Lock up your dollars right now; Mugabenomics is back
LIKE the governors of the Reichsbank, who kept on speeding up the printing presses as Germany plunged into ever-steepening hyperinflation in the 1920s, insisting that the real problem was a shortage of banknotes, Zimbabwe’s government claimed to have overturned the laws of economics during its own bout of hyperinflation nearly a decade ago. Gideon Gono, then governor of the Reserve Bank of Zimbabwe, claimed that “traditional economics do not fully apply in this country,” and said “I am going to print and print and sign the money…because we need money.”
The result was an increase in prices so swift that it was almost impossible to calculate the rate of inflation. By some estimates it peaked at 500 billion per cent, as the government printed ever-larger denominations. Notes such as one with a face value of 100 trillion Zimbabwe dollars are worth much more now as a novelty on eBay (where they sell for about $45) than they ever were in shops in Harare.
Zimbabwe finally tamed inflation in 2009, when it abandoned the Zim dollar and started using American dollars and other foreign currencies instead. (It converted bank balances to US dollars at a rate of $1 for every 35 quadrillion Zim dollars.) That brought instant relief. But the government of Robert Mugabe, a 92-year-old who has held power since the end of white rule in 1980, has again been spending more than it collects in taxes, and importing more than it exports. It does not help that Mr Mugabe destroyed the country’s main source of foreign revenue when he chased mainly white farmers off their land and handed it to ruling-party bigwigs.
Without money to pay civil servants—in particular the soldiers and policemen who keep Mr Mugabe in power—the government intends to start printing it again. This time it insists it is not bringing back the reviled “new” Zim dollar, but is printing notes that are “backed” by some $200m that Zimbabwe has borrowed from the African Export-Import Bank. However, it seems unlikely that holders of these new notes will be allowed to exchange them for those real dollars.
Given Mr Mugabe’s track record, that means they are likely to plummet in value very fast. Slow-motion bank runs have already started, as savers fret that their US dollars will be forcibly converted into the new notes. Banks have had to restrict dollar withdrawals, in some cases to as little as $20 a day. The last bout of hyperinflation wiped out savers and pensioners. Savers are braced to be robbed again.
The governor of the Reserve Bank, John Mangudya, insists the new notes will be an “incentive” to exporters, not a return to the bad old days. Not even the government believes this. It will not, for example, be using them to pay civil servants. Instead they will be foisted onto exporters who, having paid their suppliers and workers in hard cash, will have to accept funny money for their earnings. What could go wrong? Many will go bust, so export revenues will quickly tumble. Eddie Cross, an opposition MP, says the new policy could mean “the final collapse of the economy”.