Zimbabweans Turn to U.S. Dollar as Hyperinflation Erodes Value of Local Currency

Zimbabweans struggle to find food and clean water during a raging cholera outbreak, while even burying the dead has become difficult in a devastated economy and unstable political situation.
By Karin Brulliard
Washington Post Foreign Service
Thursday, December 4, 2008

HARARE, Zimbabwe -- The sun was blazing high in the sky just before 1 p.m., five hours after Timothy opened the sparsely stocked shop he manages in a dusty slum here in Zimbabwe's capital. It was time to change the prices.

He stepped outside and tapped numbers into his orange Nokia cellphone. After many tries, he reached a black-market money dealer, who relayed an up-to-the-hour exchange rate: 1.1 million Zimbabwe dollars to one U.S. dollar, up 10 percent since morning. Within minutes, the handwritten price tags on the store's bags of cornmeal, the staple food here, had jumped from 17.6 million to 19.2 million Zimbabwe dollars.

"I'll call again in a few hours," said Timothy, 26, who did not want his last name published for fear of angering authorities.

In Zimbabwe, where historic hyperinflation is causing the value of local currency to evaporate in people's wallets, it is increasingly the greenback that rules. Many vendors and businesses now demand American currency. Others peg their prices to the U.S. dollar and charge less if payment is made with it or the South African rand, widening a buying-power divide between those with access to foreign currency and those without -- mostly people who have no relatives abroad and people in rural areas.

The black market for stable currencies has boomed in recent years as Zimbabwe's once-thriving economy has tanked. In September, the government acknowledged as much by announcing that it would license about 1,200 stores and gas stations to sell in foreign currency and then buy some of their earnings at a low exchange rate.

But as workers, suppliers and unlicensed stores shun Zimbabwe's currency, the U.S. dollar has become the de facto legal currency at nearly every level of society. Eric Bloch, a Zimbabwean economist, estimates that the market is about 90 percent dollarized.

"Government has basically gotten completely out of its depth in terms of what was happening on the parallel market and the illegal street market. So they've tried to join it," said another independent economist, John Robertson. "The Zimbabwe dollar has been rendered useless."

Inflation is officially at 231 million percent annually, but independent economists say it hovers around 1 quadrillion percent, driven by the insolvent government's penchant for printing money to meet demand for scarce cash. The government, led for 28 years by iron-fisted President Robert Mugabe, blames Western sanctions for the mess. Most experts attribute Zimbabwe's economic collapse not to sanctions, but to government policies, including a land seizure program that decimated the agricultural export industry, a key source of foreign currency.

Moves toward dollarization have snowballed since September. International aid groups recently won permission from the Reserve Bank to pay U.S. dollars to suppliers, who were jeopardizing crucial programs by refusing to be compensated in Zimbabwean currency, aid officials said. And the Zimbabwe Congress of Trade Unions is demanding that its 300,000 workers be paid in U.S. dollars because their salaries do not even cover transportation to work.

"For those that do come to work, they have their own goods to sell. You can even bring homemade buns to work to sell to your workmates," said Khumbulani Ndlovu, the congress's information officer. "In other words, they are subsidizing their own employment."

Zimbabweans, constantly converting, have grown accustomed to performing mathematical gymnastics in their heads. Ultra-current exchange rates course through shantytowns such as Epworth, on the edge of Harare, where Timothy watches over a one-room store that sells soap, salt, soda, popcorn, condoms and not much else.

"If you ask anyone on the road, they will tell you the value of the U.S. dollar today," he said, sitting in the idle bakery in the back of the shop, which along with the neighborhood has been without power for five months. "Even an old woman. There's no way you can cheat her."

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