Zimbabwe Turns To the Greenback
Hyperinflation Puts U.S. Dollar in Demand

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."

Officially, the store is allowed to charge only in Zimbabwe dollars. That is of little concern to Timothy. "You just bribe the policeman," he said. Police officers are paid in the national currency, the equivalent on this day of about $3 a month. They are as eager for American cash as anyone, he said.

Humanitarian organizations say the scarcity of Zimbabwean cash has combined with rising prices to bring widespread hunger, once a rural problem, to the city. This year, for the first time, the U.S. Agency for International Development opened soup kitchens in Harare.

"We survive by the grace of God," said Virginia Mago, 46, a toothless vegetable seller who lives in Epworth, a short distance from Timothy's shop but a world away from being able to buy there.

Mago once knitted sweaters in a shop in the city, but business dried up. She has no relatives overseas. Her bank account, which she said once held enough to pay for her daughter's university education, disappeared, consumed by bank fees.

To raise cash, she rises at dawn and takes a bus to a market 10 miles away. She buys vegetables and fruits in Zimbabwe dollars, then sells them from a table outside her brick hut, also usually in Zimbabwe dollars.

For her one daily meal, she buys cornmeal from sellers in her neighborhood, never the store. The sellers let Mago buy on credit. But they demand foreign currency, so she must change her Zimbabwe dollars on the black market. Each time, the exchange comes at a steeper price. "Life is getting tougher," she said, thinking to remember the last time, two weeks before, that she ate meat.

Experts say foreign cash comes in mostly via money transfers from the 3 million or so Zimbabweans abroad, in the hands of foreign executives and tourists, and from sales of illegally mined gold and diamonds.

In downtown Harare, black-market money dealers operate openly, thrusting wads of U.S. and Zimbabwe dollars toward cars pulling up to the Holiday Inn or Eastgate mall. Dealers and Western diplomats say values swing widely when the Reserve Bank, desperate for foreign currency, sends runners to snatch up U.S. dollars, encouraging the black market and fueling scarcities.

Cash scarcity has prompted the invention of currencies. Schools and doctors accept gasoline coupons, their values pegged to about 20 U.S. dollars. Zimbabwe Online, an Internet service provider, takes payments in the coupons or shares of Old Mutual, an insurance company listed on stock exchanges in Harare and London -- although many business executives say checks and bank transfers are no longer viable because they devalue massively in the days it takes them to clear.

Ben Nturi's printing company used to hum 24 hours a day. Now just two of 20 printing machines run, and sales have dived nearly 90 percent. On a recent rainy evening, publications in the silent warehouse testified to Zimbabwe's plight. On a table were stacks of gasoline coupons. In a corner were dusty textbooks, ordered eight months ago by a public university but never paid for.

All sales are in U.S. dollars now, Nturi said. But to give a quote for a new job, he must first call his paper and ink suppliers to inquire about their prices and their stock.

"For you to be doing business in Zimbabwe, you've got to be pricing every hour," said Nturi, 49.

Like most Zimbabweans, he now hoards cash and pours it into assets -- machinery, property. At night, he frets.

"Look, you work 16 years running a company. Now you watch your investments diminish. You watch your money diminish in the bank," Nturi said. "When you have money and your money is worthless, you are now poor. We are all poor now."

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