President Robert Mugabe's Zimbabwe lived a nightmare a few years ago, there was hyperinflation. It was so high that there were even 100,000,000,000,000 dollar notes. Mugabe scrapped the Zimbabwe dollar in 2009, he decided to use the US dollar and South African rand eight years ago. This was positive for Zimbabwe because it brought financial stability, but could the nightmare return?
Economists and politicians state that the authorities are creating their own fictious money again. Newsweek reports that it has allowed the government to borrow heavily to pay a huge civil service that has been loyal to Mugabe for 37 years. Last year Zimbabwe launched bond notes which are designed to ease shortages of US and South African cash.
Even worse, the central bank is creating dollar surrogates in the electronic banking system on a huge scale. This money is not backed by currency reserves or gold, which is extremely important to have a strong currency. These electronic dollars, or zollars, are raising fears of a new economic crisis.
Signs of the coming crisis
Former finance minister Tendai Biti states this is a Ponzi scheme, a pyramid scheme that will fail in a certain moment. He believes the implosion is coming because you can't defy economics. He is an opposition leader, but some economists share his worries. The central bank has not published statistics about currency reserves since dollarization, but last month it said local banks had $250 million. This is a tiny amount of money, equal to just two weeks of imports. Zimbabwe has an unemployment rate of 80 percent.
The government reports that inflation was just 0.06 per cent year-on-year in February. This data is based on dollars but the situation is different in the real world. Car parts imported from South Africa have had a 40 per cent increase this year. Dishwashers, cheese and breakfast cereal have had an inflation rate of 25 per cent. A devaluation appears underway in the banking system. Last year, the Zimbabwe government was late in paying civil servants for many months.