Zimbabwe May Yet Defeat Inflation

By Richard Giedroyc, World Coin NewsJune 01, 2009
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What do you do with obsolete coins or bank notes even collectors don't want? If you live in the United States you hawk them to unsophisticated buyers who fancy themselves as investors or collectors, selling them through television home shopping networks, Sunday newspaper ads, or via telemarketing. If you live in the African nation of Zimbabwe, where television, newspapers, and telephones are a luxury, you sell your obsolete coins or bank notes to tourists.That, according to the March 23 The Globe and Mail newspaper, is exactly what Zimbabwe's street hawkers are doing. The now defunct Z$100-trillion bank notes are being sold to foreign tourists for Z$2 each - in some foreign currency rather than in Zimbabwe dollars, of course!Obsolete coins for sale, you ask? Don't count on it. Since the coins have metal content they will likely sell for their scrap value, even if their face value is so low the coins won't buy anything. According to The Globe and Mail, "The currency with the never-ending string of zeroes is quickly fading into history, just two months after the latest notes were printed by the inexhaustible central bank. Also disappearing is Zimbabwe's phenomenal level of hyperinflation, which last year reached a stunning 89.7 sextillion percent (a number expressed with 21 zeroes), making it the most extreme hyperinflation crisis of any country in modern times."After a number of currency reforms that ended in failure it appears the government may have finally found a formula that works. According to the newspaper account, "Zimbabwe's new coalition government has cracked both problems with an absurdly simple solution: It has abruptly switched to foreign currencies, allowing customers to pay for products with U.S. dollars or South African rand or Botswana pula. The entire economy, almost overnight, has switched to a unique system of multiple foreign currencies.""The dollarization (and rand-ization and pula-ization) of the Zimbabwean economy," The Globe and Mail article continues, "has finally slain the dragon of hyperinflation, providing the first fragile signs of hope for a devastated country. While the junking of the Zimbabwean dollar was a blow to the ego and power of Zimbabwe's bloated central bank, the radical move to adopt foreign currencies is still one of the fastest ways to kick-start any economy that is ruined by inflation and money-printing excesses. Empty shelves have been filled. Prices of staples such as milk and eggs are still twice as expensive as in neighboring South Africa, but they are half as expensive as they were in January."This dollarization, randization, and pulaization has created another situation as well. There is a shortage of US dollars, South African rands, and of Botswana pula bank notes (and presumably coins) in circulation in Zimbabwe. Currency speculators, for this reason, will likely flourish. They aren't alone, however. Caledonia Mining Corporation, based in Toronto, Canada, may soon re-open its Blanket gold mine which closed in October 2008 due to Zimbabwe's currency crisis. This mine could produce as much as 40,000 ounces annually. Regarding the shortage of foreign currency, shop keepers are already finding ways around this. There are reports of locally issued credit notes on small scraps of paper being provided as change. If customers won't trust these credit notes the merchants then offer their clients candy as change as an alternative. Even the Zimbabwe Stock Exchange has re-opened. It had been closed for three months, having a total capitalization of less than $1.3 billion US, about half what it had one month earlier. The fate of Nigeria Central Bank Governor Gideon Gono is now in question, with the recent move to dump the Nigerian dollar in favor of foreign currencies. After all, it was Gono who was responsible for the 100-trillion-dollar bank notes now selling to tourists for the bargain price of $2 each. John Robertson, an outspoken economist living in the Zimbabwe capitol of Harare, said "The process of change is irreversible. The wedge will be driven harder and harder."