Wednesday, January 16, 2008

Zimbabwe's Mounting Monetary Crisis

At the time of independence in 1980, one Zimbabwean dollar (ZWD) was worth US$1.50. Since then, rampant inflation and the collapse of the economy have severely devalued the currency.

Zimbabwe started using bearer checks since 2003.

In the August 2006 currency reform, 1 new ZWD was exchanged for 1,000 old ZWD. The highest denomination was then 1000 new ZWD.

Only Last month, the Reserve Bank of Zimbabwe released three high denomination bearer checks into circulation: 250,000 ZWD, 500,000 ZWD and 750,000 ZWD.

Due to continued runaway inflation, Reserve Bank Governor Gideon Gono told a news conference that the bank will introduce this Friday a new set of even higher denomination bearer checks: 1 Million ZWD, 5 Million ZWD and 10 Million ZWD. The latter is worth about US$333 at official exchange rate, but only US$3 in the parallel market.

Dr. Gono, the way to stop hyperinflation is to restore fiscal responsibility, not printing more money - Economics 101.

No comments: