The Day the Dollar Died

Today the new Zimbabwe currency devalued to one South African cent. Issued just a month ago at parity with the Rand, it was a desperate move by the regime in Harare to try and meet the demand for cash in an environment where the local currency is halving in values every week or less.

Even though we have no less than five sets of currency in circulation - the new notes, the bearer bonds, the agric cheques and two different sets of coinage, there is still a huge shortage of local currency. Businesses with cash are selling their surplus on the market at up to a 50 per cent premium. Bankers and the Reserve Bank are also selling cash and buying foreign exchange on the parallel market.

In fact to the uninitiated the situation here can be quite bewildering - just take today for example. The US dollar was trading at Z$1334 per dollar at the so-called 'Old Mutual Rate'. The 'RTGS' rate was about Z$850 to 1. The street rate was Z$200 to 1. The interbank rate was slightly higher and the 'official rate' was Z$0,0000003 of a local dollar to one US dollar.

Then today we tried to buy some fabric from a local firm - 100 per cent cotton, locally manufactured and dyed - they quoted me Z$6060 per Metre or US3,10 - at that rate the exchange rate was 1955 to one US dollar. That is 10 times the street rate.

So if I was able to get an allocation of foreign exchange from the Reserve Bank at the 'Official' rate, US$100 000 would cost me 30 Zimbabwean cents. If I sold the US$100 000 on the local market at the RTGS rate I would earn Z$85 million. If I then bought US dollars on the free market in Zimbabwe I would be able to buy US$425 000. This is what we call 'Gononomics'.

But if you were a worker in a clothing factory, your weekly wage would be about Z$200 - and a 300 mls Coke would cost you Z$1 800 - you would have to work for 9 weeks to buy a cold coke!

Last month the militias were paid Z$3 trillion - that is 30 cents in the new currency. Worth a fortune in the hands of Grace Mugabe but not worth a dime in the markets in which they have to live. They are going to have to print currency and 'create' currency through the Reserve Bank by simply issuing cheques or even just a credit for an account in order to pay the army - but the army will not be able to get hard cash and therefore cannot spend the money they get until it is worthless.

How you function in such a crazy environment I simply do not know.

Eddie Cross
Bulawayo, 1st September 2008