Tuesday, February 3, 2009

Nothing to lose: how Mugabe’s banker turned Z$1,000,000,000,000 into Z$1

Zimbabwe's inflation rate is estimated to be 5,000,000,000,000,000,000,000 (five sextillion) per cent! Money creation and the state do not mix.

February 3, 2009
Nothing to lose: how Mugabe’s banker turned Z$1,000,000,000,000 into Z$1

Martin Fletcher in Harare
Gideon Gono, widely regarded as the world’s most disastrous central banker, knocked another 12 zeros off the Zimbabwean dollar yesterday in an attempt to bring the national currency back from the realms of the fantastical.

In a stroke, the governor of Zimbabwe’s Reserve Bank slashed the street value of the Zimbabwean dollar from $250 trillion to one US dollar to 250, because the computers, calculators and people could no longer cope with all the zeros.

To counter an inflation rate that economists now estimate to be 5,000,000,000,000,000,000,000 (five sextillion) per cent, Mr Gono has now struck 25 zeros from the plunging national currency since August 2006. One American dollar would now buy Z$2,500,000,000,000,000,000,000, 000,000 (2.5 octillion) had he not done so.

Mr Gono’s announcement came just weeks after the introduction of a Z$100 trillion note, the latest and biggest of 35 denominations that he has brought in since January last year but only enough yesterday to buy half a loaf. “The zeros are too many for our machines to handle,” said Obert Sibanda, the chairman of the Zimbabwe National Chamber of Commerce.

Economists poured scorn on Mr Gono’s announcement, pointing out that four months after he knocked ten noughts off last year they had all returned.

One Western diplomat suggested that the governor’s reputation would be buried at “Zeros Acre” – a play on Heroes’ Acre, the name of the national monument to Zimbabwe’s independence leaders.

Tony Hawkins, a University of Zimbabwe economist who taught Mr Gono 20 years ago, observed that the governor was not the student of whom he was most proud. “He was a good student but forgot whatever economics he learnt when he became a political player.”

Mr Gono is not a man plagued by self-doubt, however. In an interview published in Newsweek magazine yesterday he said that he printed money simply so the Zimbabwean people could survive but the rest of the world was now following his example because of the credit crunch.

“I had to print money,” he said. “I found myself doing extraordinary things that aren’t in the textbooks. Then the IMF asked the US to please print money. The whole world is now practising what they have been saying I should not. I decided that God had been on my side and had come to vindicate me.”

Mr Gono, 49, recently published an autobiography – sold only in US dollars, in violation of his own currency regulations – in which he claimed that President Bush had offered him the post of senior vice-president at the World Bank last July.

Economists said that knocking off 12 more zeros would make not the slightest difference because hyper-inflation would render the new denominations equally worthless within weeks. The demise of the Zimbabwean dollar will also be hastened because last week the Government sanctioned the use of the US dollar, the British pound, the South African rand, the euro and the Botswana pula as legal tender.

In effect, Zimbabwe now has two parallel economies, one using foreign exchange and the other using the increasingly irrelevant national currency. This is exacerbating the problems facing Mr Mugabe’s faltering regime because his security forces and the civil service are paid in Zimbabwean dollars. Soldiers have rioted on the streets of Harare, and most of the public sector – teachers, doctors, nurses, municipal workers – are on strike, demanding to be paid in foreign currency.

Morgan Tsvangirai, the leader of the opposition Movement for Democratic Change, is trying to make Mr Gono’s removal a condition for his party joining a unity government next week. Mr Gono’s record is also coming under fire from within his own Zanu (PF) party. But asked by Newsweek if he considered his governorship a success, Mr Gono replied: “I am modestly credited with the survival strategy of my country. No other [central bank] governor has had to deal with the kind of inflation levels that I deal with. [The people at] my bank [are] at the cutting edge of the country.”

He added: “What keeps me bright and looking forward to every day is that it can’t be any worse.”

A chronology of troubles

1998 Economic crisis sparks riots

1999 World Bank and IMF suspend aid to Zimbabwe

Feb 2000 Seizure of white-owned farms begins

July 2001 Zimbabwe suffers food shortages that critics blame on farm seizures. Several Western countries withdraw economic aid

March 2002 Robert Mugabe wins elections. Observers condemn poll

April 2002 State of emergency is declared amid dire food shortages

Aug 2006 Inflation rises above 1,000 per cent

Oct 2008 Official inflation hits 231 million per cent

Feb 2009 The price of a loaf of bread is nearly 200 trillion Zimbabwe dollars and rising