By Leila Dougan and Nora-Lee
Zimbabwe is issuing a new currency by slashing three zeros off its dollar in an effort to salvage the floundering economy, causing national panic.
These changes are an attempt to counteract the effects of runaway inflation, which is currently at just below 1 000% per annum.
Zimbabwe remains the most indebted country in the world with $5,5 billion in arrears and 80% of the population living below the poverty threshold.
The Reserve Bank of
Zimbabwe made the move on July 31 and proceeded to set a 21-day deadline for allold notes to be exchanged for the new currency. This date had to be extended because masses struggled toexchange their money at banks before the midnight deadline on August 21. The critical question at hand is: what effect will this have?
Even though the change will relieve citizens of carrying around large quantities of money to buy simple groceries, the modification of the Zimbabwean dollar has caused turmoil in the state. There is a shortageof the new currency, especially the lower denominations, preventing retailers from giving the right amountof change to customers. Communication between government and citizens was also woefully ineffective as those in rural areas were not informed of the currency change and therefore were unable to meet the exchange deadline. Many have lost their life savings, because there is no way of changing old currencyfor new after the deadline. As the deadline rushed closer many retailers refused to accept the old money, forcing people to return to the townships, at great expense, where traders were still accepting the old currency. Less than a week before the changeover was complete, reports of circulating counterfeit old notes reached
Harare. Counterfeiters appeared to be targeting street vendors and traders on the informal markets. If this wasn’tenough, exchanging more than Z$100 million per week was forbidden, and those attempting to do so risked being accused of fraud. Economists say that even though the change in currency is improving the situation in
Zimbabwe at the moment, it will have to be repeated in two to three years as inflation continues to rise. Nominally altering the currency does not address the underlying causes of inflation, and these structural issues have still not been addressed. The effects are not only local, as the continuing collapse of Zimbabwe’s economy is stripping
South Africa of 2% of its annual growth. This is significant for South
Africa, because growth rates of at least 8% a year are required to reduce unemployment. It is a pitiful situation as Zimbabwe used to be
South Africa’s largest trading partner on the continent, and it is doubtful that measures such as this currency devaluation will have any positive effects.