By Hubert Walker for CoinWeek ….
On Friday, December 5, the Reserve Bank of Zimbabwe (RBZ) held a press conference to introduce a new set of coins due to begin circulating on December 18. The new coins are meant to help relieve the chronic shortage of low-denomination coinage that has plagued the country since Zimbabwe dropped its own currency in 2009, says RBZ governor John Mangudya.
Zimbabwe’s new coinage will be issued in denominations of 1c, 2c, 5c, 10c, 25c and 50c. The coins are backed by a US$50 million bond set up by the RBZ and will be valued at par with United States currency. This means that one Zimbabwean cent will be equivalent to one U.S. cent. As such, Zimbabweans can exchange the new coins for cash–in dollars, rand, or whichever currency they want– at their local bank.
In this, they follow the examples of Ecuador in 2000 and East Timor in 2003.
An initial amount of US$10 million worth of coins will be released between December and March 2015. The 50c piece will come out in March due to the incorporation of new security features.
According to Mangudya, the normal ratio of circulating coins to currency in a national economy is around 20% or 25%. Since Zimbabwe uses a foreign currency basket of many different currencies, he says that the distribution of the new coinage will be more like 10%.
The multiple currency system was initiated in 2009 after the economic devastation wrought by Zimbabwe’s now-legendary hyperinflation, which lasted from 2003 to 2009. At its peak in October 2008, the country experienced an inflation rate of over 231 million percent.
The basket consists of the U.S. dollar, the South African rand, the Botswana pula, the euro, the yuan, the yen, the rupee, and a few others. The U.S. dollar makes up 80% of the basket, with most of the rest consisting of rands and pulas.
The yuan, yen and rupee were added to the basket earlier this year as part of the government’s “Look East” policy, which was its reaction to the cooling of Western business interest after President Robert Mugabe’s controversial seizure of white-owned farms and redistribution to native Zimbabweans.
The unpopularity and failure of the “Look East” currencies is yet another reason the new coinage is necessary.
The high costs of importing coins from the United States is another, says Mangudya.
He also says that the new coins should lower prices, since merchants and retailers often round prices up in order to avoid giving change. Customers also frequently purchase unneeded, extraneous items (such as candy or pens) because they cannot break larger denominations. The consumer watchdog group the Consumer Council of Zimbabwe and the business group the Confederation of Zimbabwe Industries (CZI) agree with Mangudya’s assessment of the coins’ economic impact.
In addition, the government will import about 30 million rand coins to supplement this plan. Because government and financial corruption was one of the main factors in the loss of confidence in the national currency, the whole scheme will be audited by the Institute of Chartered Accountants in Zimbabwe.
As for the dreaded “Zimdollar”, governor Mangudya says that there are no plans to bring it back. It would take at least five years of careful planning and investment to even consider it, he added.
The region’s monetary borders tend to be fluid, but the new coins will be limited to use within Zimbabwe proper.
The Botswana pula is an interesting name. ‘Pula’ means ‘rain’ in Setswana, the national language of Botswana, and the currency is named pula because rain in scarce in the country and therefore valuable.
Other denominations are named along similar lines of reasoning.
I find it laughable that a failed currency can be backed by a failing currency. The only difference is gong to be the scale of the collapse of the US dollar.
Dollar is performing very well lately. Rumors of its demise are premature, it appears.