Remember November: A timeline of how a country lost its currency

Pic: Tsvangirayi Mukwazhi/AP

By Ranga Mberi

Today, November 14, marks the 21st anniversary of “Black Friday”, the day the Zimbabwe dollar crashed in 1997.

We track the Zimdollar’s collapse from that fateful November day, and the many desperate policies enacted over the past two decades to try and end the crises that followed.

1997 – War veterans hold a series of protests against President Robert Mugabe, pressing for gratuities and pensions. The protests include a march on State House and heckling and booing Mugabe during his Heroes Day speech in August.

War veterans’ leader Chenjerai Hunzvi led protests to pressure Mugabe to pay gratuities

Mugabe buckles, and orders Finance Minister Herbert Murerwa to dole out ZW$50,000 each to over 50,000 war veterans. The total bill of the payouts and the pensions would be ZW$4.2 billion, or over US$300 million at the time. It is 3 percent of GDP then.

None of it is in the budget. When Herbert Murerwa tells Mugabe that the spending will bankrupt the economy, the President shoots back: “Who ever heard of a country going bankrupt?”

Separately, the Government has announced its intention to list more than 1,400 farms, many of them productive, for redistribution to landless blacks. It is reported that the IMF and other donors have threatened to pull out.

Rumours spread that foreign reserves are down to just a month’s worth of imports. Speculators, panicked by the flurry of bad news, start stocking up on US dollars. Desperate, the Government injects US$15 million to try and prop up the Zimdollar. But the pressure is unrelenting.

Late on Friday, November 14, the Zimbabwe dollar plunges 72 percent. The stock market crashes 46 percent. That same day, by coincidence, there is a national blackout. The day comes to be known as “Black Friday”.

In the aftermath, Government orders companies to shut down their foreign currency accounts, hoping that the flow of US dollars into the market will put brakes on the Zimdollar’s slide. But it has the opposite effect; confidence collapses even further, as does the stock market and the Zimdollar itself.

Investors head for the exits. McDonalds, the US fast food giant, abandons plans to open its first outlet in Zimbabwe.

That December, a proposal to raise a new tax to fund the payouts is withdrawn after labour unions hold street protests.

1998 – Riots hit the country in January after the price of basic goods rises by up to 50 percent, blamed on the collapse of the Zimdollar. Maize meal prices rise by 45 percent within a week.

Army is deployed into the streets for the first time in years to quell the riots. “They will not hesitate to shoot,” Home Affairs Minister Dumiso Dabengwa warns. At least eight people are left dead in the clampdown.

Government introduces price controls and a range of tariffs on imports.

In August, Zimbabwe enters the DRC war. Some estimates say the country is spending US$1m a day to fund the war, further weakening the local currency.

1999 – Running out of forex, Zimbabwe has defaulted on most of its foreign debt by mid-year. The IMF finally confirms its intention to withdraw funding. This leads to further exchange controls. The Government fixes the Zimdollar rate at $38 to USD in 1999, way above its true value.

2000 – Murerwa is reshuffled out. On August 1, new finance minister, Simba Makoni, bows to market pressure and devalues the Zimdollar to $55 to the US dollar, still lower than the parallel market rate of $60 for a US dollar. In the same week, unions, businesses and activists stage a nationwide stay away to protest the economic crisis.

2001 — A $500 note is issued, and is followed by another different $500 note within weeks. A $5 coin is also introduced.

2002 – Mugabe rejects Makoni’s pleas for further devaluation. “Devaluation is sinister and can only be advocated for by our saboteurs and enemies of this government,” Mugabe tells him. Makoni is soon fired, and Murerwa is reappointed.

Government shuts down all bureaux de change, accusing them of being “conduits” for illegal forex trade.

In June, the IMF suspends technical assistance because of arrears amounting to US$132 million.

Cheques and big balances

2003 – The RBZ introduces what it calls traveller’s cheques, in denominations of $1,000, $5,000, $10,000, $20,000, $50,000 to $100,000. They are hugely unpopular and are soon quietly phased out.

Zimbabwe is now producing less than half its 1996 exports. Pressure is building.

That September, RBZ introduces bearer cheques in denominations of $5,000, $10,000 and $20,000. Initially, the bearer cheques are only valid up to January 31, 2004.

Zimbabwe’s reserves are down to under US$20 million, about 3 days’ worth of imports cover then.

In November, the IMF begins compulsory withdrawal procedures for Zimbabwe; IMF-speak of kicking Zimbabwe out.

In December 2003, Gideon Gono is appointed governor. It is a decision that is to have a major impact on the future of the currency. Later, a leaked US embassy cable was to quote IMF mission chief Sharmini Coorey describing Gono as “the world’s worst central banker by far.”

One of Gono’s first decisions is to tighten control of central bank’s accommodation of banks. This leaves many banks in crisis.

