Thursday, April 2, 2009

Zimbabwe Forced to Reform Currency - Again

By Richard Giedroyc, World Coin News
April 01, 2009

It's a dubious honor, but the African nation of Zimbabwe continues to have the worst inflation rate in world economic history. Officially the inflation rate is at 231 million percent, but the Feb. 2 issue of the London (England) newspaper The Times estimated the true rate to be an astronomical 5,000,000,000,000,000,000,000 per cent.The AFP News Agency quoted Reserve Bank of Zimbabwe Governor Gideon Gono as wryly saying, "Yesterday's trillionaires, I am sorry, will not be able to buy their favorite drink today."The Zimbabwe government lobbed 12 zeroes off each of its bank note denominations on Feb. 1, continuing a familiar pattern in the economically destitute nation. This means the Z$1 trillion bank notes issued during January are now worth Z$1 each. This was the 35th new bank note denomination introduced into Zimbabwe in the past year. On Feb. 1, the date of the introduction of the newest currency reform, the U.S. dollar was valued at between Z$3 trillion and Z$4 trillion.New bank notes were issued in denominations of Z$1, Z$5, Z$10, Z$20, Z$50, Z$100, and Z$500. No coins were issued, nor will any coins likely appear considering the purchasing power of the Zimbabwe dollar decreased by the hour.The announcement of the new bank notes did not include any information regarding their designs, but such vignettes as a laughing hyena or a dodo bird come to mind as being appropriate.In a prepared statement Gono said, "This Monetary Policy Statement unveils yet another necessary program of revaluing our local currency, through the removal of 12 zeroes, with immediate effect."Gono is, however, trying some new tactics to stabilize the Zimbabwe currency once and for all. Some foreign exchange controls have been relaxed, gold producers can now sell their bullion directly (in the past all gold had to be sold to the central bank), while workers can now be legally paid in foreign currencies. Businesses are allowed to charge for goods and services in foreign currencies. The Zimbabwe stock exchange is also allowed to trade in foreign currencies.There are problems even with these changes. Most gold mines are closed due to soaring costs and a lack of electricity. Unemployment in Zimbabwe is more than 90 percent, so there are few workers who can be paid in a foreign currency. As of the beginning of February the nation's stock exchange has not been open in more than two months.Paying workers in foreign currencies is also a problem, since it encourages people to use anything as money other than the Zimbabwe dollar. Harare-based economist John Robertson was quoted by the Reuters News Agency as saying, "It would appear he [Gono] is trying to restore the Zimbabwe dollar, but given the choice of multiple currencies, who would want to trade in Zimbabwe dollars?"Using foreign currencies in Zimbabwe has a political undertone as well, since Zimbabwe President Robert Mugabe came to power by kicking the British colonials out of the country. Now the British pound is one of the currencies being widely accepted in commerce.An unnamed Western diplomat was quoted in the Feb. 2 The Times as saying, "It's vastly symbolic, but Zimbabwe needs more than just their bank notes. Mr. Mugabe, the great freedom fighter who secured Zimbabwe's independence, has reduced his country to utter dependence on Britain, America, and the rest of the world."Mugabe and his political rival Morgan Tsvangirai were until late January in a political stalemate that was further paralyzing the nation and any economic recovery that might be planned. The two finally agreed to a joint coalition government, although the future success or failure of that coalition government won't be known for some time. Taking the view of a numismatist, the question has to be raised: If the gold mines are going to be allowed to sell their gold directly to the market, why not introduce a gold bullion coin which would coincidentally assist in stifling inflation? No one in Zimbabwe appears to be considering this possibility.

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