New Zimbabwe Notes Stir Memory of 500b Percent Inflation

Zimbabwe’s tentative return to its own currency is getting a hostile reception from citizens, who fear a recurrence of the 500 billion percent inflation that plagued the southern African nation before it abandoned its dollar seven years ago.

The country will soon introduce so-called bond notes, pegged to parity with the US dollar and beginning with denominations worth from $2 to $5, central bank Governor John Mangudya said on Wednesday, Bloomberg reported.

It’s an attempt to complement the range of foreign currencies used in the beleaguered economy since 2009, which have been in short supply following a collapse in exports, he said.

James Sakupwanya, who sells items such as maize meal, tinned food and blankets from his shop in Mutare, southeast of Harare, isn’t buying it. “We will reject it” he said.

 Liquidity Crisis

An earlier announcement of plans to introduce the currency sparked riots in Harare even after the government said the notes, which will be legal tender only in Zimbabwe, will be backed by a $200 million loan from a multilateral lender. Banks have limited cash withdrawals to prevent hoarding of dollars, used in 95% of all transactions in the country, while some shops reported they’re running short of essential goods.

Zimbabwe has been gripped by a liquidity crisis that’s forced the government to pay its workers late in recent months. Finance Minister Patrick Chinamasa said on Sept. 9 that the state may cut 25,000 civil service jobs as it struggles to meet pay obligations.

Zimbabwe owes lenders including the International Monetary Fund, World Bank and Africa Development Bank about $9 billion, according to the finance ministry.

In addition to the US dollar, Zimbabwe also uses eight other currencies, including the South African rand, euro, British pound and Chinese yuan. Getting Zimbabweans to adopt the bond notes will be difficult, given fresh memories of a worthless currency, Mangudya and the chairwoman of the Zimbabwe Revenue Authority, Willia Bonyongwe, have said.

The bond notes won’t address structural challenges facing the economy, said Naome Chakanya, an economist with the Labor and Economic Research Institute, a Harare-based think tank. The economy collapsed in the wake of a campaign to seize white-owned commercial farms and hand them over to black subsistence farmers, triggering a near decade-long recession as exports from tobacco to roses slumped.