So this round of Mo Money Mo Problems has nothing to do with us messing up foreign currency. Yay! It actually is about the way that a government can mess up their entire country’s currency. We did not spend any time researching the currency or economic situation in Zimbabwe. Whoops. They have huge problems mostly due to hyperinflation. I’m going to give you a super basic, 10 thousand foot view of this. Note – none of the below thoughts are original to me. Google and Wikipedia are the main sources. If any of you smarties out there don’t agree, feel free to comment. I might not approve the comment unless it’s agreeable, but… feel free to try anyway 😉
Also, if this is super boring… too bad. It’s good for you. Just kidding! I talk about how this affected us towards the end of the post, so skip if it’s too dry.
Starting in the late 1990s, Zimbabwe had currency instability that stemmed from a handful of events including their involvement in a war and the governmental confiscation of some private farms. The farms were taken from white land owners and given to black farmers as reparations for colonialism, but the black farmers apparently didn’t have any training as farmers, so the country had a sharp drop in food production. Then the banking sector collapsed, people couldn’t get loans, food output dropped by 45%, manufacturing dropped by a quarter each year for three years and unemployment went to 80%.
Some say that the price of things has nothing to do with the worth of things and more speaks to the value of money. If there is nothing backing the money or if people holding the money lack confidence in its ability to retain value, then it will become less valuable. Also important is that countries have discipline over the printing of more money. However, the Mugabe government was printing money to finance their involvement in wars and to give large salaries to army and government officials. There was also an incredibly high level of corruption at the time, which undermines confidence in the future and undermines faith in the currency.
So, government instability, civic unrest, massacres by the army in certain parts of the South, guerrilla attacks on civilians, racial unrest and land reform that not only reduced output, but also undermined the belief in security of property.
By 2008 it was unclear how bad the inflation was because the government stopped filing official statistics on inflation. The Reserve Bank of Zimbabwe blamed the hyperinflation on economic sanctions and trade restrictions imposed by the US and other foreign groups which were on Zimbabweans who were closely tied to the Mugabe regime. This is not a chart I made and I claim no ownership:
Those numbers just seem silly. Like fake numbers. It is estimated that in November of 2008 one US dollar was approximately Z$2.6 Trillion. Trillion.
In 2007, the government declared inflation illegal (you can guess how well this worked) and made it illegal to use any currency other than the Zimbabwean dollar. Anyone who raised prices could be arrested. Starting in December of 2008 the Central Bank of Zimbabwe started giving licenses to shops to deal in foreign currency instead of the Zimbabwean dollar. January 2009, the Finance Minister lifted the restriction to use only Zimbabwean dollars, which most people had already stopped using anyways. People could use USD, Euro or South African Rand. But teachers and government employees were still being paid in Zimbabwean dollars. They were being paid trillions per month which was only half the daily bus fare. The government also restricted bank withdrawals to $Z500,000 which was about 25 US cents.
The government did not try to fight inflation with fiscal and monetary policy. Instead they continued to print larger bills to buy foreign currency and to pay off debts owed to the International Monetary Fund. Three times the Central Bank of Zimbabwe redenominated the currency. Each time they would recall notes and exchange. For example, the Z$10 billion would be redenominated to be Z$1 to make computations more manageable. In February of 2009, the third redenomination dropped 12 zeros from the currency.
In 2009, Zimbabwe stopped printing its own currency and started exclusively using the currency of other countries since its currency was basically worthless. In 2015 Zimbabwe decided to switch over to the US dollar completely.
Ok – so what does this mean for us? Well… we got into the country and converted some of our cash to USD and some to “Zimbabwean” currency. But it wasn’t the dollar. It was a bond note issued by the Zimbabwean government that is backed by one US dollar. These bond notes had to be printed because there wasn’t enough USD in circulation in the country.
So, in theory, that means it is equal to one dollar. This was mostly true. We didn’t run into any issues with this, but we heard that some places will charge you extra if you are using the bond note and charge even more if you use credit card. So a bottle of water might cost 1USD or 1.25 bond note or 1.3 if you pay with a credit card… although this practice is illegal because the government is rightfully concerned about inflation of the bond notes as well.
So how did it actually affect us? Well I mentioned a few posts ago that we never have cash on us when we enter a country. Having left the US so long ago, we just take out local currency every where we go. Our stash of USD ran out before we left South America. This is almost never a problem. But the ATMs in Zimbabwe don’t have money. Seriously. We pulled out some cash in Zambia and exchanged that. Then upon arrival to Zimbabwe we were not able to take any cash out of a bank. The banks don’t have any money. Rumor has it that people are only allowed to take out 50USD per week from the bank. Every morning when we drove to whatever activity we were doing, we would drive by the banks and see crowds of people waiting for the banks to open so they could get some money. What is crazy about the 50USD is how super expensive everything was in Zimbabwe. Now, I know that we got hit with a bunch of expensive tourist stuff, but meals here were expensive even compared to other touristy places.
We heard that there is a heavy black market for all types of items. Our cab driver mentioned that it is much cheaper to buy gas on the black market. And we heard a lot of anecdotes about people smuggling goods into the country by the Chobe or Zambezi rivers. We even saw some people on both rivers that we’re pretty sure were moving goods.
The amount of currency circulating is so low that locals have found work arounds. For example:
We ran out of cash halfway through our second day. I mentioned that we went into town that night for dinner and we were going to need a taxi back. Well we didn’t have cash. We tried to pull some out of the ATMs, but could not. We asked our waitress what we should do about it. She told us she’d find us a taxi to take us back. Our taxi driver took us to a gas station where we were going to buy $12 of gas for his car in exchange for the ride to our hotel. But when we got to the gas station, they were out of petrol. So we still bought him $12 of gas and he got an IOU from the gas station guy so he could come back whenever they had gas again to fill up.
Other times we would pay for items by swiping our credit card at our hotel and then the hotel paid the service provider… somehow? Cash transfer? I really have no idea. So it ended up fine for us – we just used our credit card everywhere and didn’t tip as much as we should have since we just legit did not have any cash.
Michael bought this for 1USD… it was definitely not worth the paper it is printed on.
So this is all I have for our trip to the Victoria Falls area. I’m sure you’re glad that I ended on this exciting topic. Now we’re off to Namibia!