Currency Crisis In Zimbabwe Analysis

When the Europeans colonized Africa, they did little to ensure that the colonies would be self-sustaining after they left, no less even stop to think that they might eventually leave. Thus, when the last European powers officially drew out in the late 20th century, these previous colonies were left to handle themselves with little outside help or guidance. This led to violence, chaos, and a rotation of crises across Africa. Particularly in Zimbabwe, where Prime Minister Mugabe gained power in 1980, and eventually the Presidency in 1987, after the end of white rule and continues to rule to this day; a country which has been experiencing a currency crisis for almost the previous two decades. After decades of large government budget deficits and …show more content…
This multitude of currencies created confusion and was slow to be rolled out across the nation, rendering some people completely cashless and broke until they had access to a bank to exchange their Zimbabwe dollars into whichever currency they required. However, an unpredicted consequence of this was the mass outflow of every currency since Zimbabweans could not buy the necessary commodities and goods in a domestic market and had to instead turn to the international market to acquire those specific goods. Furthermore, when the multi-currency regime was adopted with all foreign currencies, the Zimbabwe government gave up its sovereignty of monetary policy. It instead was affected by the decisions of central banks from around the world. This lead to an unpredictable currency system as well as an unstable financial sector due to the ongoing exchanges of currency that was taking place every day throughout the nation. In order to counteract this, the government recently announced in early 2016 that it would be adopting yet another new form of currency, a new “bond dollar”, which is backed by $200m from the African Export-Import Bank. This bond would be used in …show more content…
Without the trust of both consumers and retailers, the bonds will be worthless and will be the crisis that finally crumbles Zimbabwe’s economy. However, there are ways in which the government would be able to ensure that this monetary policy will help the nation endure. One step is for the government to adhere to the healthy and proper money supply levels which would reassure the public that this currency won’t be oversupplied and be devalued of its value. This would provide confidence to the nation and foreign investors that the government will be responsible and stable in its monetary policy. The second step is to put a check on government spending, attempting to lower the budget deficit to more manageable levels. This will not be a popular action among the public, as it will mostly affect public works or social benefits, but it is important to include in order to show that the government is invested in fixing its economy and making it healthier. These steps, taken together, will provide assurances that the government is invested in this new bond currency and that the public ought to as well, so that they can finally stop this tumultuous cycle of temporary booms and deep busts in their economy and develop the country and people of