“Who wants to be a trillionaire?”: The Farewell Story of the Zimbabwean Dollar

Popular parlance states that Zimbabwe went through hyperinflation between 2007 and 2008. The roots for the Zimbabwe hyperinflation were laid much before that. 

Zimbabwe is bestowed with abundant fauna and is home to Africa’s big five. Along with this, it is cursed with an abundance of mineral reserves like diamond, platinum, and gold. These reserves brought Zimbabwe under the British South Africa Company’s rule. Robert Mugabe, the head of the Zimbabwe African National Union, made Prime Minister of Zimbabwe in 1980 when the nation gained its independence. 

The people of the nation were filled with a sense of nationalism and pride. A majority of the country’s agricultural lands still belonged to the residents of the white colonies. These lands fed the whole nation and were the country’s primary source of revenue. Mugabe sought out to gain public support by confiscating the land from the white colonies and giving it to the black majority of the nation. There was only one flaw in this plan. A large portion of those who received the land didn’t know how to farm. The naive redistribution of land was the first of two mistakes that brought the Zimbabwean economy to ruins. It reduced the agricultural produce to 10% of their original production, causing prices of essentials to skyrocket. 

By the year 1998, inflation was already at 47%. Over the next few years, the government starts to get low on liquidity, leading to Mugabe’s second and final blow to the Zimbabwean economy. By the year 2006, Mugabe had taxed everything there was to tax. The aggressive taxation had scared off the last of the investors in the Zimbabwean markets, leaving the country in dire need of a solution. Robert Mugabe came forth with a simple solution to print more money. 

The printing of more notes started a chain reaction that led to a vicious cycle. As more notes were being printed, the value of these notes was reduced. The reduction in the value of the currency was met with a steep rise in prices, again leading to the mass printing of bills. The repeated cycle of mass printing notes landed the final blow against the Zimbabwean economy, sending it spiraling into a never-ending hyper-inflation. The inflation rate and the number of zeros in each currency were directly proportional. The government went from printing $1000 bills to $1,000,000 to $100,000,000, going up to $100,000,000,000,000 ($100 trillion) bills. At its peak, the monthly inflation rates were 7.68*10^10%. 

There are only two ways to control hyperinflation. The first step to constrain hyperinflation is to stop printing money. Basic economics states that the more the bills in circulation, the lower their value. The second step is to restore public confidence in the currency. The only way to control hyperinflation is to get the people to trust that the money won’t crash overnight. During hyperinflation, people are under the impression that the money they have at hand today will be worthless tomorrow. Thus, they start hoarding essentials, further causing the prices to rise. Mugabe didn’t do either.

Amidst all this chaos came the solution everyone was looking for, a means out of the seemingly never-ending hyperinflation. At this point, only about 20% of the people in Zimbabwe owned bank accounts. The primary method of transferring money to relatives was by driving the money to them, risking theft. It had two obvious drawbacks. The first, as stated before, was theft. The second, however, was unique to Zimbabwe. By the time the money would be taken from one place to the other, its value would have dropped to a fourth of what it was. That is where EcoCash came in. Although only about 20% of Zimbabweans owned bank accounts, almost 95% of them had access to mobiles. EcoCash built on this to allow users to transfer cash via a simple text message without owning a bank account. 

EcoCash was a gamechanger in the Zimbabwe hyperinflation. It directly reduced the theft in the nation, thus increasing the value of its dollar. In 2007, EcoCash had 6.7 million users, compared to the 2 million bank accounts in Zimbabwe. According to a report of the Reserve Bank of Zimbabwe, 90% of the transactions made in the year 2007 were digital. Disaster struck just when there was hope for Zimbabwe to be out of hyperinflation. The Kariba Dam produced more than 50% of Zimbabwe’s electricity. Drought struck, causing the power output of the dam to go down massively, causing EcoCash servers to crash. With EcoCash almost out of the picture, the economy continued to spiral out of control.

On April 12, 2009, the nation lost all hope in its currency. That is the story of how Zimbabwe bid farewell to its dollar. Zimbabwe abandoned its dollar on this day and legalized foreign currencies for exchange in the nation.