Zimbabwe To Introduce New Currency – Free PDF Download

HISTORICAL BACKGROUND

• Zimbabwe has a troubled history with currency.
• Around 2009, hyperinflation destroyed the value of country’s currency Zimbabwe Dollars.
• At its height, prices were almost doubling every day and the reserve bank printed notes worth 100tn Zimbabwe dollars to try and keep up.
• Hence in 2009 it ditched the Zimbabwe dollar.
• The Zimbabwe dollar was replaced by a basket of multi-currencies which included-US dollar, the British pound, South African rand, Botswana pula, Japanese yen and the Chinese yuan.
• But the US dollar remained dominant currency.

SCARCITY OF US DOLLARS

• The Zimbabwe was continuously facing economic downturn and slow economic growth.
• This led the country to import huge amount of goods, in return it exported only few goods.
• To make payments for imports more US dollars were leaving the country.
•  Thus the US Dollar became scarce over time.
• This led to long bank queues as people struggled to get their money out.

BOND NOTES AND BOND COINS

• In 2016, the government introduced bond notes and coins.
• These were supposed to be worth the same as the US dollar, to make up for the cash shortage.
• But no-one had faith that they were equivalent.
• Thus bond notes rapidly lost value against the dollar.
• The bond notes and coins were at par with the US dollar at their introduction but have over the years continued to lose value.
• Currently it is trading at around 14 to 1 US dollar.

NOW WHAT? RTGS DOLLAR?

• In February 2019, introduced- Real Time Gross Settlement.
• Since Zimbabwe used different currencies, customers were charged different prices depending on what payment method they chose.
• The RTGS dollar brought together bond notes, debit card and mobile money payments to make sure that they are all worth the same.
• Basically government wanted things priced in RTGS dollars, rather than US dollars.

• New currency would be introduced in a move set to curb current cash shortages in the country.

LEARNINGS FROM ZIMBABWE EXPERIENCE

• What makes a currency a currency?
• A currency is something that is widely accepted as a means to buy goods and services.
• Independent monetary policy?
• Multi-currency regime did not give control of monetary policy and left Zimbabwe at the mercy of US dollar.
• US dollar is so strong, producing goods in Zimbabwe was expensive which is why businesses prefer to import goods.

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