Battling to keep pace with hyper-inflation, the Zimbabwe Reserve Bank plans to introduce a $1million bank note in September, after introducing a $100 000 note just last month.
Bearer cheques — introduced three years ago as a stopgap measure to deal with rapidly devaluing bank notes — were meant to have a three-month life span, but have replaced the now worthless paper currency. Zimbabwe is the only country in the world that does not use real currency.
The proposed $1million bearer cheque is worth about R20. This is not enough to buy lunch for two at an average restaurant, or two days’ worth of groceries for a family of three.
”We have to recognise that, since the $50 000 [bearer note] was introduced, inflation has exceeded 1 000%. Therefore, we need $500 000 bearer cheques to equate with the buying power of $50 000 a year ago,” says economic analyst Eric Bloch. He adds that higher denominations are critically necessary as ”the management of money is unwieldy at present because of the volumes to be handled”.
Unveiling the $100 000 bearer cheque late last month, Reserve Bank Governor Gideon Gono said ominously: ”It is not the first or last time you will see us introducing bearer cheques, and we will not hesitate to introduce higher denominations.”
”They are anticipating inflation to go roaring like a tsunami,” says economic consultant Daniel Ndlela. ”Nobody has ever printed a million unit of a currency in Africa. We are set to score a first.”
At Wednesday’s (June 7) prices, $100 000 was not enough to buy a loaf of bread. ”They have to respond to the hyperinflation,” says Farayi Dyirakumunda of Interfin Securities. ”You can drive a wheelbarrow full of cash, [but this is] not even enough to buy a full month’s groceries. You need something a wallet can accommodate.”
Battling the highest inflation in the world, supermarkets are struggling to handle the vast stacks of cash that are required to purchase precious little. Most shops have introduced bank-style counting machines to speed up the queues that form while money is being counted. The proposed $1million bearer cheque is intended to further reduce the time spent in queues.
Analysts fear the worst is still to come, as perennial fuel shortages are beginning to bite. The 30% fuel price hike, coming on the heels of the Zimbabwe dollar’s tumble (from $250 000) to $300 000 to the United States dollar, has seen a sharp spike in the price of goods and services.
”In economic terms, the velocity of the circulation of money will be increasing rapidly. Wages are likely to be rising as fast as inflation,” says John Legat of Imara Asset Management, warning that prices are being driven by even higher input costs at point of manufacture. Legat points out that, while official inflation is at 1 042%, the real rate may already have exceeded 2 000%.
The International Monetary Fund has projected a further 4,7% shrinkage of the economy this year. Spurned by the West, Gono has been shuttling between Moscow and Harare in search of a rescue package for the haemorrhaging economy.
Chance card
Legend has it that, between the World Wars, a student in Germany ordered a cup of coffee costing 5 000 marks. He had two cups, but the bill it was for 14 000 marks. ”If you want to save money,” the waiter told him, ”and you want two cups of coffee, you should order them both at the same time.”
At 1 042%, Zimbabwe’s inflation rate has not yet reached the Weimar Republic’s hyperinflation rate — Weimar’s prices doubled every two days, Zimbabwe’s double every two months — but it seems to be heading that way. Business quotations are only valid for 24 hours and consumer goods prices increase from day to day.
Hyperinflation is when inflation rates over three successive years exceed 100% in total. Standard Bank economist Robert Bunyi defines it as ”rapid and large increases in price levels” caused by ”a sudden drop in the supply of goods and services” and a simultaneous ”large increase in money supply”. He recommends negotiating long-term loans for use in areas that stimulate the private sector, particularly those geared to the external market. ”These policies must be implemented consistently to encourage confidence,” says Bunyi. — Percy Zvomuya