Editor’s Note: This is one in a five-part series about the impact of hyperinflation around the world. Follow the series in the related content section.
Zimbabwe was a British colony for nearly a century before it gained independence from the U.K. in 1980. Robert Mugabe, who would become president, was instrumental in securing the country’s independence, and was (at the time) hailed as a hero by many amongst its overwhelmingly black population.
When it achieved independence, Zimbabwe had some of the strongest social and economic statistics on the African continent. One Zimbabwe dollar was actually worth more than a U.S. dollar, with an exchange rate of 1 ZWD to 1.47 USD.
But, a calamitous end to minority white-run commercial farms in the early 2000s, combined with severe droughts, dwindling international investment, and various international sanctions led to the complete collapse of Zimbabwe’s economy – events from which the country has never recovered.
Inflation and emigration
During the 1990s, Zimbabwe’s economy deteriorated steadily. The currency’s value began to drop in 1991, due in part to a domestic economic liberalization initiative known as the Economic Structural Adjustment Programme.
Involvement in the Second Congo War (1998-2003) cost Zimbabwe approximately US$1 million a day, contributing to its economic problems.
By 2000, living standards were below those in 1980: Life expectancy was lower, wages were down, and unemployment had tripled. By 1998, unemployment was almost 50 per cent.
It’s estimated that by 2005, the purchasing power of the average Zimbabwean had fallen to 1953 levels and as much as a quarter of the population had left the country. As of 2009, three to four million people, which represented the bulk of Zimbabwe’s skilled workforce, had left.
From inflation to hyperinflation
When a country’s people lose confidence in the government, especially in the aftermath of political or economic upheaval, there’s a risk of hyperinflation – a high and rapidly rising inflation, usually more than 50 per cent per month. Hyperinflation also brings huge price increases at a rapid pace.
In the 20th century the Zimbabwe dollar mostly functioned as a normal currency, but early in the 21st century hyperinflation reduced it to one of the lowest-valued currencies in the world. By 2006, the market value of the Zimbabwean dollar had fallen to one millionth of a pound sterling, or Z$1,000,000 to £1.
In 2007, the government announced it would temporarily halt publication of official inflation figures, which was widely viewed as an attempt to hide how bad things had gotten. They got worse in 2008, when inflation accelerated from around 100,000 per cent in January to over 1,000,000 per cent by May, and then nearly 250,000,000 per cent come July.
From March 2007 to November 2008, prices were pretty much doubling every day.
Due to frequent cash shortages and the perceived worthlessness of the Zimbabwe dollar, foreign currency was legalized as a de facto currency in late 2008. But inflation continued to soar and reached 79.6 billion per cent in November 2008, which qualified as hyperinflation.
By 2009, a U.S. dollar was worth $2,621,984,228, 675,650,147,435,579,309,984,228 or 2.6 decillion Zimbabwean dollars.
The Reserve Bank of Zimbabwe – the country’s central bank – responded by printing more banknotes, at great expense because it was on paper from overseas suppliers. Eventually, they could no longer afford the paper on which banknotes were printed, including a one-hundred-trillion-dollar note. This note – with the most zeroes of any legal tender ever – circulated briefly in 2009, during the second-most extreme bout of hyperinflation in history.
New currencies
Ongoing episodes of inflation ultimately became so severe that the country abandoned its national currency.
The Zimbabwean dollar was redenominated three times – in 2006, 2008, and 2009. But, it turned out this was not the answer to Zimbabwe’s monetary woes. The first dollar was replaced by the second one at a rate of 1,000 ZWD to 1 ZWN as part of “Operation Sunrise.” The second time, it was redenominated at a rate of 10 billion ZWN, or second dollar to 1 new ZWR, or third dollar.
Just prior to the third redenomination the government scrapped local ZWD dollars, leaving U.S. dollars and South African rand as the main currencies in circulation. The third redenomination cut 12 zeros off the ZWR face value at an exchange rate of 1,000,000,000,000 ZWR to 1 new ZWL, or fourth dollar.
