Since 2009, Zimbabwe has not had its own currency. Instead, its citizens rely on Dollars, Euros, South African Rand, and even Chinese Yuan. Yet over the past few weeks, an economic slowdown has caused a major shortage of Dollars held by banks and in the country’s reserve. In a country where the pain of terrible economic mismanagement is still fresh in the minds of consumers, the economic strife has sparked fears that things are set to get worse in Zimbabwe.
It was only a few years ago that Zimbabwe experienced some of the highest levels of hyperinflation ever recorded. By overprinting money, the Zimbabwean government sparked an economic disaster. By 2008, the monthly inflation rate was estimated to have reached 79.6 billon percent. Money was printed in ever-increasing denominations, with a 100 trillion dollar note becoming nearly worthless. The economic mismanagement that led to this hyperinflation has taken a terrible toll on Zimbabwe. According to Bloomberg, the GDP is half the size it was 15 years ago, and 90% of the population is out of formal employment.
The events surrounding the hyperinflation left the Zimbabwean economy in an incredibly fragile state. Unfortunately, it is now being stressed by numerous factors. For one, Zimbabwe is currently suffering its worst drought in decades. The reduced agricultural yields have strained not only the economy but also the food security of millions. Second, Zimbabwe is currently suffering as a result of a global downturn in commodity prices. Considering most of the country’s exports are raw materials, the fall in prices has reduced GDP and government revenue. Finally, the economic crisis caused many of Zimbabwe’s companies to shut down, meaning most of the country’s products are imported. This results in a trade deficit in which Zimbabwe imports more than it exports. All this adds up to fewer Dollars flowing in from overseas and more flowing out. As a result, the banks can’t keep up and are emptying quickly.
In the short term, this will make life quite a bit more difficult for the everyday Zimbabwean. To prevent a bank run, the government has limited how much cash people can withdraw. As a result, people may be hard-pressed to withdraw enough to cover their expenses. To mitigate this problem, the government is encouraging its citizens to buy their products in Euros, Rand, or Yuan rather than US Dollars. It is also issuing “bond notes,” which are notes or coins that are used as cash but, rather than having value themselves, correspond with money in the country’s reserves. All of these factors are taking a toll in the short term, making it much harder for businesses and consumers to operate as they would under normal conditions.
Eventually, this crisis may escalate into a larger problem. The printing of “bond notes,” for example, has raised red flags with some. Some claim that, like during the hyperinflation crisis, the government will continue printing more and more “bond notes” to the point where they become worthless. While this is certainly a possibility, the most likely long term effect of this crisis is that it will weaken an already weak economy. As of now, the trade deficit is already suffocating many of Zimbabwe’s companies, forcing them to close. The crisis is also damaging the reputation of an already ill-reputed economy. Consumers and businesses are losing confidence in the economy, so they will do what they can to minimize their losses before things become even worse. In the end, the Dollar Shortage indicates that Zimbabwe is simply losing the fuel that drives an economy. Companies are leaving, consumers are uneasy, and there isn’t even enough cash to keep the country afloat. Thus growth and improvement is unlikely. This broken economy will simply become more broken.