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Zimbabwe Shorts Local Currency In Favour Of USD

Published 06/18/2015, 04:28 AM
Updated 04/25/2018, 04:40 AM

Zimbabwe’s Currency has Officially Collapsed!


Zimbabwe Looks to the USD and the ZAR for Monetary Support

The numbers are astounding, and not in a good way. In Zimbabwe, Z$175 quadrillion can be exchanged for a paltry $5. For higher balances, the exchange rate will be Z$35 quadrillion for every $1. The hyperinflationary pressures that have destroyed the local economy have resulted in a macroeconomic decision to replace the Zimbabwe dollar with the U.S. dollar. Such has been the utter failure of the local currency to hold its own that the central bank of Zimbabwe has completely abandoned the currency. In fact, since the global economic crisis hit in 2008/2009, the Zimbabwean economy has been heavily reliant on the ZAR and USD to prop up the banking and financial sectors.

The governor of the Zimbabwe central bank, John Mangudya, intimated that the country cannot maintain multiple currency systems and as a result, Zimbabweans will have until the end of September to exchange their dollars for USD or ZAR. Since the vast majority of Zimbabweans are in dire straits, the only ones who will be affected by these currency changes will be those with savings accounts. Legal tender in Zimbabwe includes ZAR, USD, AUD, JPY, GBP and other international currencies. The most popular currencies in the country are the South African Rand and the US dollar.

What Hyperinflation Looks Like in Zimbabwe

In much the same way as the Great Depression ravaged the German economy and people were transporting money to and fro in wheelbarrows, much the same is taking place in Zimbabwe today. The hyperinflation is so extreme that prices in stores change multiple times per day. In addition to extreme shortages of basic supplies, the country cannot meet its security, welfare, education, or other societal needs. Inflation stats are simply not reported anymore. Retirement pensions, savings accounts and other types of investments effectively have a zero value and unemployment is hovering at 80% in a country that is ravaged by HIV and AIDS.

Such is the extent of hyperinflation that change is not given in currency (coins and notes); it is given in kind such as candy, pens and pencils. Bond Coins have been introduced into circulation in Zimbabwe, but people have not taken kindly to them fearing that they will simply reinstate the Zimbabwe dollar. A big part of the reason why the Zimbabwe dollar collapsed is the expropriation of white-owned farms and lands in 2000. The policy of land grabs was popular with the locals who occupied, seized or squatted on white-owned land, but this policy has been viewed with extreme scepticism by foreigners and investors. Zimbabwe’s policies resulted in the country being labelled with pariah status.

Economic Collapse since Zanu-PF/ Movement for Democratic Change Coalition

Come June 15 2015 the Central Bank of Zimbabwe will begin its process of demonetising the local currency. President Robert Mugabe has been at the forefront of a country with an annual rate of inflation hovering at over 231 million percent. Since most of the money used in Zimbabwe came by way of migrant workers returning with valuable South African rands, the local economy was dependent on such currency to keep the economy going.

However, there are multiple ‘legal tender’ currencies in Zimbabwe and the demonetisation policy is merely a process of exchange taking place. The numbers are telling: Zimbabwe’s average annual decline was recorded at 2.6% while that of sub-Saharan countries in Africa averaged 5% during the years 2002 – 2012. This data was provided by the IMF.

The economic woes in Zimbabwe have been brought about by the ongoing uncertainty in political circles, the lack of FDI (Foreign Direct Investment) and the subjugation of opposition political parties in the country. Infrastructure is crumbling and industries are failing across the spectrum. Since 2012, an estimated 4,600 businesses have closed up shop and rampant unemployment is the norm. The International Monetary Fund (IMF) expects an annual growth rate of 2.8% for 2015, which is markedly lower than the 3.2% for 2014.


Many analysts however are of the opinion that the country will slip into a recession. The supreme head of Zimbabwe, the champion of the people who led them to democracy over British rule in 1980 has become a despotic and tyrannical leader. President Mugabe, once a freedom fighter, has become an oppressive force in the country as he has been trying to brainwash a narrative of Western oppression being responsible for his government’s failed policies.

Emerging Currencies Slump as 3-Day Uptrend Comes to an End

Higher U.S. interest rates are weighing heavily on the currencies market, especially where it is related to emerging market currencies. The Brazilian real slid by the most in 2 weeks recently as the central bank decided to stop propping up the local currency. In South Africa, manufacturing data reflected a period of slow growth and this further weakened the ZAR. Across the world, the Russian ruble also came under fire as the price of Brent crude oil dipped. However, in China the yuan is showing some steel with evidence that the Chinese economy is now stabilizing.

In the U.S. retail sales figures are giving impetus to calls for an increase in interest rates. A measure of 20 different currencies shows that a decline of 0.3% took place. In the U.S. however Q1 weakness is being investigated by the Fed to ascertain whether bad weather or weak fundamentals are plaguing the economy. If the Fed decides to increase interest rates, this will be the first time since 2006 that such an increase has taken place. It will immediately have the effect of strengthening the USD as increased demand for the dollar comes into play.

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