The Reserve Bank of Zimbabwe (RBZ) is now offering citizens possibly the weakest exchange rate ever recorded, with citizens needing to cash in 35,000,000,000,000,000 local Zimbabwean Dollars (ZWD) to get just one US Dollar (USD).
The RBZ announced that the demonetization of the Zimbabwean Dollar (ZWD) was a result of hyperinflation and that the process will start on the 15th June, running through to September.
RBZ to Use US Dollars (USD) and South African Rands (ZAR) instead of Zimbabwean Dollars (ZWD)
Reserve Bank of Zimbabwe Governor John Mangudya stated: ‘The banking public should visit their banks to establish the balances which were in their accounts. We have interacted with the banks and they still have all the information, which we as the Reserve Bank also authenticated.’
Zimbabwe already uses a combination of US Dollars (USD), South African Rand (ZAR) and Botswana Pulas (BWP) but the RBZ has opted to cut the local Zimbabwean Dollar after a period of rapidly increasing inflation. Hyperinflation is usually so rampant and unruly, that the whole concept of inflation is rendered meaningless.
Zimbabwean Inflation causes ZWD Exchange Rate to Become Out of Control
Back in 2008, Zimbabwe’s inflation reached a massive 231 million percent (the highest in the world), bearing in mind the Bank of England (BoE) and Federal Reserve maintain inflation targets of 2.0% for the UK and US.
Professor of political science lecturer at the University of Zimbabwe Eldred Masunugure commented: ‘the consequences of such a rate of inflation is absolute desperation, despair and poverty.’
The rise in inflation meant that in August to buy a load of bread, citizens would need to part with $500 Zimbabwean Dollars (ZWD), yet by October, citizens needed between $7000-8000 local Dollars for the same item.
At that time the black market also strengthened, with one US Dollar (USD) reaching $8,000 Zimbabwean Dollars (ZWD), despite the actual worth of it estimated to be $180 ZWD.
However, despite the inflation rate being officially recorded as 231,000,000%, some industry experts have suggested the actual rate was closer to 4,000,000,000%. A near decade long recession occurred, with growth contracting by around 50% before it ended in 2009.
Government Spurs Growth after Near Decade-Long Recession, Zimbabwean Dollar (ZWD) Exchange Rate Forever Damaged
The coalition government spurred growth with new policies and foreign currencies as legal tender helped to reign in the unbelievably high inflation. The move by the RBZ is likely to allow the central bank to increase its level of foreign reserves while offering some strength to the financial sector as a whole.
As a result, the nation has little choice but to abandon the Zimbabwean Dollar and embrace a new era of stability.
RBZ Governor John Mangudya stated that the move to demonetization had been ‘pending and long outstanding. We cannot have two legal currency systems. We need therefore to safeguard the integrity of the multiple currency system or Dollarization in Zimbabwe.’
On Friday, Ebay auctions offering 100 trillion Zimbabwean Dollars (ZWD) were reaching $159 US Dollars (USD).