyperinflation, and it has never escaped. Bad governance, led by strongman dictator Robert Mugabe, and almost no economic activity and production doomed the country to one of the worst economies on planet earth.
What Does This Look Like?
According to the Reserve Bank of Zimbabwe Governor John Mangudya, any customers who held Zimbabwean dollars in a bank account before March 2009 can “convert” them into U.S. dollars. This process will run until September, when those dollars expire and officially end the currency.
“Bank accounts with balances of up to 175 quadrillion Zimbabwean dollars will be paid US$5. Those with balances above 175 quadrillion dollars will be paid at an exchange rate of $1 to 35 quadrillion Zimbabwean dollars. The highest — and last — bank note to be printed by the RBZ in 2008 was 100 trillion Zimbabwean dollars. It was not enough to ride a public bus to work for a week.”
While the death of Zimbabwe’s currency has been caused by many problems, paper currencies are under attack in favor of electronic money for various reasons.
History of Zimbabwean Hyperinflation
From March 2007 to November 2008, the daily inflation rate in Zimbabwe was 98% and prices for goods and services were doubling every 24 hours. Economic output, which is one the causes of hyperinflation, declined dramatically after socialist dictator Mugabe initiated land reforms that expropriated a majority of farm land from white farmers and redistributed it to the majority of the population. This in fact led to a collapse in output of over 50%. A war with the Congo was also extraordinarily costly and led to ballooning of government debt.
This led to paper money being printed, as mentioned. The Central Bank was constantly creating new money with larger dollar amounts on the bills, as prices rose. According to the Cato Institute, the highest monthly inflation reached 79,600,000,000%.
To get a better perspective on this, below is a timeline of currency denominations and inflation in Zimbabwe. This is what happens when there is rampant corruption and irresponsible fiscal policy, combined with a loss of monetary policy control by the central bank.
There is an opportunity for Zimbabwe to get creative and form a new currency to fill the vacuum of a dead currency that could prevent it from suffering another episode like this again. While it looks like the US dollar will be one form of currency accepted, the Zimbabwean Central Bank should consider thinking outside the box.
Perhaps it will go the way of Ecuador and form its own digital currency, or perhaps look at a way to incorporate a blockchain-based currency of some kind. Fintech Daily imagines a future with a pan-African currency called Africoin, union-backed by bitcoin instead of the USD. While this still a long shot, Zimbabwe may become the first African country to get really creative with its new form of currency due to sheer necessity.