War on Cash Zimbabwe Edition

If there should be on template as to what happens with, or the possible ramifications of, the war on cash (also "financial inclusion"), one just need to turn to Zimbabwe’s current dilemma.

Zimbabwe’s economy suffered from the second worst hyperinflation in the world in 2008 with the doubling of prices in about 24 hours. With access to credit shut, the country’s central bank Reserve Bank of Zimbabwe (RBZ) resorted to the financing of the cash strapped government’s boondoggles by destroying her currency (Zimbabwe dollar). The average Zimbabweans were compelled to dump the local currency and use foreign currencies such as US dollar, the euro and or South African rand instead. The Zimbabwean dollar was reduced to non currency uses.

Fast forward today. Once again, Zimbabwe’s central bank (RBZ) has reportedly been at war with cash. But this time with the limited ability to "print" money, the RBZ has resorted to different means: they implicitly accuse those who don't use banks for lack of patriotism and may even have forced banks to limit the public's access of bank ATMs!

From AllAfrica.com (bold mine)

AN exasperated Reserve Bank of Zimbabwe (RBZ) governor John Mangudya has told Zimbabweans that it "a national responsibility for everyone" to use cards when transacting as the country's cash shortages deepened this week. 

Mangudya also hit out at business persons who don't bank their money, opting to keep daily takings at home as a recent order for tobacco farmers to be paid through banks failed to alleviate the liquidity crisis.

The RBZ chief blamed civil service salary and bonus payments for the cash shortages.

But but the opposition People's Democractic Party (PDP) recently insisted that the "cash crisis is because there is no production and real activity in the economy" with the key sectors having effectively "collapsed".

"I ... urge people to use point of sale when transacting," Mangudya was quoted as saying by State media Tuesday.

"It is a national responsibility for everyone; especially at a time we are not in a position to print money. There are local businesspeople that do not bank their daily takings, preferring to keep the money in safes at home, fuelling cash shortages."

Zimbabwe ditched its then virtually worthless local currency in 2009 opting, mainly, for the US dollar and, in the process, denying the RBZ the ability to 'print' - a key monetary policy instrument for boosting the amount of overall money in the banking system.

Local banks were this week reportedly limiting withdrawals and disabling ATMs and the ZimSwitch system.

Mangudya said he was aware depositors were struggling to access their funds.

Zimbabwe’s episode represents just another sign of how governments have become so desperate for them impudently confiscate people’s resources through a variety of means. 

For developed nations, such has been channeled through ZIRP and NIRP and now to the war on cash or the regulation of currency, thus transactions. Eventually, "financial inclusion" will morph into "financial exclusion" as Zimbabweans has exhibited.

Dead Currency Comes to Life: Zimbabwe Dollar as Souvenir Item, Venezuela's Bolivar next?

The defunct Zimbabwe dollar has more value on the marketplace as souvenir item than what their central bank has offered to demonetize it.

From Reuters:

On online auction site eBay, a 100 trillion Zimbabwean dollar note is a collector's item fetching up to $35, a small fortune compared with the 40 U.S. cents on offer from the central bank as it seeks to officially bury the worthless currency.

The unloved Zimbabwean dollar, ravaged by hyperinflation that peaked at 500 billion percent in 2008, ceased to be legal tender on Friday as the southern African country switches fully to the U.S. dollar.

The central bank says citizens have until September to exchange their remaining quadrillions of local dollars for a few greenbacks.

But economists say 90 percent of the economy has been based on the U.S. dollar since 2009, so few people are expected to make a beeline to banks to cash in old notes - especially as they could get a far better deal elsewhere.

"I think this is a waste of time. I would rather sell the money to tourists," said Shadreck Gutuza, a former currency trader who now buys and sells used cars from Japan.

"Most people either burned that money or dumped it," he told Reuters.

On eBay a seller was offering a hundred 50 trillion Zimbabwean dollar notes for $1,000.

