Zimbabwe’s Currency Collapses

Pravda, September 30, 2008

Zimbabwe began officially trading in foreign currency Friday in what is seen as tacit acknowledgment that its own currency has collapsed.

The change is expected to ease acute food shortages that have coincided with Zimbabwe’s record inflation and economic meltdown.

The central bank said it issued about 600 licenses allowing stores, supermarkets, gasoline importers and other businesses to import and sell goods for U.S. dollars, South African rand and other foreign currencies.

The licensed shops are reminiscent of Soviet-era hard currency shops in Eastern Europe.

With the collapse of the tourism industry as well as agricultural and manufactured exports, most of the foreign currency in the country comes from the millions of Zimbabweans working overseas and sending money home to relatives.

Much of it is already traded on the illegal black market. Central bank researchers say Zimbabweans spend millions of U.S. dollars each month on shopping trips to neighboring countries to buy the corn meal staple, cooking oil and other goods including spare car parts and electronics.

With foreign currency trade now legal, business managers said they expected goods to slowly return to supermarket shelves, though it would take time to find stocks and work out financial details.

Stores will be able to sell goods for both hard currency and the local Zimbabwe dollar. Only imported goods may be sold for hard currency.

The Reserve Bank said in a statement it charged businesses US$20,000 for a license, and will also get 15 percent of the foreign currency sales.

Officials at one nationwide store chain said they would open a few foreign currency outlets in coming weeks, but were unable to come up with the US$600,000 fee needed to license 30 supermarkets.

The government and central bank have been struggling to contain Zimbabwe’s economic meltdown, with official inflation at 11 million percent—the highest in the world—though independent financial institutions put real inflation closer 50 million percent.

Some 4.5 million Zimbabweans have fled to neighboring countries as far as the United States, Australia and former colonial power Britain. As many as 2 million are living in South Africa, according to central bank estimates.

Zimbabwe had been self-sufficient in most household supplies until June 2007, when the government ordered a price freeze that forced businesses to sell products below cost. Now, toilet tissue is being imported from Malaysia, toothpaste from Egypt and soap from Iran.

In August the central bank struck 10 zeros from the Zimbabwe currency, but computerized accounting systems and automatic tellers have been unable to handle transactions in trillions of local dollars.

Aid agencies estimate up to 2 million people will need food aid next month, amid regular power and water outages and chronic shortages of gasoline, corn meal, bread, milk and other staples.

President Robert Mugabe, in power since independence from Britain in 1980, blames Western sanctions for the economic collapse. But critics point to his 2000 order that commercial farms be seized from whites. The often violent seizures disrupted the agriculture-based economy.

Western sanctions targeting individuals and companies supporting Mugabe’s regime were tightened after disputed elections in March and June that led to a power-sharing deal between Mugabe and his opponents signed Sept. 15.

Mugabe’s ZANU-PF party and the opposition Movement for Democratic Change have so far failed to agree on the composition of a unity Cabinet.

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