2004 – Still unwilling to float the currency, the Government comes up with a Managed Foreign Exchange Auction System that January. Exporters sell a quarter of their forex at a fixed rate of Z$824 and another 25 percent at an auction rate. Exporters keep the other half in their foreign currency accounts for up to 21 days, after which they must offload the remainder at the auction rate.

The system is initially welcomed by exporters, but they soon reject it as it becomes clear that RBZ is keen to control the rates, resulting in losses for exporters.

Gono’s financial sector measures start taking their toll on banks. On January 3, Century Discount House shuts down. That January, eight other banks are kicked out of the clearing system for failure to fund their RTGS positions. So begins the weakening of depositors’ confidence in banking, which has never been repaired.

More bearer cheques arrive in January, with a June expiry date. That same June, another batch comes, this time with a December 31 expiry date. However, even those cheques with a June expiry date remain legal tender.

The cheques are mocked by the public. At the launch of Barbican Bank, Murerwa jokes: “I know you are all concerned about the current cash crisis. I am too. I am however more concerned because I am now being called Mr Burial Cheques.”

2005 – The forex auction system isn’t working. So, on October 21, Government replaces it with the Tradable Foreign Currency Balances System (TFCBS). Under this system, there is a dual exchange rate system; market transactions are done at an interbank rate, while Government transactions are done at the fixed official rate. It obviously doesn’t work.

2006 – The dual exchange rate system is replaced in April, and all transactions are now at the interbank rate. The rate collapses. The Zimdollar is devalued again in July to $250.

New bearer cheques arrive, in a series of 1 cent, 5 cents, 10 cents, 50 cents, $1, $10, $20, $50, $100, $500, $1,000, $10,000 and $100,000.

Then, on August 1, the madness begins. Desperate, RBZ lops off three zeros from the currency. Gono launches a massive marketing campaign, dubbed “Operation Sunrise”, hoping to package this as a good thing.

“Say no to zero and hello to hero,” Gono says.

2007 – On the 7th of September, the Zimdollar is devalued again to $30,000. Still, the Government is playing catch-up; on the black market, the Zimdollar is ten times weaker at $300,000 per US dollar on the parallel market.

Desperate, the Government tries to ban inflation; retailers are ordered to cut prices by half. It does nothing to stop inflation and shop shelves go empty. The Government stops publishing inflation stats regularly.

On July 1, a $500,000 note is introduced, but it is valued at just US$12 even at the official exchange rate. On New Year’s Eve, RBZ launches a $750,000 note.

2008: The year of the $50 billion egg

This is the year Zimbabweans wish they could forget. Gono’s money printing presses are running overtime, so much that the RBZ runs out of ink and paper. Inflation is at its peak, which the World Bank put at 500 billion percent. The Zimdollar is now worthless, with an egg costing $50 billion.

On January 1, the $1 million, $5 million and $10 million denominations make their debut.

A few months later, in April, new $25 million and $50 million bills are printed. On May 2, the $100 million, $250 million and $500 million notes are released. Just two weeks later, on May 15, new notes in denominations of $5 billion, $25 billion and $50 billion notes debut.

The RBZ’s printing press, at this time, is failing to keep up. Ten zeroes are removed from the currency, and the $10,000 and $20,000 notes are released in September. Weeks later, on October 13, a new $50,000 bill is on the market. Before long, on November 5, new $100,000 and $500,000 bills appear.

Then, on December 4, Zimbabwe gets even more notes; $1 million, $10 million, $50 million and $100 million. Within two weeks, the $200 million and $500 million notes are released. These are soon followed by the $1 billion, $5 billion and $10 billion notes, just a week before Christmas.

Gono even puts old worthless coins, last used six years earlier, back into circulation. This sends many burrowing into wardrobes and in the back of sofas for old coins.

“Go back and look for those coins because we never demonetized them in the first place,” Gono says. Suddenly, an old one dollar coin is now worth 10 billion of the new dollars.

Already, retailers have been quoting in foreign currency, although the word “points” is used to denote one US dollar.

Felocs, Foliwars, Felopads and other monsters of woe

Clearly, something has to give. Grudgingly, that April, RBZ finally begin to let go, forced by the market.

On September 13, Gono introduces the Foreign Exchange Licensed Warehouses and Retail Shops (Foliwars), Foreign Exchange Licence Oil Companies (Felocs) and Foreign Exchange Licensed Outlets for Petrol and Diesel (Felopads). The grandiose abbreviations, typical of the Gono era, are just big words announcing the legalisation of the widespread use of forex. Some 1,000 retailers and 250 wholesalers are now allowed to freely trade in forex.

Still, Gono insists that this was not dollarisation. “It is imperative to note that the current measures are neither a condonation nor a direct introduction of the dollarisation of the economy,” Gono says. He admits, though, that the change is a “pragmatic response to the realities obtaining in the economy.”