Zimbabwe's hyperinflation was considered by the International Monetary Fund as the worst for any country not at war, and the 100 trillion dollar Zimbabwean dollar note was the single largest known note to be printed by any central bank.

Tourists are known to pay up to $20 for a single note in the resort town of Victoria Falls

The Zimbabwe dollar's fateful experience seem likely to be repeated today.

Here are the candidates:

Socialist Venezuela runs closest to the Zimbabwe experience...

The collapse in Venezuela's currency the bolivar has been accelerating...

...as implied inflation rates rip!

Charts from Cato Research's Troubled Currencies Project.

Hyperinflation signify a symptom of how socialism has been running out of people's money to spend.

Yet stock market bulls will love this...

Want record stocks? Well just let the government-central bank destroy the currency! (tradingeconomics.com)

The bolivar will most likely be the next souvenir item.

Zimbabwe’s Gideon Gono Hearts the Chinese Yuan

Below is an interesting article about the eccentric Gideon Gono of Zimbabwe.

From New Zimbabwe (bold emphasis mine)

RESERVE Bank governor Gideon Gono has warned that Zimbabwe’s nascent economic recovery is at the mercy of the United States dollar, which is facing new pressures from the Euro-zone debt crisis.

Gono says Zimbabwe should in fact be looking to the Chinese yuan as its main currency, while urgently seeking to restore its own currency which was abandoned in 2009 after a dramatic loss of its value.

Speaking in Gweru last Saturday, Gono said: “The extraordinary happenings in Europe where economic power houses in the Euro-zone have been hit by a debt crisis deserves extraordinary measures, especially here in Zimbabwe where we have adopted the U dollar as the major currency in our multi-currency regime.

"With the continuous firming of the Chinese yuan, the US dollar is fast ceasing to be the world's reserve currency and the Euro-Zone debt crisis has made things even worse.

“As a country, we still have the opportunity to avoid being caught napping by adopting the Chinese yuan as part of consolidating the country's look East policy.”

China is now Zimbabwe’s biggest trading partner, with the Asian giant absorbing most of the country’s mineral and agricultural produce.

Vice President Joice Mujuru first raised the possibility of adopting the yuan in September last year, saying it would be a “logical step” and could help solve some of the country’s liquidity constraints.

The multiple currency regime announced in January 2009 has been fraught with difficulties. Retailers are supposed to accept the Euro and the British pound but those two currencies have never caught on, with most transactions being conducted in United States dollars, the South African rand and the Botswana pula.

This serves as a noteworthy example of the pot calling the kettle black.

Mr. Gono, who ironically engineered the death of Zimbabwe’s currency, the Zimbabwe dollar, has not given up on his conceit of supposedly knowing what is best for their country, yet has the chutzpah to bash the US dollar when Ben Bernanke has simply been mimicking Mr. Gono's policies.

Zimbabweans rejected Mr. Gono’s hyperflated dollar following years of hyperinflationary depression which eventually led to its ‘abandonment’.

Yet Zimbabwe’s post hyperinflation transition exhibits a socio-economic phenomenon of spontaneous order from politically induced chaos.

One would note that following the demise of the Zimbabwe dollar, the market CHOSE or expressed preference for the US dollar, the South African rand and the Bostwana pula over the Euro and the British pound as alternative replacements for medium of exchange.

And another interesting facet is that this serves as evidence that markets are dominant over politics or that people will adjust to the conditions even outside of government’s influence.

China’s increasing trade with Zimbabwe may possibly lead to more use of the yuan, but this would depend on Zimbabweans than from Mr. Gono. The hyperinflationary episode has eroded much of the political capital of Zimbabwean government which will need to rebuilt before the marketplace will regain their trust on them.

For now, spontaneous order governs the Zimbabwean marketplace, which has impelled for a "nascent recovery" of the ravaged economy of Zimbabwe.

