FINNACLE 2015 SDMIMD

Demonetisation of Zimbabwean Currency

Zimbabwe government has decided to finally decommission (retire) its national currency, Zimbabwe

dollar (ZWD). Every local citizen will get the US currency notes in scheme which comes to only 1 USD

in exchange of 35,000,000,000,000,000 ZWD (35 million billion ZWD).

This situation arose because of certain measures taken and the inflation and hyperinflation

(uncontrolled inflation) which eroded and devalued the currency. The last estimated inflation had

been recorded at 79.6 billion % in the year 2008.

Background

The currency was introduced in the year 1980 replacing the Rhodesian dollar. The currency was

valued at 1.47 USD per ZWD. But as this was not a correct valuation, the value of the currency eroded

over the years.

Zimbabwe spiraled into deep economic crisis after President Robert Mugabe introduced a radical

policy of land distribution in the late 1990s and early 2000s. Facing chronic shortages of basic

commodities, the central bank kept printing money to fund budget deficits, ultimately causing prices

to go crazy.

The currency was redenominated (adjust for inflation and currency devaluation) three times till the

year 2009.

Zimbabwean Inflation Rates Year Rate

1980 7.00% 1991 48.00% 2001 112.10% 2002 198.93% 2003 598.75% 2004 132.75% 2005 585.84% 2006 1281.11% 2007 66212.30% 66 thousand %

2008 Jul. 231150888.87% 231 million % 2008 Mid-Nov. 79600000000.00% 79.6 billion %

FINNACLE 2015 SDMIMD

Redenomination Date

Currency code Value

1 August 2006 ZWN 103 ZWD

1 August 2008 ZWR 1010 ZWN

2 February 2009 ZWL 1012 ZWR (=1025 ZWD)

At the height of Zimbabwe's economic crisis in 2008, Zimbabweans had to carry plastic bags with

bundles of bank notes to buy basic goods like bread and milk. Prices were rising at least twice a day.

The unemployment increased and the public services collapsed. The economy shrank by 18% as

reported by World Bank.

Year 2009 - Year of Change

The country had stopped using its national currency in the year 2009 and started using currencies of

various countries such as Indian Rupee, US Dollar, South African Rand, etc. for the day-to-day

transactions.

The benefits of multi-currency were significant as all sectors in the economy experienced an

improvement with real gross domestic product increasing from a negative 14.8% in 2008 to a positive

5.7% by the end of 2009. Stability in price level was achieved and inflation dropped to single digits.

Current Situation

The GDP annual growth rate has been in positive figures in all years since then but growing slowly,

latest been 4% in year 2014. The inflation rate in April 2015 was -2.70%.

The old currency notes with the public have been now allowed to be exchanged for US Dollar. The

target to finish the process has been kept as September 2015. The currency used now are South

African Rand, Botswana Pula, Pound Sterling, Indian Rupee, Euro, Yuan and the United States dollar.

FINNACLE 2015 SDMIMD

References

1. http://www.tradingeconomics.com/zimbabwe/inflation-cpi

2. http://www.rbz.co.zw/

3. https://en.wikipedia.org/wiki/Zimbabwean_dollar

4. http://money.cnn.com/2015/06/12/news/zimbabwe-currency-dollar/?sr=cnnitw

5. http://www.telegraph.co.uk/finance/11669652/Thatll-be-175-quadrillion-Zimbabwean-dollars-

please.html