Zimbabweans’ peculiar but understandable aversion to the re-introduction of a local currency

Dec 30, 2011

The Zimbabwean dollar will for many always be associated with the country’s terrible era of hyperinflation. Its replacement by the adoption of primarily the US dollar as the currency of official use killed off that hyperinflation overnight. The Zim dollar was mourned and is missed by almost no one. But as it becomes increasingly obvious that the use of the US dollar cannot be a long-term strategy, there remains a visceral popular reaction to the idea of introducing local currency. The country’s unique hyperinflationary trauma means that it is one of the relatively few societies in the world where pride in having its own currency is much less than the fear of it.

For the many media that specialize in reporting on Africa’s problems, Zimbabwe’s hyperinflation years were a particularly rich and enjoyable period. TV viewers all over the world who could not locate Zimbabwe on a map were regularly treated to scenes of long lines of people lining outside banks for hours to withdraw currency that lost a huge chunk of its value while one waited in the queue. Empty supermarket shelves were for its citizens amongst emblems of the country’s deep economic malaise.

For most Zimbabweans, that is happily all in the past now. ‘For Zimbabweans’ because one sometimes gets the impression that there are some quarters that enjoyed the scenes of chaotic misery more than the present relative predictability and normality. Hyperinflation created a new class of entrepreneurs who were able to thrive from complicated enrichment schemes out of the situation. Some in Zimbabwe and abroad were sure it was the fuse that would finally light the end of the Mugabe regime in popular discontent. Long after the novelty has begun to wear off, some international collectors of notes still speak of Zim dollar notes in denominations of millions with seeming nostalgia.

It is sometimes forgotten, or conveniently ignored, that the sidelining of the local currency that effectively ended hyperinflation was an initiative of a short-term ZANU-PF minister of finance, just before the present ZANU-PF/MDC joint government came into being in early 2009. For a government that explained (and still does) many of the country’s problems as being caused by ‘imperialist countries that are upset at the Mugabe government for undertaking the land reform programme that dispossessed white farmers,’ the adoption of the US dollar as a replacement for the Zim dollar was pregnant with ironies.   

Here was a government that was adopting the currency of one of the countries it claimed was bent on deposing it! But so great was the urgency to end hyperinflation, and so great the relief when that was done by adopting a ‘basket’ of hard currencies that included the US dollar that the Mugabe/ZANU-PF government did not suffer the propaganda costs that might otherwise have been expected at finding the solution in the currency of one of its principal ‘enemies.’ 

As the memories of hyperinflation slowly recede, there is increasing focus on the problems that go with using a currency other than your own. At the everyday, grassroots level, the ‘shortage’ of coin denominations of the US dollar means how to make small change is a big problem. Getting change in sweets, bubble gum and so forth gets very old very quickly. The idea of importing US coins has been mentioned but hasn’t seemed to have made much progress. It would in any case suggest permanence to the situation which policy makers may not want to signal, even if many ordinary Zimbabweans who lost their life savings to Zim dollar hyperinflation may not mind.

More seriously there is the intrinsic mismatch between a country with a soft economy that uses a hard currency as everyday legal tender. Zimbabwe does not have anywhere near US levels of economic productivity, so the US dollar is a relatively poor reflection of in-Zimbabwe exchange value, even if it works fine for international trade. For a Zimbabwean fruit and vegetables street vendor selling locally grown produce to another Zimbabwean whose entire income is also all from local activities, the US dollar is a problematic reference of exchange value.

One result of this is that a US dollar on average buys much less in Zimbabwe than it does in the US. A bunch of tomatoes sold for one US dollar may ‘really’ only be worth, say 38 cents. At least one reason for a dollar becoming the easy default minimum denomination of exchange is that it would not be possible to make change on 38 cents because of the absence of coins. The price for 38 cents’ worth of tomatoes has been ‘rounded off’ to a dollar for change convenience! A relatively simple physical cause therefore has quite considerable consequences when one considers the effect of this price multiplication throughout the economy.  

Perhaps the vendor of the example given could just add more tomatoes to the bunch to make it really reflect a dollar’s worth of produce, rather than only 38 cents, but this is to bring in other human factors which it is not necessary to do here for the purposes of making the point that there are problems with getting a foreign medium of exchange to relatively accurate reflect the worth of goods and services.

One result of all this is that in exchange for the relative price stability of using the US dollar as a means of exchange, that dollar becomes particularly ‘expensive’ in terms of Zimbabwean economic productivity. ‘Shortages of goods have ended, their prices are now relatively stable but the (US) dollar is very hard to get hold of’ is a refrain now constantly heard in Zimbabwe to the question of how today compares to the situation in 2008, for example.

So then, is perhaps now time for Zimbabwe to exert its ‘sovereignty’ by having its own national currency again? Presumably the traumatic lessons of hyperinflation have been seared deeply enough into the nation’s soul that the recklessness that caused it will not be soon repeated.

Central banker Gideon Gono was hired to tame hyperinflation but superintended its explosive rise instead. With the adoption of the US dollar, the Reserve Bank of Zimbabwe (RBZ) lost its monetary regulation functions and powers. Gono is now in the forefront of urging a reconsideration of the idea of introducing a new national currency.

Said Gono, “"The form and manner as well as the resumption of the proposed new
Zimbabwe dollar or whatever it will be called will obviously take into account our national reserves in terms of strategic and precious metals such as gold reserves for back up," he said.

Gono was not arguing for quite the same role for a new currency as that served by the old. He was instead making the quite moderate proposal that the proposed new currency be simply added, along with the Chinese Yuan, to the present mix of international currencies that are used as every day legal tender in Zimbabwe. His proposal is not to take anything away from the present confident-inspiring set up of multi-currencies, but to merely add to it.

"The year 2012 should thus see Zimbabwe coming up with its own currency which we should be using without ruling out the multicurrency system until the economy stabilizes. At the moment the US dollar is going down the tube owing to the Euro-zone debt crisis and as a country, we are also going down the tube because we do not have control of that currency. As long as we continue to use other people's currencies, where we do not have control over that currency, we are not going anywhere as a nation,” Gono said.”

Gono’s proposals in this regard are inevitably viewed by many Zimbabweans through the prism of his reputation as Mr. Hyperinflation, but he is not the only one who has broached the subject of the need again for a national currency. In fairness to the much-maligned Gono, his proposals probably have more basis than just to see again in circulation bank notes with his signature on them, or a restoration of some of the lost functions, powers and prestige of the institution he heads, the RBZ.      

It is early days in the talk of re-introducing a Zimbabwean currency. For many who remember the loss of so much they worked for that hyperinflation represented (wiping out of pensions, savings, raiding of foreign currency accounts, etc) talk of a new currency will prove to be far too early. They would rather deal with the currently safer, more predictable problems and inconveniences of depending on the US dollar than again rely on a medium of value and exchange presided over by Mugabe, Gono & Company.

At its root, the loss of what is normally the national pride of a having a local currency is a fundamental loss of confidence by the citizens in the ability of their leaders and economic managers to run the country well and for their benefit. The preference for foreign mediums of value and exchange is at odds with a country that spews out so much nationalistic rhetoric, but it is an enduring symbol of how Zimbabweans have coped with levels of inflation and other shocks that those who have not undergone them cannot fully comprehend.           

While some of the ways Zimbabwe is disadvantaged and inconvenience from not having its own currency are becoming self-evident, the widespread acceptance of and confidence in a national currency will likely be a gradual process. Rather than being a strictly economic issue, it will have to be part of the overall, complex process of psychic healing that Zimbabwe will have to undergo as part of recovery from the many severe shocks of the ‘lost decade’ up to 2008/2009.


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