At the time, as was to happen almost a decade later, there are three prices for goods and services; cheque, RTGS and cash. A catalogue from that era shows a 6-pack carton of Mazoe trading at $15,000 for cash, $175,000 by RTGS and $30,000 via cheque.

On the last day of that year, one US dollar was trading at $4 million on the official market. In reality, the rate was far higher.

An RBZ statement reports that bank computer systems are now “failing to cope with the number of digits arising from large transaction values”. Gono tells a meeting that the RBZ will now buy forex at the UN rate, really an informal rate used by NGOs.

Dollarisation begins

2009 – On January 16, Zimbabwe makes history; it releases a $100 trillion note, the largest denomination ever seen in the world. It is later to become a collectible, and a symbol of failed economic management.

Zimbabwe effectively dollarises on January 29, when, for the first time ever, a budget is presented in both US dollars and Zimdollars. Acting Finance Minister Patrick Chinamasa reels off the dizzy numbers, including $175 quadrillion for grain imports. His budget speech is accompanied by howls of laughter and derision from MPs.

The move to USD overnight eradicates hyperinflation, but the economy soon swaps hyperinflation for deflation.

The Zimdollar remains in circulation, although nobody is using it. On 2 February, the RBZ removes a further 12 zeros off the currency. In total, 25 zeroes were removed from the Zimdollar.

This was the beginning of the end of a currency that at Independence in 1980, was stronger than the US dollar, trading at 1ZWD: US$1.54.

In August, Gono proposes return of Zimdollar. He is criticised sharply, even by The Herald, which calls him out of touch and unable to “read the national mood”.

In his mid-year budget, Finance Minister Tendai Biti, appointed in February as part of the unity government, announces the local currency will be demonetaised, saying he is “putting a tombstone on the grave of the Zimbabwe dollar”.

Biti frees up exchange controls, including removing withdrawal limits. “There is no limit on the amount of foreign exchange
that can be withdrawn from these FCAs,” a list of guidelines on currency exchange says in July 2009.

2011 – The economy is experiencing strong economic growth, but the current account is giving warnings. It shows that there is more money leaving the country, than money coming in.

A chart of the current account between 2008 and 2018

2012 – Cash shortages are already beginning to show. RBZ announces temporary withdrawal limits. However, at a joint press briefing that same year, Gono and Biti announce that they are removing all cash withdrawal limits, “in view of the improving liquidity situation in the economy and the need to encourage savings and use of the formal banking system”.

The consequences begin to bite.

The African Development Bank raises a red flag; it expresses concern over the falling levels of bank deposits in Zimbabwe, blaming weak controls and low depositor confidence. The bank warns that this will hurt Zimbabwe’s long term growth.

2013 – In March 2013, concern grows as Zimbabwe slips into deflation.

The name is Bond

2014 – RBZ authorises use of a dozen currencies to trade alongside the dominant US dollar. The currencies include the Indian rupee, the Japanese yen and the Chinese yuan. The bond coin is introduced, as a means of ending the shortage of small change.

2015 – The Zimdollar is finally demonetised, with depositors getting US$5 for every 175,000,000,000,000,000 (that’s 175 quadrillion) Zimbabwe dollars held. Each 250 trillion Zimdollars gets $1.

2016 – RBZ governor John Mangudya announces he will launch a bond note, which he says would be at par with the US dollar. The bank calls it an export incentive, a desperate twist of PR meant to ease fears in an economy still traumatised by memories of 2008. It is months before the first notes appear.

2017 – Bond notes and US dollars start disappearing from the market. Government spending is rising, fuelling inflation. In September, consumers go panic buying after rumours of shortages. Prices rise foreign currency shortages deepen. Inflation, once again, is back on the march.

2018 – Despite a change of Government, there is no change in the culture of overspending. Treasury data shows Government spent $3.86 billion in the first half, $2.5 billion of this between April and June, against a target of $1.26 billion.

Although first half revenues of $2.5 billion exceeded the target by 14%, a staggering budget deficit of $1.35 billion was recorded in the period, 408% above a target of $266 million. Government had initially forecast a budget deficit of $700 million for the full year.

The huge deficit was caused mainly by unbudgeted, pre-election spending on farm inputs under the command agriculture scheme, amounting to $616 million. There is also spending on grain imports – $81 million, road maintenance – $225 million, and dam construction – $87 million, as well as $212 million injected into state enterprises.

New Finance Minister Mthuli Ncube, on the recommendation of banks, announces a plan to “ring fence” US dollar balances from local bond note and RTGS deposits. The markets see this as a signal that their local currency deposits are losing value, and there is widespread panic. The US dollar rate on the black market rises and prices shoot up in reaction.

Inflation in October rises to 20.85%, a new post-dollarisation record.