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  • Subject area(s): Business
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  • Published on: 21st September 2019
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Zimbabwe is a developing country located in the southern parts of Africa. The country has gone through tough economic situations that have seen hyperinflations and collapse of financial infrastructure in the country. Banks, prices of commodities, and the value of the currency experienced a massive drop in the late 1990s. Zimbabwe's currency is the Zimbabwean dollar (Z$). The sign provides a proper distinguishing factor from other forms of dollars. The currency has been operational in the country from 1980 to 2009 when the level of inflation was unbearable, and thus the state resorted to using the money from the neighboring countries of Southern Africa. Such countries include South African rand the pula of Botswana (Munangagwa, 2009).

Statistics illustrating crisis

According to Munangagwa (2009), the level of the crisis is massive in Zimbabwe as the rate of inflation was very fast, and the currency was dropping steadily compared to other currencies. The worst inflation was recorded in 2008 where the price of commodities was skyrocketing at 11.6 million percent. Such growth instigated the call by the financial bodies to remove the Zimbabwean dollar as the official currency of the country. The country lacked updated statistical data for the financial systems in the country. The reserve bank and other financial institutions had collapsed because of lack of proper planning for these systems. The leadership was not keen on bookkeeping and thus tracking the level of inflation was difficult.

Zimbabwe gained independence from the British colony in 1980. At that time, the country decided to change the Rhodesian Dollar that was operational at that point to start using the Zimbabwean Dollar that had the same value as the previous currency. It is essential to note that after the country's independence, its dollar was more valuable than the USA dollar, but when one accessed the black market exchange rates, the Zimbabwean dollar was lower (Jenkins and Knight, 2002). The economy was developing at a high incidence, and the agricultural sector was stable enough. The production of wheat and other farm products was favored by the steady rainfall. The country's leadership under President Robert Mugabe started a program in 1991 to that wanted to restructure the economic set-up of the country. The IMF and World Bank also helped the country in this discourse and the land reforms that led to the removal of the landowners of Britain descent was just the start of the economic decline. Eviction sought to ensure that the land was in the hands o the black farmers who were less experienced in carrying out large scale farming (Jenkins and Knight, 2002).

The second phase of the inflation took place in the same year, 2008, where the level of inflation was at 79.6 Billion percent. The rate of people who lacked employment was at 90% in the country, which led to a drastic drop in the country's economy. Precisely, 1USD was exchanged at a rate of Z$2.6 billion (Gandiwa et al. 2013). However, fluctuations continued until 2015, and the plans of using the USA dollar were underway to ensure that there is no use of the previous currencies. The current situation in the country indicates that there is a massive breakdown in the banking industry that it is unable to offer loans. The abandoning of the Zimbabwean dollar currency and the complete use of the US dollar has been one of the ways to help the citizens (Cornia, 1987). The fear for hyperinflation has made the Reserve Bank of Zimbabwe denominate the dollar further in 2015 to ensure that the sellers do not offer products for the least dollar available for products that could retail at lower prices. As such, the dollar was further divided into US$0.01 as well as US$0.50. This has helped the citizens up to date in operations. 90% of the economic activities in Zimbabwe are taking place using the US dollar while the around 5% makes use of other currencies such as the rand (Gandiwa et al. 2013). The following graph indicates the exchange rate of the Zimbabwean currency against the US dollar from 2001-2009.

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