Jake Miller
The Zimbabwean dollar has had a tumultuous history, with the country experiencing hyperinflation and multiple currency reforms since its introduction in 1980. The currency was officially abandoned in 2009, and the country transitioned to a multi-currency system, with foreign currencies such as the US dollar and the South African rand being used. In 2019, the Reserve Bank of Zimbabwe attempted to reintroduce a new Zimbabwean dollar, but this was met with widespread opposition due to high inflation and public distrust. As of 2024, the Zimbabwean dollar has been replaced by a new currency called the Zimbabwean gold or the ZiG. While some local banks and vendors in Zimbabwe accept international credit cards, it is unclear if they still accept the old Zimbabwean dollar alongside the new currency.
| Characteristics | Values |
|---|---|
| Currency Code | ZWD |
| Redenomination | 2006, 2008, 2009, 2019, 2024 |
| Replacement Currency | US Dollar, South African Rand, Botswana Pula, Pound Sterling, Euro, Australian Dollar, Chinese Yuan, Indian Rupee, Japanese Yen, ZiG |
| Redenomination Rate | 1000:1 in 2006, 1000000000000:1 in 2009 |
| Current Status | Not accepted by banks |
| Current Inflation Rate | 55.3% as of March 2024 |
| Current Exchange Rate | Z$30,000 per US Dollar as of April 2024 |
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What You'll Learn
The Zimbabwean dollar's history of hyperinflation
The Zimbabwean dollar was introduced in 1980, replacing the Rhodesian dollar at par value. Initially, it was more valuable than the US dollar at the official exchange rate, though this did not reflect the reality of its purchasing power on the open and black markets.
In the 20th century, the Zimbabwean dollar functioned as a normal currency. However, in the early 21st century, hyperinflation in Zimbabwe reduced the Zimbabwean dollar to one of the lowest-valued currency units in the world. The country's inflation problems started well before the official hyperinflation period that began in 2007. In 1998, Zimbabwe's annual inflation rate was 47%. Except for a slight decrease in 2000, it rose steadily through to the hyperinflation period.
As hyperinflation accelerated, the value of the Zimbabwean dollar declined rapidly against other currencies. The Reserve Bank of Zimbabwe responded by repeatedly printing more banknotes, often at great expense from overseas suppliers. In 2003, there were growing shortages. By 2006, before hyperinflation reached its peak, the bank announced it would print larger bills to buy foreign currencies. The Reserve Bank printed Z$21 trillion to pay off debts owed to the International Monetary Fund. In 2008, during a period of hyperinflation, the government printed money in increasingly larger denominations to match market prices, issuing a Z$100 trillion banknote.
In 2009, the government of Zimbabwe announced the demonetisation of the Zimbabwean dollar, which became final in 2015. The country transitioned to the use of multiple currency systems, including the US dollar, the Botswana pula, the Indian rupee, the euro, and the South African rand. In 2019, the new Finance Minister, Mthuli Ncube, presided over the conversion from foreign currency to a new Zimbabwean currency, and hyperinflation returned. In 2024, the government introduced a new currency called the Zimbabwe Gold (ZiG), backed by gold reserves, to replace the Zimbabwean dollar.
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Foreign currency legalisation in 2008
The Zimbabwean dollar (ZWD) was the official currency of Zimbabwe from 1980 until 2009. During this time, it was subject to periods of extreme inflation, followed by a period of hyperinflation. The Zimbabwean dollar was introduced in 1980 to directly replace the Rhodesian dollar at a similar value to the US dollar.
In the early 21st century, hyperinflation in Zimbabwe reduced the Zimbabwean dollar to one of the lowest-valued currency units in the world. It was redenominated three times (in 2006, 2008, and 2009), with denominations up to a $100 trillion banknote issued. The final redenomination produced the "fourth dollar" (ZWL), which was worth 1025 ZWD.
