Why is zimbabwe currency worthless

It was officially pegged to the US dollar but in reality was worth much less - so a thriving black market developed and Zimbabwe has become a cashless society, relying on card-based transactions or trading with mobile money.

In February, bond notes and electronic cash were re-branded RTGS dollars and allowed to float to try and crush the black market. People were often expected to pay for goods in shops and services, like doctors' fees, in US dollars. President Emmerson Mnangagwa said the ban was an "important step in restoring normalcy to our economy". The authorities also say because the US dollar is so strong, producing goods locally is expensive which is why businesses prefer to import goods.

Most people, who associate the Zimbabwe dollar with food shortages and runaway inflation, have complained about the lack of warning. But they shouldn't have abolished it as if they were swatting a fly. They should have given us notice," one man told the BBC.

Supermarkets and those in the formal sector responded a day after the announcement by issuing new prices in Zimbabwean dollars - but they were beyond the means of many. Informal traders, who dominate the economy and need US dollars for imports, have vowed to defy the directive. It won't work. We actually want greater use of it, so that as street vendors we can have them. Scrap the bond note instead. You can't force people to love a currency This will exacerbate the chaos," he said on Twitter.

The trade unions have threatened "mass action" if the policy is not reversed. On the streets of the capital, black market traders are still exchanging and accepting US dollars. The value on the black market has remained unchanged - one US dollar is worth 11 Zimbabwe dollars, compared with the official rate of 6.

Ultimately Zimbabweans have proved good at adapting over the years to one economic crisis after another. Others say the move is widely an attempt to put the brakes on an unofficial redollarization of the economy.

This is because most Zimbabwean businesses had already begun charging prices for goods and services in US dollars instead of the unfavored RTGs dollar which had been the official currency since February.

Another Harare-based economist, Victor Bhoroma, said the effect of the regulations are far reaching, adding the new measures mean all debts contracted in US dollar will now be honored in Zimbabwe dollars. Like other market watchers, Bhoroma also believes the law has been created to stop a redollarization process being led by business but he also argues it will be difficult to stop.

Economists say government does not have absolute control of the situation, adding the value of the currency will depend on the value of reserves the central bank has, the fluidity of the interbank market, confidence levels in the local economy, debt levels, export and import parity current account position , inflation levels and general economic performance.

Zimbabwe is currently in recession, setting up the Zimbabwe dollar for failure yet again. Black market activities and runaway inflation will not be cooled by the new decree, Bhoroma added. Sign up to the Quartz Africa Weekly Brief here for news and analysis on African business, tech and innovation in your inbox. By providing your email, you agree to the Quartz Privacy Policy. Skip to navigation Skip to content. Discover Membership.

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