Zimbabwe takes its local dollar out of circulation

Reserve Bank of Zimbabwe (RBZ) governor John Mangudya announced late on Thursday the withdrawal of the Zimbabwean dollar, formalising a multi-currency system introduced in 2009 to help support inflation and stabilise the economy.

Mangudya also pointed out that this move followed the government's “commitment to the multiple-currency system,” but stressed that the country now needed to increase its foreign reserves, improve its fiscal management and strengthen the financial sector before it changing the system.

We need to safeguard the integrity of the multiple-currency system or dollarisation

“We cannot have two legal currency systems. We need therefore to safeguard the integrity of the multiple-currency system or dollarisation in Zimbabwe,” Mangudya said on Thursday.

The central bank will offer $5 for every 175 quadrillion of Zimbabwean dollars, a currency that was rarely used in the country in the last years, as transactions were made mainly in US dollars and South African rands.

Locals will be allowed to convert any cash they have “on a no questions asked basis” at a rate of $1 to 250 trillion Zimbabwe dollars for notes printed before 2009.

Local dollars can be converted at commercial banks, building societies and postal agencies between 15 June 15 and 30 September.

The weak Zimbabwean economy

Zimbabwean economy started contracting in 1998, but worsened in 2000 when the government started a campaign of seizure of white-owned commercial farms to distribute to black subsistence growers. As a consequence, RBZ started printing money to fund the budget deficit, that reached the top in 2009 when inflation surged to 500% billion.

It was then when the government adopted a multiple currency system, introducing as legal tender more than eight foreign currencies which included the Botswana pula, the South Africa rand, and the US dollar to be used locally, putting an end to hyperinflaiton.

The country's economy started recovering in 2010, when it started growing more than 10% per year until 2013.

In 2014, economy started slowing to 3% due to poor harvests, low diamond revenues, and decreased investment.

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