The fourth Zimbabwe dollar was effectively eliminated as legal tender mere months after its inception. ZWL lost 95% of its value in just five months of existence. By then, transactions were almost exclusively in U.S. dollars, with the Zimbabwe dollar having been abandoned.
Following the 2009 abolition of the fourth Zimbabwe dollar and a halt to money printing, the country posted low inflation (below 4 per cent annually, from 2010 to 2013) before experiencing a few years of deflation. They went from hyperinflation to deflation owing to their use of the U.S. dollar – effectively swapping the world’s weakest currency for the strongest.
New currencies to no national currency
In January 2014, the central bank announced that the U.S., South Africa, Botswana, U.K., Eurozone, Australia, China, India, and Japan currencies would all be accepted as legal tender.
And then the country experienced a period of very mild deflation from 2014 to 2017.
The Zimbabwe dollar was demonetized in 2015 by steadily reducing its value to zero, in order to complete a transition to the U.S. dollar by the end of September of that year. Demonetization is the process of officially removing the legal status of a currency.
Next came the multi currency
Zimbabwe dropped the Zimbabwean dollar in 2015 and introduced a multi-currency platform that was intended to be temporary, but had to be abandoned earlier than planned, after much chaos and confusion.
The multi-currency system resulted in a liquidity crisis, because Zimbabwe had to import more than they could export, resulting in a net exodus of U.S. dollars. They banned the use of foreign currencies in an attempt to end the multi-currency system without inflicting more damage.
Coming full circle
In 2019, the multiple-currency system was abolished and replaced with a new fifth dollar (the real time gross settlement, or RTGS, as it was first and briefly known). It was the only official currency in the country between June 2019 and March 2020.
But, in late March 2020 the COVID-19 pandemic pushed the central bank to reinstate the multi-currency system, making multiple foreign currencies legal tender once again.
At the time of writing, the latest Zimbabwean dollar has been experiencing high inflation, due to persistent public distrust and a continued shortage of hard currency since importers cannot use Zimbabwean dollars.
The use of Zimbabwe dollars declined in favour of other currencies, and as a result, in February 2023, Zimbabwe changed its headline inflation rate to one that blends Zimbabwe dollar and U.S. dollar prices. This has been heavily criticized by businesses for hiding the real inflation rate in the local currency, which has persisted despite the use of a “blended” inflation rate.
Mugabe finally ousted
President Mugabe ruled the country for nearly 40 years, during which time its economy and infrastructure deteriorated considerably. He and his ruling party held power undemocratically since Zimbabwe gained its independence.
Mugabe is considered to have ruled and ruined his country, plundering government funds for decades, and then trying to arrange for a transfer of power to his wife. In 2017, Mugabe was pressured to resign following a non-violent military coup that ended his dictatorship. He was replaced by Emmerson Mnangagwa, who currently faces his own human rights abuses and corruption allegations.
Harsh realities of hyperinflation
As evidenced by Zimbabwe’s experience, hyperinflation leads to economic devastation. People’s savings become worthless. Banks fold as their loan books diminish in value and there’s no money to circulate when people stop making deposits.
Hyperinflation is most prevalent in politically unstable countries, namely those under dictatorships or military rule. Citizens are angry at being forced to suffer while dictators and military officials live “high on the hog” off their backs and get away with their rampant pilfering of country coffers.
Zimbabwe struggled with repeated, prolonged and pronounced hyperinflation. The economic situation has long been tumultuous. Political strife is commonplace, even after Mugabe.
But, there is optimism about the shift to digital transactions that reduces demand for hard cash. Only time will tell whether this shift holds the key for Zimbabwe to slay the inflation dragon.
While the country managed to escape the throes of hyperinflation for a while, at the time of writing, Zimbabwe is on the cusp of another round as the inflation is rising rapidly. The latest data shows an annual rate of 47.6 per cent in February 2024 (from 34.8 per cent in January), due in large part to continued depreciation of the domestic currency relative to the widely-used U.S. dollar.
Despite all of this, that Zimbabwean 100 trillion dollar note – a symbol of epic financial mismanagement – has become a top-performing asset in recent years.
A mint-condition uncirculated note sells for $240 US on Amazon, despite its implied value of just 40 cents USD.