In 2008, the government started to allow some retailers to accept foreign currencies as it printed banknotes with higher and higher values to keep up with inflation. The use of foreign currencies was legalised in January 2009, causing general consumer prices to stabilise again after years of hyperinflation and price speculation. This move led to a sharp drop in the usage of the Zimbabwean dollar, as hyperinflation rendered even the highest denominations worthless.
The Zimbabwean dollar was effectively abandoned as an official currency on 12 April 2009, when the Economic Planning Minister, Elton Mangoma, confirmed the suspension of the national currency for at least a year. On 29 January 2014, the Zimbabwe central bank announced that the US dollar, South African rand, Botswana pula, pound sterling, Euro, Australian dollar, Chinese yuan (renminbi), Indian rupee, and Japanese yen would all be accepted as legal currency within the country.
In June 2015, the Reserve Bank of Zimbabwe began to formally demonetise the Zimbabwean dollar, reducing its value steadily to zero in order to complete a switch to the US dollar by the end of September 2015. The Zimbabwean government stated that it would credit $5 US dollars to domestic bank accounts with balances of up to 175 quadrillion Zimbabwean dollars. This move was meant to stabilise the economy and establish a credible nominal anchor under low-inflation conditions.
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The 2019 reintroduction of the Zimbabwean dollar
The Zimbabwean dollar was reintroduced in 2019, known as the Real Time Gross Settlement dollar (RTGS dollar) or the fifth Zimbabwean dollar. This was the country's fifth new currency since 1980.
The RTGS dollar was announced on 20 February 2019 by the Reserve Bank governor, John Mangudya, and began trading on 25 February. It consisted of real-time gross settlement balances, bond notes, and bond coins, which were devalued by 60% to Z$2.50 per US dollar. On 24 June 2019, the RTGS dollar was renamed the Zimbabwean dollar, and the government banned the use of foreign currencies in an attempt to end the multi-currency system.
The new Zimbabwean dollar was the only legal currency in the country from June 2019 to March 2020. However, due to high inflation, public resistance, and the impact of the coronavirus pandemic, the government was forced to legalise the use of foreign currencies again in March 2020.
The fifth Zimbabwean dollar underwent very high inflation, with the Reserve Bank's annual inflation rate surpassing 100% in June 2019 and 500% in December 2019. The inflation was caused by continued public distrust, a shortage of hard currency, and the Reserve Bank of Zimbabwe increasing the money supply. By December 2022, the Reserve Bank's annual inflation rate was 243.76%, and the use of Zimbabwean dollars in Zimbabwe declined in favour of hard currencies.
In February 2023, Zimbabwe switched to a blended inflation rate that included Zimbabwean dollar and US dollar prices. However, this was criticised by businesses for hiding the real inflation rate in the local currency. The Zimbabwean dollar was eventually replaced by a new currency, the Zimbabwe Gold (ZiG), in April 2024.
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The multi-currency system and its challenges
The multi-currency system in Zimbabwe was introduced in February 2009, with the country adopting the use of multiple currencies, including the United States dollar, the South African rand, the British pound, and the Botswana pula. This move was made to end a harsh economic meltdown caused by hyperinflation, which rendered the Zimbabwean dollar virtually worthless.
While the multi-currency system offered several benefits, particularly to micro, small, and medium enterprises (MSMEs), it also presented several challenges. One significant issue was the loss of control over monetary policy, as the market adopted the US dollar as the primary transacting currency, leading to massive capital flight. The manufacturing sector, a key contributor to Zimbabwe's GDP, faced challenges such as a lack of credit lines, competition from cheap imports, and the high cost of doing business in the country. The strong US dollar made exports expensive and attracted more imports, turning Zimbabwe into a marketplace for foreign products.
The multi-currency system also resulted in a liquidity crisis, as the country had to import more than it could export, leading to a net exodus of US dollars. Additionally, the complexities of the system raised concerns about potential forgery with unfamiliar notes, and some banks experienced cash shortages, affecting customers' ability to conduct transactions. There were also concerns about the impact of the multi-currency system on investment in the country.
