Zimbabwe knocks 12 zeroes off inflation-hit dollar

Zimbabwe knocks 12 zeroes off inflation-hit dollar
Mon Feb 2, 2009 7:33am EST

By Nelson Banya

HARARE (Reuters) - Zimbabwe's central bank revalued its dollar again on Monday, lopping another 12 zeros off its battered currency to try to tame hyperinflation and avert total economic collapse.

The crisis has been worsened by political stalemate between President Robert Mugabe and his rival Morgan Tsvangirai, but the opposition last week agreed to join a coalition government, raising prospects the economy could be saved from further ruin.

The southern African country is battling the world's highest inflation rate, officially put at 231 million percent, and acute shortages of food and foreign exchange.

Reserve Bank of Zimbabwe Governor Gideon Gono announced the new currency moves on Monday, adding that some foreign exchange controls will be relaxed and gold producers now can sell bullion directly and not to the central bank as in the past.

"This Monetary Policy Statement unveils yet another necessary program of revaluing our local currency, through the removal of 12 zeroes, with immediate effect," Gono said in his MPC statement.

Late last month the country allowed businesses to charge in foreign currencies in a bid to tackle inflation and Gono said those businesses could pay their workers in foreign currency.

The country's stock exchange, which has not traded for two months, would also be licensed to trade in foreign currency once listed firms and the exchange provide evaluation criteria.

Gono gave no updated inflation figures but said broad money supply growth rose from 81,000 percent in January to 658 billion percent in December.

"His statement does contain some positive measures but it does not go far enough. It would appear he is trying to restore the Zimbabwean dollar, but given the choice of multiple currencies, who would want to trade in Zimbabwe dollars?" John Robertson, a leading Harare-based economist said.

Tsvangirai, who had been under heavy pressure from southern African leaders to implement a September 15 power-sharing pact with Mugabe, is now set to become prime minister.

The unity government may be a step toward saving a once prosperous country where over half of the people now need food aid and a cholera epidemic has killed 3,229 people and infected 62,909 others -- Africa's deadliest outbreak in 15 years.

Gono said production in every major economic sector had taken a plunge.

Output of gold, the country's single major foreign currency earner, plunged by 50 percent in 2008 as companies grappled with rising costs and electricity shortages.

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Zimbabwe abandons its currency

Zimbabwe abandons its currency

Zimbabweans will be allowed to conduct business in other currencies, alongside the Zimbabwe dollar, in an effort to stem the country's runaway inflation.

The announcement was made by acting Finance Minister Patrick Chinamasa.

BBC southern Africa correspondent Peter Biles says the Zimbabwean dollar has become a laughing stock. A Z$100 trillion note was recently introduced.

Until now only licensed businesses could accept foreign currencies, although it was common practice.

The country is also facing a deepening humanitarian crisis as well.

A cholera outbreak has killed over 3,000 people according to the World Health Organization (WHO).

And the World Food Programme (WFP) has revised up the number of people it says need food aid.

It now says seven million Zimbabweans are in need of food aid, up from 5.1 million in June.

WFP regional spokesman Richard Lee said the situation had deteriorated rapidly.

"The economic situation has worsened more dramatically than we had anticipated," he told AFP.

"The agency is being forced to halve the cereal rations given to hungry Zimbabweans so that all the people in need can receive aid."

Hyperinflation

Mr Chinamasa made the announcement as he delivered the annual budget to parliament.

"In line with the prevailing practices by the general public, [the] government is therefore allowing the use of multiple foreign currencies for business transactions alongside the Zimbabwean dollar," he said.

The country is in the grip of world-record hyperinflation which has left the Zimbabwean dollar virtually worthless - 231m% in July 2008, the most recent figure released.

Teachers, doctors and civil servants have gone on strike complaining that their salaries - which equal trillions of Zimbabwean dollars - are not even enough to catch the bus to work each day.

Worthless

A 40-year-old Zimbabwean primary school teacher from the capital Harare, told the BBC news website earlier this week it cost nearly US$2 a day to travel to work, but inflation had reduced the average teacher's wage to the equivalent of US$1 a month.

He said he now made a living reselling maize to families in high density areas, as it made more money than teaching.

Before the announcement, shops in Zimbabwe were increasingly demanding payment in US dollars - a reality acknowledged by Mr Chinamasa.

"In the hyper-inflationary environment characterising the economy, our people are now using multiple currencies alongside the Zimbabwean dollar. These include the [South African] rand, US dollar, Botswana pula, euro and British pound among others."

A Harare resident said even street vendors were refusing to accept Zimbabwean notes.

Last year, the Central Bank was forced to slash 10 zeros from the local unit in an effort to make the currency more manageable.

Correspondents say that although the local currency will still be printed, all prices will be set in US dollars, making the Zimbabwe dollar irrelevant.

The country's economy is now on the brink of collapse - a situation worsened by the political crisis that resulted from last year's disputed presidential elections.

Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/africa/7859033.stm

Published: 2009/01/29 19:01:38 GMT

© BBC MMIX

How to pay off your debts for pennies on the dollar

With the potential of coming inflation/hyperinflation in the next 6 months to 24 months here is one strategy to pay off debts on the cheap:

Convert all interest rates on your debts to "fixed" interest rates. Pay the minimums on these debts and pay the maximum on those debts that are "adjustable". Take the rest of your money and buy as much gold and silver as possible. If/when inflation/hyperinflation kicks in you can pay back these debts for pennies on the dollar by selling some of your precious metals. Consider the fact that the dollar can lose most of its value in a currency collapse.

Look at Zimbabwe for a glimpse at the potential future of the dollar:

Zimbabwe Crisis (source)

If you think that the current economic crisis is something that has never happened in history before, you may be wrong! After the collapse of the agriculture sector in Zimbabwe in 2000, the inflation in that country skyrocketed to 231 million percent a year! Just think about it - 231 000 000%! Unemployment went up to 80% and a third of country’s population left it.

Let`s now have a look at the photos that you may not be able to see anywhere else in the world.

Here is a boy getting change in 200 000 dollar notes!

One 200 000 dollar note equals less than $0.10 cents.

December 22nd, a new note of 500 000 dollars introduced to the market!

Next - 750 000 dollars.

January - new note of 10 million dollars.

This US $10 dollar note is 10 times worth more than the 10 million dollars Zimbabwe note.

A case worth 65 billion Zimbabwe dollars which equals to $2000 US dollars.

This guy is going to a supermarket. The exchange rate is 25 million Zimbabwe dollars for 1 US dollar.

This mountain of cash is worth $100.

50 Million note is then introduced!

Next is 250 million dollars note!

Sorry, how much is this t-shirt?

- It`s cheap, only about 3 billion dollars!

May - a note of 500 million dollars is introduced!

June - note worth 25 and 50 billion are printed.

And finally - 100 billion dollars note!

What can you buy for it? Well, these 3 eggs for example.

Thats how people went to restaurants!

And the bills:

In August, the government devalued Zimbabwe dollar by removing 10 zeros from notes.

However, inflation kept going up and in September for this amount of cash you could only buy 4 tomatoes.

And for this - some bread.

And then it started again: 20 000 dollars note in September.

50 000 a couple of weeks ago!

They`ve got a pretty good chance of hitting billion dollar notes again by the end of this year!