Zimbabwe trading in fiction

It just got tougher for Zimbabwe to print banknotes. So how do people cope in a country where even a bus ride costs billions?

The Financial Gazette, a Harare newspaper, have put currency inflation at 32 million percent—at the current rate of increase. The numbers are so astronomical that it's hard to imagine just how Zimbabweans manage to cope. With commercial agriculture in collapse since the nationalization of white-owned farms, 40 percent of the economy is down the tubes. In addition, harvests this year were only 10 percent of what was expected, due to drought and lack of inputs; the Food and Agriculture Organization expects that 5 million people will need food aid by September. The mining sector is similarly troubled, particularly gold, and its biggest platinum mine—the largest in the world—has voluntarily stopped production due to the unrest surrounding the election. Shelves in the stores and markets are nearly empty, particularly of foodstuffs, but of nearly all goods.

Somehow, at least in the capital and other urban areas, people do seem to manage. Largely this is because of the 4 million people who have fled to neighboring countries, 3 million to South Africa, the remainder to Botswana and others. "Zimbabwe no longer has any exports except its most valuable product, its people," says a Western diplomat. "This has become a remittance economy and a barter economy." Foreign workers send hard currency home, and many Zimbabweans travel to places like Botswana to do their shopping—in bulk. The government doesn't try to stop that, because it collects duties in the form of hard currency, which it desperately needs, on items they bring back. "The entire economy of cities like Bulawayo has just been shifted across the border, to places like Francistown," said the diplomat. "This is lunacy that passes for policy."

Meanwhile the government just keeps cranking out currency in greater and greater quantities, meaning it simply keeps decreasing in value. The Reserve Bank of Zimbabwe's solely owned subsidiary, Fidelity Printing and Refining Limited, now works 24 hours a day, seven days a week, churning out bills of up to $50 billion. A spokesman for Giesecke and Devrient, Hieko Witzke, Germany, said the company had decided to immediately stop supplying Zimbabwe as the result of a recent request by the German government. "We decided to cease deliveries to the Reserve Bank of Zimbabwe yesterday," he said. "We have taken the decision in response to an official German government request and international calls for sanctions from the European Union and United Nations." He refused to comment on reports here that the Zimbabwean government had not yet paid the company for the paper and banknotes it has been supplying.

The Zimbabwe government was alarmed enough by the pressure on its currency that it announced today that it would allow depositors to withdraw $100 billion a day from their accounts, and added that it was taking measures to reduce the supply of money. It may not have much choice. Robertson, the economist, says the Reserve Bank has plates for a new currency, without all the zeroes, which it could issue—but it's an open question whether it could print the replacement bills quickly enough to do a massive devaluation, especially without the German company's help.

"You can rig an election," says political scientist John Makumbe of the University of Zimbabwe, "but you can't rig an economy, which will say, ah-ha, the holes are still leaking. How long can they go on? I don't think they can survive very long, lop off all the zeroes, the zeroes would crawl right back in. They're trading in fiction, anyone can see that."