The challenges associated with the multi-currency system led to attempts to reintroduce the Zimbabwean dollar, with the Reserve Bank of Zimbabwe abolishing the multi-currency system in June 2019. However, this move faced widespread opposition due to high inflation, public distrust, and the continued need for hard currencies to import goods. The Zimbabwean dollar underwent rapid depreciation, and the country eventually switched back to a multi-currency system in March 2020.
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The impact of the Zimbabwean dollar on banks' balance sheets
The Zimbabwean dollar has had a significant impact on the balance sheets of banks in the country. Introduced in 1980, the currency functioned normally during the 20th century. However, in the early 21st century, the Zimbabwean dollar experienced extreme inflation, followed by hyperinflation, which reduced it to one of the lowest-valued currency units globally. The Reserve Bank of Zimbabwe's response to this crisis involved repeatedly printing new banknotes, leading to a rapid decline in the currency's value. This resulted in a highly unstable economic situation, with prices in shops and restaurants being quoted in Zimbabwean dollars but requiring multiple adjustments throughout the day.
The hyperinflationary environment had a direct impact on banks' balance sheets. The value of assets denominated in US dollars or other foreign currencies suddenly increased significantly when converted into local currency balances. Simultaneously, liabilities denominated in US dollars remained unchanged, leading to a mismatch on banks' balance sheets. This situation likely led to challenges in managing liquidity, maintaining capital adequacy, and ensuring the overall financial health of the banking institutions.
The instability of the Zimbabwean dollar also contributed to a liquidity crisis in the country. This crisis was exacerbated by the need to import more than the country could export, resulting in a net outflow of US dollars. The Reserve Bank of Zimbabwe attempted to address this issue by introducing bond coins and notes, but these were resisted by the public as an attempt to reintroduce the Zimbabwean dollar. The failure to stabilise the currency and the continued resistance to the Zimbabwean dollar by the public further impacted the banks' balance sheets, as the currency's value continued to depreciate rapidly.
The Zimbabwean government made several attempts to address the issues with the Zimbabwean dollar. In 2014, the central bank announced that several foreign currencies would be accepted as legal tender alongside the Zimbabwean dollar. However, the Zimbabwean dollar continued to undergo high inflation due to public distrust and the shortage of hard currency. The government's efforts to ban the use of foreign currencies in 2019 were met with widespread opposition and ultimately had to be reversed. The continued instability and high inflation of the Zimbabwean dollar likely further strained banks' balance sheets, making it challenging to conduct accurate financial reporting and maintain stable operations.
In conclusion, the impact of the Zimbabwean dollar on banks' balance sheets has been profound. The hyperinflation and subsequent redenominations have led to complex accounting challenges, liquidity issues, and difficulties in maintaining financial stability. The situation has been characterised by periods of extreme currency volatility, public distrust, and economic policy changes, all of which have contributed to a dynamic and challenging environment for the banking sector in Zimbabwe.
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Frequently asked questions
No, the Zimbabwean dollar was demonetised in 2015, with outstanding accounts able to be reimbursed until 30 April 2016.
The Zimbabwean dollar was introduced in 1980 and functioned as a normal currency for the 20th century. However, in the early 21st century, hyperinflation reduced the Zimbabwean dollar to one of the lowest-valued currency units in the world. The currency was redenominated three times (in 2006, 2008, and 2009) but was eventually abandoned on 12 April 2009.
In 2014, the Zimbabwe central bank announced that the US dollar, South African rand, Botswana pula, pound sterling, Euro, Australian dollar, Chinese yuan, Indian rupee, and Japanese yen would all be accepted as legal currency within the country.
Zimbabwe's banking system is composed of commercial banks, merchant banks, building societies, the People's Own Savings Bank, development financial institutions, and micro-finance institutions. The re-introduction and collapse of the Zimbabwean dollar has challenged bank balance sheets, and the RBZ has some controls on current and capital account transactions. Additionally, Zimbabwean banks charge relatively high-interest rates of over 150%, and some local banks and vendors accept international credit cards. The Zimbabwean dollar was briefly reintroduced in 2019 but was replaced by the ZiG in 2024 due to continued high inflation and public resistance.
