One of the reasons why the Zimbabwean currency is worthless is hyperinflation.
Do you know why Zimbabwe’s currency is worthless? This question may arise when you find out the fact that you need a wad of money just to buy 3 eggs.
Even there, it is so worthless that many people prefer to use US dollars rather than ZWL as currency.
So, why is Zimbabwe’s currency worthless? So, to find out the answer, let’s look at the description below!
Why is Zimbabwe’s Currency Worthless?
The main reason for the collapse of the Zimbabwean currency was the failure of the government’s redenomination efforts and the circulation of too much money which triggered hyperinflation.
During President Mugabe’s government, there was a policy of endlessly printing money to finance his government.
So, why is Zimbabwe’s currency worthless? When there is too much money circulating in the market, the prices of goods eventually become high, resulting in hyperinflation.
It was recorded that in 2007, the increase in inflation in Zimbabwe reached 66.212%. In this condition, the price of an item can increase several times in just one day.
As a result, it has become a common sight if people there have to carry wads of ZWL money just for shopping.
In fact, 100 billion in Zimbabwe only sells for 3 eggs.
From the explanation above, it can be seen that hyperinflation is the reason why the Zimbabwean currency is worthless.
Redenomination of Zimbabwe
After knowing the reasons why Zimbabwe’s currency is worthless, next we will discuss the resolution efforts made by Zimbabwe when facing this problem.
In an effort to resolve the hyperinflation problem, Zimbabwe carried out three redenominations.
In simple terms, redenomination is the simplification of a currency to make it smaller without reducing its value. One of the goals is to strengthen the value of the currency.
In connection with this, Indonesia also had plans to carry out redenomination.
Indeed, there are countries that have succeeded in strengthening their currency and maintaining the rate of inflation due to redenomination, one of which is Türkiye.
However, there are also countries that have failed to implement this, one of which is Zimbabwe.
Even though it has redenominated three times, namely in 2006, 2008 and 2009, the country’s finances are not getting any better.
In 2006, the Zimbabwean dollar had its number reduced by three digits. So, ZWN1,000 turns into ZWN1.
However, because there was too much money in circulation, inflation eventually got out of control and redenomination efforts failed. In fact, in 2007, Zimbabwe’s inflation reached 1000%.
Then, redenomination was carried out again in 2008 and the code changed from ZWN to ZWR.
In this redenomination, Zimbabwe not only reduced the 3-digit zeros, but changed ZWN10,000,000,000 to ZWR1.
Unfortunately, redenomination volume II does not solve the problem at all.
Why is Zimbabwe’s currency worthless? Because, at that time, people had lost confidence in the Zimbabwean dollar and were accustomed to using foreign currency.
Finally, in 2009, the Zimbabwean dollar underwent redenomination again and changed its code from ZWR to ZWL.
This time, the government deducted 12 zeros, so ZWR1,000,000,000,000 is equivalent to ZWL1. Once again, this redenomination effort was not successful because people preferred the US dollar as currency.
Today, the name of Zimbabwe’s currency is the Zimbabwe dollar (ZWL). As of December 2022, the value of 1 dollar of the Zimbabwean currency to the rupiah is IDR 43.23.
Current State of the Zimbabwean Currency
So, what is the current situation of Zimbabwe’s currency? Reporting from CNN, Zimbabwe now uses multiple currencies, most of which are US dollars.
Even though it stopped printing its currency in 2009, the country has reintroduced the Zimbabwe dollar.
Now, as an effort to improve economic conditions, the government has issued several policies, including the following:
1. Using Gold Coins as a Local Payment Tool
In an effort to prevent deep losses in the currency, the Central Bank of Zimbabwe issued gold coins as legal tender locally.
These gold coins are generally available and sold to the public based on prevailing international gold prices and production costs.To make it easy to convert into cash, the gold is equipped with a serial number.
Apart from being a payment medium, this gold money can also be used as a means of guaranteeing loans and credit facilities.
The purpose of launching this gold coin is as an effort to anticipate a currency crisis and a sharp depreciation of the Zimbabwean dollar which has the potential to increase inflation rates. Moreover, considering that the country’s annual inflation has risen 192% since June 2022.
2. Increase interest rates 2 times to 200 percent
Another effort made to overcome this inflation problem is to double the interest rate to 200%.
According to Finance Minister Mthuli Ncube, this step was taken to prioritize economic stability. So, this increase is aimed at controlling inflation and supporting the local currency which has weakened more than 80% against the US dollar this year.
That is the explanation for the question why Zimbabwe’s currency is worthless.
From the case of this country, we can learn that restrictions on money circulation need to be monitored to prevent high inflation.
Apart from that, redenomination steps could indeed be a solution to strengthen the currency. However, if it fails, this can also make the situation worse.
This is why careful consideration is needed for a country before redenominating or simplifying its currency.