Mr. Gono can keep talking, but little of what he says will be taken seriously.

Twilight Zone: Zimbabwe Considers A Gold Backed Dollar!

It’s always a reasonable advice to expect the unexpected.

Zimbabwe, whom has been the latest country to endure a stunning gut-wrenching episode of hyperinflation as shown below (previously posted here)....

….has reportedly been considering…hold your breath…a Dollar backed by GOLD!

Reports the New Zimbabwe (hat tip Bob Wenzel)

THE central bank says the country must consider adopting a gold-backed Zimbabwean dollar warning that the US greenback’s days as the world’s reserve currency are numbered.

Government ditched the Zimbabwe dollar in 2009 after it had been rendered worthless by record inflation levels and adopted multiple foreign currencies with the US dollar, the South African Rand and the Botswana being the most widely used.

Finance minister Tendai Biti says the country needs at least six months import cover and a sustainable track-record of economic growth, inflation stability and above 60 percent capacity utilisation in industry before the Zim dollar can be brought back into circulation.

However central bank chief, Dr Gideon Gono said the country should consider adopting a gold-backed currency.

“There is a need for us to begin thinking seriously and urgently about introducing a Gold-backed Zimbabwe currency which will not only stable but internationally acceptable,” he said in an interview with state media.

“We need to re-think our gold-mining strategy, our gold-liberalisation and marketing strategies as a country. The world needs to and will most certainly move to a gold standard and Zimbabwe must lead the way.”

Gono said the inflationary effects of United States’ deficit financing of its budget was likely to impact other countries to leading to a resistance of the green back as a base currency.

Has this tergiversation talk of Dr. Gono, the man responsible for Zimbabwe’s hyperinflation, imply of a genuine conversion? I doubt so.

Yet, as earlier pointed out in my previous post where Steve Forbes has predicted the return of the Gold Standard in 5 years, it usually takes a calamitous event for politicians to embrace what is seen as politically repulsive.

Could Dr. Gono be the trendsetter?

Uses Of The Zimbabwean Dollar

Despite the most recent hyperinflation it is not true that the Zimbabwean Dollar has lost its entire value; it may have lost its monetary functions of medium of exchange, unit of account and store of value, but has seen a shift in the Dollar's utility in the form of...

1. Advertisement material, as below
and more below...

The ads signifies as signs of political protest by a domestic media outfit against the administration, excerpt from neatorama.com

``To protest the hyperinflation that has rendered the Zimbabwe currency worthless and to raise awareness of the dire economic situation there, the Zimbabwean Newspaper created an ad campaign featuring huge posters, wall murals, flyers, and even billboards all made out of trillions of Zimbabwean dollars. Check out the photos from the newspaper’s Flickr photostream.

"The Mugabe regime has destroyed Zimbabwe. It has presided over the brutal oppression of the opposition, a cholera crises, massive food shortages and the total collapse of their economy. Furthermore anyone brave enough to report this has been bullied, beaten and driven into exile. One such group is ‘the Zimbabwean Newspaper’. However, not content with having hounded these journalists out, the regime has slapped an import ‘luxury’ duty of over 55% on them which makes the paper unaffordable for the average Zimbabwean. In order to subsidize the paper they need to sell it in England and South Africa, to raise the foreign currency.

"A unique campaign was devised to promote the paper to raise awareness and increase readership. One of the most eloquent symbols of Zimbabwe’s collapse is the Z$100 trillion dollar note, a symptom of their world record inflation. This note cannot buy anything, not even a loaf of bread and certainly not any advertising, but it can become the advertising, it can be a powerful reminder about Zimbabwe’s plight and the need to hold someone accountable.

(hat tip: Mark Perry)

2. Tool for gold panning...
If it can't be used as money, then it can be used to pan for real "gold" money.

watch the Zimbabwe's Gold for Bread video here

3. Lastly, as an alternative use for the toilet paper...

Hat tip: Freakonomics