The (Zimbabwean) Dollar - The Point of No Return

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Last week, Zimbabwe slashed 12 zeros from its currency as hyperinflation continued to erode its value, the country's central bank announced in late January.

The government instituted price cuts to arrest inflation. As time went by, it became apparent the forced price cuts cause bare shelves in shops and many businesses closing .

"Even in the face of current economic and political challenges confronting the economy, the Zimbabwe dollar ought to and must remain the nation's currency, so as to safeguard our national identity and sovereignty... Our national currency is a fundamental economic pillar of our sovereignty," said Gideon Gono, governor of the Reserve Bank of Zimbabwe .

Gono has sent in the police to arrest businessmen for failing to reduce their prices. On one occasion, he personally visited shop owners in Harare to demand they lower prices. Despite these efforts, inflation in Zimbabwe remains the world's highest.

"Accordingly, therefore, this monetary policy statement unveils yet another necessary program of revaluing our local currency, through the removal of 12 zeros with immediate effect."

The move means that 1 trillion in Zimbabwe dollars now will be equivalent to one Zimbabwe dollar.

A selection of Zimbabwe Reserve Bank bearer cheques printed between July 2007 to July 2008 (now expired) that illustrate the hyperinflation rate in Zimbabwe .

- Zimbabwe Money supply (2006-2008)

Gono has printed enormous quantities of money against the advice of economists, but with full support from Robert Mugabe. As predicted by the textbook quantity theory of money, this practice has devalued the Zimbabwean dollar and caused hyperinflation.

On 16 February 2006, Gideon Gono, announced that the government had printed ZW$20.5 trillion in order to buy foreign currency to pay off IMF arrears. In early May 2006, Zimbabwe 's government announced that they would produce another ZW$60 trillion. The additional currency was required to finance the recent 300% salary increase for soldiers and policemen and 200% increase for other civil servants. The money was not budgeted for the current fiscal year, and the government did not say where it would come from. On 29 May, Reserve Bank officials told IRIN that plans to print about ZW$60 trillion (about US$592.9 million at official rates) were briefly delayed after the government failed to secure foreign currency to buy ink and special paper for printing money.

In late August 2006, 3 zeros were chopped off the old currency to form the new dollar. I t was reported that about ZW$10 trillion old dollars (22% of the money supply) had not been exchanged for revalued dollars.

On 27 June 2007, it was announced that central bank governor Gideon Gono had been ordered by President Robert Mugabe to print an additional ZWD$1 trillion to cater for civil servants' and soldiers' salaries that were hiked by 600% and 900% respectively.

On 28 July 2007, it was reported that Mugabe has said that Zimbabwe will go on printing money if there is not enough for underfunded municipal projects .

On 3 September 2007, it was reported that that the black market in Zimbabwe is once again booming despite price controls. People who previously were employed for a paltry US$11 (ZW$2 Million) a month are now able to turn as much as US$166 (ZW$30 Million) just through black market trading.

On 24 November 2007, it was reported that money supply was now $58 trillion revalued Zimbabwean dollars (ZWD) ($41 million US at parallel rates). However, Zimbabwe banks could only account for $1 to $2 trillion of those dollars, meaning that members of the public were holding $56 to $57 trillion in cash.

On 4 January 2008, it was reported that money supply had been increased by $33 trillion (to $100 trillion) revalued Zimbabwean dollars (ZWD) .

On 21 January 2008, it was reported, by Gideon Gono, that the money supply had been increased to ZW$170 trillion since the middle of December. Further, Gono expected it to reach $800 trillion by 28 January 2008.

On 1 March 2008, it was reported that documents obtained by The Sunday Times show the Munich company Giesecke & Devrient (G&D) was receiving more than €500,000 (£382,000) a week for delivering bank notes at the astonishing rate of Z$170 trillion a week.

"The regime is surviving by printing money," said Martin Rupiya, professor of war and security studies at the University of Zimbabwe . "At this stage there is no other way."