In Zimbabwe, even the trillionaires are struggling to make ends meet.
But that is about to change as the government begins a phasing out of the massively hyperinflated Zimbabwean dollar in favor of a multi-currency regime involving mainly a mix of U.S. dollars and South African rand that, in any case, has been the de facto norm since 2009.
In a bid to stabilize an off-the-rails economy, starting on Monday Zimbabwe’s central bank will offer $5 U.S. for every 175 quadrillion (175,000 trillion) Zimbabwean dollars, according to an email send by the bank’s governor, John Mangudya. The move, he wrote, has 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,” Mangudya said.
The classic definition of inflation is “too much money chasing too few goods.” With hyperinflation, the process gets locked in a death spiral. That’s what happened in Zimbabwe when the government of President Robert Mugabe “started a campaign in 2000 of violent seizures of white-owned commercial farms to distribute to black subsistence growers, slashing exports of tobacco and other crops,” according to Bloomberg.
The country plunged into a brutal and prolonged recession as its gross domestic product plummeted and inflation hit 500 billion percent.
According to the BBC: “The last bank note printed by Zimbabwe was for 100 billion Zimbabwean dollars, still not enough for a bus ticket.”
In a situation reminiscent to what happened in Germany in the early 1920s, the BBC says “Hyper-inflation saw prices in shops change several times a day, severe shortages of basic goods and Zimbabweans taking their money to market in wheelbarrows.”
Reuters columnist Edward Hadas adds: “Zimbabwe’s mirage-quadrillionaires are witnesses to its monetary disaster. Harare is the new Weimar. Just as Germany created money to pay for reparations after World War One, Zimbabwe President Robert Mugabe used newly created cash to spend well beyond the government’s means.”
The process of “demonetizing” will begin June 15 and be complete by September 30. The Financial Times writes: “Within that window, the notes can be exchanged for US dollars. After that they’ll be worthless — which isn’t so different from their value now.”
The BBC notes that the exchanges is likely to affect only those Zimbabweans with bank accounts, as presumably they are the only ones with enough of the old currency to make such an exchange practical.