The RBZ wants to introduce a new currency—but this won’t work miracles. Faced with surging inflation and a falling national currency due, The RBZ is planning to issue new $5 notes and $2 coins, this could affect the current exchange rate with the U.S. dollar. The official rate is meaningless on the street, however; in reality, the value of the Zim Dollar is unchanged—this week, it was trading at 13.7 to the dollar on the black market. For a while, Iran has been operating two exchange rates, one for the interbank and one for everything else. (Even more rates have emerged in recent months on the back of a currency crisis.) If implemented carefully and as part of wider financial reforms, cash injection would be a positive move but hardly an answer for all the country’s intertwined economic woes. Zimbabwean authorities considered new currency introduction before in the years gone by when souring inflation rates was stoked fears of hyperinflation.
To ensure a smooth transition process and to prevent a rebound that would force another currency injection and massive implementation costs down the line, the government and parliament need to reach a united vision. They need to aim for macroeconomic stability through local reforms on the national scale and weather the storm by working with foreign partners. Only after achieving those things can they stabilise currency supply and rebuild public trust in a reinvented national currency.—authorities are well-aware that Zimbabweans’ patience for economic hardship fueled by corruption and mismanagement is already running thin. But the country, is still plagued by instability today, this should serve as a cautionary tale.
We should not expect too much from this development it can't be said that this will have an impact on economic growth and inflation. This should be seen as a cosmetic move done to facilitate payments whilst increasing printing costs at the same time. Officials most probably view this only as a component of much larger, necessary reforms. The government doesn’t need to look far to see that if implemented as part of wider financial reforms, especially in the beleaguered banking system, new currency could be helpful in several aspects. In 2005, Turkey redenominated the lira in response to an inflation rate of higher than 50 percent. The move was relatively successful because it was implemented in tandem with wider reforms. But Turkey’s 2018 currency crisis proved immensely challenging and again decreased confidence in the lira mostly due to a problematic banking system. Turkey’s central bank gained independence in 2001 in the aftermath of an economic crisis, but that hasn’t meant it has been fully free of government meddling.
While cash injection won’t actually strengthen the Zim Dollar or boost public purchasing power as a stand-alone measure, it could have a positive psychological impact on the people. They are increasingly dissatisfied with the fact that a single U.S. dollar fetches 13.7 bond of the national currency. But authorities also need to recognise that the initial positive psychological impact of currency boost will be short-lived, and could be quickly reversed, if high inflation persists. The general public, especially a hammered middle class, knows that filling up banks with cash won’t do anything to lift their deteriorating prospects by itself. The fact is that the government should not view increased cash supply as a silver-bullet solution for high inflation and a weak currency. Especially since history has shown what price people have had to pay for their leaders’ lack of policy foresight. Venezuela adjusted its national currency last August in a move socialist President Nicolás Maduro said would turn the faltering economy around. It came as little surprise that it did nothing to curb the country’s hyperinflation that the International Monetary Fund says will reach 10 million percent in 2019.
The RBZ slashed 12 zeros off the currency at the height of an economic crisis in 2009. Dealing with an astronomical inflation rate that was estimated at 89.7 sextillion percent by the Cato Institute meant that the move was an absolute failure. We were forced to ditch the currency altogether in 2009 and opted for the U.S. dollar, South African rand, and a basket of other currencies. Bond notes pegged to the dollar were introduced in 2016 as legal tender, but the government may scrap them as well.
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