Zimbabwe's currency slide: Is this what SA has to look forward to?

2015-12-11 15:18

Harare – The rand's vertiginous slide is bringing back bad memories for Zimbabweans, who saw their own currency plummet in value over a 10-year period to 2008.

The political situation in South Africa in 2015 is not the same as Zimbabwe in the late 1990s. But there is no shortage of grim "we know this script" predictions from Zimbabweans already scarred by their own currency crisis. 

Here is an overview of what happened after the Zimbabwe dollar started to slide:

The beginning of Zimbabwe's currency crash is generally traced back to 1997, when unbudgeted payouts were made to 50 000 veterans of the 1970s war for independence.

By 2000 foreign visitors to Zimbabwe were already finding prices – of food, curios and flowers in Harare's Africa Unity Square – cheap.

President Robert Mugabe's government controlled the exchange rates, but worried locals were privately settling for very different rates in their haste to build up a forex store. 

By 2002, prices were rising and fuel shortages were worsening.

At the first sign of a petrol or diesel delivery, lines formed outside fuel stations. You could spend hours in a queue, getting increasingly angry as you watched well-connected officials and other queue-jumpers.

There were all sorts of ruses to jump the queues. One involved carrying coffins, which meant your vehicle got priority. In at least one case, a hearse was investigated and found to be carrying a coffin full of sand.

Bureaux de change were banned from trading in foreign currency. They did not – understandably – stick to the official exchange rate. Some were later allowed to operate solely as money-transfer agencies.

By 2003, inflation was at least 400%.

By 2004, Zimbabwe dollar prices were jumping rapidly.

In forex terms, though, they remained roughly the same as long as you were changing your money on the illegal market.

There were all sorts of ways of doing this kind of trade, generally involving dark backrooms and "dealers" who offered forex services as a lucrative sideline.

If you had a large bill to pay in local Zimbabwe dollars, say for a hospital procedure, it was best to wait until the very last minute before you changed your US dollars. 

One silver lining to the inflationary cloud: house mortgages contracted in Zimbabwe dollars pre-2000 could be paid off in a matter of weeks, not years.

But bad luck to you if you were paid in Zimbabwe dollars. Or if your employer paid your forex salary into your local bank (some embassies and NGOs did so).

The banks were obliged to offer you the official exchange rate. This meant that a monthly salary stretching into several thousand rands would eventually, at the height of the crisis, buy you a loaf of bread or two.

You could, of course, opt to leave your forex to accumulate in the bank in the hope that Zimbabwe would eventually adopt the US dollar and/or the South Africa rand as its official currency.

It did just that in 2009, but not before "centralising" – read raiding – the foreign currency accounts of several firms, universities and organisations in 2007.

Also in 2007, increasingly angry with rocketing prices, Mugabe's government ordered "inflation police" to raid shops.

Officially this was a move to enforce price controls. In practice, ruling party supporters – and opportunists – followed closely behind the inflation police, picking up TVs, electronic goods and clothes for a fraction of their real value.

Helpless shopkeepers were left staring at empty shelves. 

Shopping became a secretive thing as some storekeepers kept their goods – meat, flour – out of sight to avoid raids. Sometimes it was possible to swap goods: fresh milk from a farmer in return for fuel coupons, for example. 

Some employers paid their staff in goods and foodstuffs. 

By 2008, some shops were trading quietly in foreign currency, even though it was not officially allowed.

At least one army officer's wife ran a well-stocked shop  from her home larder.

Other shops were run from wire "cages" inside warehouses. These shops were stocked with goods that had not been unavailable for years on Zimbabwe's supermarket shelves.

But you paid through the nose for them. A box of cereal, a jar of Marmite, some sterilised milk and a couple of tins of tuna? You could easily be looking at a bill of around $30.

By October 2008, inflation was officially 231 million percent. The "real" rate was far higher.

In 2009, Zimbabwe officially abandoned the local currency.

There are occasional calls for it to be reinstated.

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