Saturday, January 10, 2009

Zimbabwe introduces new $50 billion note

. Saturday, January 10, 2009


Zimbabwe's central bank will introduce a $50 billion note -- enough to buy just two loaves of bread -- as a way of fighting cash shortages amid spiraling inflation.

The country's acting finance minister, Patrick Chinamasa, made the announcement in a government gazette released Saturday.

While Chinamasa did not give the date on which the $50 billion and new $20 billion notes would come into circulation, an official at the Reserve Bank of Zimbabwe said the notes would be distributed to all banks by the end of Monday.

Zimbabwe is grappling with hyperinflation, now officially estimated at 231 million percent and its currency is fast losing its value. As of Friday, one U.S. dollar was trading at around ZW$25 billion.

When the government issued a $10 billion note just three weeks ago, it bought 20 loaves of bread. That note now can purchase less than half of one loaf.

Realizing the worthlessness of the currency, the RBZ has allowed most goods and services to be charged in foreign currency. As a result, grocery purchases, government hospital bills, property sales, rent, vegetables and even mobile phone recharge cards are now paid for in foreign currency, as the worthless Zimbabwe dollar virtually ceases to be legal tender.
Under these circumstances, most, if not all, consumers would flock to hold and do business only in foreign currency. Their domestic currency can not hold its value, so these people would do best by refusing to hold any Zimbabwean currency and instead try to pay for goods and services using foreign currency (if they can get their hands on any of it) or turn to bartering.

This reminds me of hearing stories about Argentinean grocery stores in the 1990's. Shop owners stopped labeling the prices of grocery items on the shelves because by the time a customer would pick up the item and walk it to the counter to pay, the price would have gone up. Customers would walk in, literally, with a bag of money and try their best to grab the item and run to the counter before it went up in price. 

It is difficult to watch this situation develop in an extremely poor, African country. With more than 80% of the working age population unemployed, one of the lowest standards of living in Africa, a dysfunctional government and economic system and rampant hyperinflation, how can people survive? The vast majority of these people do not have access to foreign currency and can not find work to try to earn even the most modest of wages. This is where a modern economy spirals backwards into the realm of a 16th century barter economy. This is painful to watch. How can any of this be possible in the 21st century?


Zimbabwe introduces new $50 billion note




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