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The disappearing dollar
IRIN News
January 18, 2008

Visit the index of articles on currency reform - Sunrise II

http://www.irinnews.org/report.aspx?ReportID=76317

Faith in the Zimbabwe dollar has withered in rural areas where the local currency is being sidelined in favour of foreign exchange and barter trade.

Analysts say consumers are avoiding the currency since a world record-breaking inflation rate - now officially at 8,000 percent but unofficially estimated at 25,000 percent - has made holding Zimbabwean cash pointless.

"Because of the ever deteriorating economy, villages are now awash with money from beyond our borders," Innocent Makwiramiti, an economist and former chief executive officer of the Zimbabwe National Chamber of Commerce, told IRIN.

"Nine years ago, the foreign currency black market was subdued, even in urban areas, and rural people hardly knew what the South African rand, the [Botswana] pula or the US dollar looked like - what it means is loss of faith in the local currency," Makwiramiti said.

The economic deterioration in Zimbabwe since the introduction of President Robert Mugabe's controversial land-reform programme in 2000 has been astonishing: agricultural decline has left Zimbabwe unable to feed itself, industry has shrunk to a third of its pre-2000 size and unemployment is estimated at 80 percent.

The government's Central Statistical Office has stopped releasing monthly inflation figures because commodity prices are rising so rapidly.

Crossing the border
The Illegal foreign currency trade used to be confined to urban areas, but people in the countryside, struggling to survive, have turned to cross-border trade, making foreign currency peddling essential.

"People in rural areas used to depend on members of their families working in urban areas for groceries, school fees, agricultural inputs and general upkeep, because salaries then were meaningful," Makwiramiti explained.

"Now the working class is struggling, and that means hardly any financial support to those residing outside urban areas, forcing rural people to periodically cross the border to neighbouring countries, where they sell various forms of commodities and bring back foreign currency, which remains strong, as inflation plays havoc."

Foreign currency remittances from Zimbabweans working abroad also go to friends and family in rural areas, and are used in day-to-day transactions.

More than three million Zimbabweans are estimated to have relocated to other countries in southern Africa, or the UK where pay is far better and in hard currency.

"People don't want to have the Zimbabwean dollar because there is hardly any value in it, given the rate at which prices of commodities are rising, and dealing in foreign currency - even for rural people - is proving to be the preferred option," Eric Bloch, an independent economist and consultant to the Reserve Bank of Zimbabwe, told IRIN. "You don't have many examples the world over of people who have lost so much trust in their own money."

Samukeliso Ndari, 50, of Chirumanzi district in Midlands Province, said, "Everyone in this village, including old people like me, understands how important it is to keep their money as foreign currency rather the worthless Zimbabwean dollar."

She recently exchanged a goat for 100kg of maizemeal, Zimbabwe's staple food. "It would not make sense for me to accept our local cash and then start struggling to find the scarce maize, whose price would have increased by the time I buy it."

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