Zimbabwe unveils 100-trillion dollar note

Zimbabwe will introduce a 100-trillion dollar note, in its latest attempt to keep pace with hyperinflation that has left its once-vibrant economy in tatters, state media said today. The new 100,000,000,000,000 Zim-dollar bill would have been worth about 300 US dollars (225 euros) at yesterday’s exchange rate on the informal market, where most currency trading now takes place, but the value of the local currency erodes dramatically every day.

The last official estimate put inflation at 231 million percent in July, but outside experts now believe it is many times higher. When Zimbabwe’s leader Robert Mugabe first took power in 1980, following independence from Britain, the local unit was worth about the same as the British pound.

With the local currency in freefall, everyone from street side vegetable vendors to mobile phone service providers are pegging their prices in foreign currency to hedge against losses. Zimbabwe’s central bank has licensed at least 1,000 shops to sell goods in foreign currency in a move aimed at helping businesses suffering from a chronic shortage of foreign currency to import spare parts and foreign goods. Other shops and service providers have followed suit although they have not been authorised by the government and have done so despite warnings that those arrested for flouting foreign exchange regulations would be prosecuted.

Even basic commodities are scarce in Zimbabwe, driving up their prices in US dollar terms and making life more expensive than in neighbouring countries, while an estimated 80 percent of the population has been driven into poverty.

The crisis has left Zimbabwe’s health services in tatters, with government doctors and nurses on an indefinite strike to demand higher wages after hyperinflation turned their salaries into pittances. Even if the doctors were on the job, public hospitals and clinics have no money to buy medicine or equipment, no clean water, and often scant supplies of electricity.

Most teachers have left the classroom to eek out a living elsewhere, and end-of-year examinations taken in November have yet to be graded after the markers demanded their wages in foreign currency, the Herald said today. Schools were supposed to re-open this week for the new academic year, but government has already pushed back the start of classes by two weeks since students don’t yet know if they passed.

The breakdown in the national infrastructure has allowed a cholera epidemic to spread across Zimbabwe, claiming more than 2,100 lives, according to UN estimates. Meanwhile chronic shortages of food are starting to bite again this year, as rural households’ supplies from last year’s harvest are running out months before the new crops will be ready.

The World Food Programme says five million people – nearly half the population – are dependent on food aid. The crisis shows little sign of abating with government deadlocked after disputed elections last year. Mugabe and opposition leader Morgan Tsvangirai signed a power-sharing deal four months ago, which has yet to be implemented

Source:Sapa,Zimbabwe unveils 100-trillion dollar note, Business Day, January 16, 2009

For text: http://www.businessday.co.za/home.aspx?Page=BD4P1236&MenuItem=BD4P1236

For more on economic policy: http://www.freemarketfoundation.com/issues.asp?id=30

FMF Policy Bulletin/ 20 January 2009
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