01 The Hour
Wednesday
3 December 2008, Harare. Reconstructed to the day.
The central bank raised the amount an individual could take out of his account from 500,000 Zimbabwe dollars to 100 million, and announced notes of 10 million, 50 million and 100 million to enter circulation the next day.
Long lines formed outside the banks anyway. Police broke them up and turned back union members who had set out to march on the central bank. Four months earlier the currency had been redenominated and ten zeros taken off it. The largest of the notes announced that Wednesday carried eight of them.
02 The Sequence
20 Dec 2007. Banks have rationed withdrawals to 5 million Zimbabwe dollars per customer, enough for a fast food meal, to cope with the lines of recent days. Higher denominations are issued and the 200,000 dollar note is phased out. Official inflation stands at 8,000 per cent.
1 Aug 2008. The currency is redenominated, ten zeros removed. The 100 billion dollar Special Agro Cheque, the largest instrument in issue, becomes 10 dollars. Three zeros had come off in 2006.
3 Oct 2008. The daily withdrawal limit, which had stood at 1,000 dollars, is raised. Notes of 10,000 and 20,000 dollars are introduced the same day. The labour federation, which had planned a demonstration on 1 October against the old limit, puts its march on hold.
3 Nov 2008. The governor states that the bank plans to introduce a number of new higher denominations, to review the cash withdrawal limits, and to campaign for increased use of alternative means of payment. The highest note then in circulation, 50,000 dollars, will not buy half a loaf of bread. Official inflation is given as 230 million per cent.
3 Dec 2008. The individual withdrawal limit goes from 500,000 dollars to 100 million. Notes of 10, 50 and 100 million enter circulation the following day. Lines form outside the banks and the police disperse them.
Jan 2009. Notes of 10, 20, 50 and 100 trillion dollars are released, the largest set the bank ever issued.
29 Jan 2009. The acting finance minister presents the budget to parliament and all companies and individuals are permitted to conduct transactions in foreign currency. Until then only authorised businesses could do so, while retailers and service providers had increasingly been asking for US dollars or dollar-based fuel coupons.
2 Feb 2009. The currency is redenominated a third time, twelve zeros removed, one trillion old dollars for one new one. It is six months since the last one.
Feb 2009. The incoming finance minister announces that around 130,000 soldiers, teachers and other government workers will be paid 100 US dollars a month, tax free, in place of their local currency salaries.
18 Mar 2009. The revised budget statement records that since February the Zimbabwe dollar is no longer a currency the public or any trader will accept, that it has become moribund, and that financial assets denominated in it have become valueless.
03 The Hidden Dependency
A withdrawal ceiling is written in units of currency, and the units were losing value by the day. Raising the figure settled nothing for long, and the figure could not be raised on its own.
Notes had to arrive alongside it. On 3 October 2008 the 10,000 and 20,000 dollar notes were introduced on the day withdrawals were increased. On 3 December the ceiling went to 100 million and the 10, 50 and 100 million notes entered circulation the following day. The governor's statement in early November had put the three things in one sentence: new higher denominations, a review of the limits, and a campaign for alternative means of payment.
Behind the notes sat paper. The German firm that had been supplying it stopped doing so, citing the government's record on human rights.
The ceiling, the denomination and the paper supply were one mechanism, and none of the three moved usefully alone.
04 What Still Worked
Foreign Notes at the Till
Authorised businesses could take foreign currency before late January 2009, and from the budget statement of 29 January everyone could. By March, supermarket shelves that had been empty were stocked again and prices were being set in US dollars or rands.
Fuel Coupons
Before the rule changed, retailers and service providers were reported to be asking for payment in US dollars or in dollar-based fuel coupons.
The Public Payroll
From February 2009 around 130,000 soldiers, teachers and civil servants were paid 100 US dollars a month, tax free, in place of a local currency salary.
05 Contested
Contested 2008
The rate itself is not agreed. Reporting in November 2008 gave the official figure as 230 million per cent and noted independent analysts putting it in the billions. A 2009 article in the Review of African Political Economy gives the official estimate as more than 231 million per cent, calls it a vast understatement, and cites independent findings of an annual rate written as 65 followed by 107 zeros. Wire copy has since put the 2008 peak at 500 billion per cent. The reconstruction above rests on the limits and the denominations, which are not in dispute.
06 The Pattern Library
1
When one retail withdrawal channel closes or fails, demand concentrates on whichever channel is left open, and the capacity of that channel sets what a depositor can obtain.
Observed: Northern Rock 2007, Cyprus 2013, India 2016, Greece 2015, United States 1933, Argentina 2001, Lebanon 2019.
2
A currency replacement can require physical modification of each cash dispensing machine before the new notes can be issued, so the machine estate returns to service site by site rather than at once.
Observed: India 2016.
3
Withdrawal limits imposed on a domestic banking system can be written to exempt cards issued outside it, so one machine dispenses under two rules according to where the card was issued.
Observed: Greece 2015.
4
Domestic payment and deposit channels can continue operating while cross-border payment routes fail, with the central bank standing in as the intermediary for payments to and from the country.
Observed: Iceland 2008.
5
When the institutions that convert payment instruments into cash are closed, wages and checks already received cannot be spent, and merchants and carriers extend their own credit in place of the missing conversion.
Observed: United States 1933.
6
A public employer short of the national currency can pay wages in an instrument it issues itself, which then circulates alongside the currency it stands in for.
Observed: Argentina 2001.
7
Withdrawal restrictions can be imposed by individual institutions and their trade association rather than by statute, so the limit differs from bank to bank and no law governs it.
Observed: Lebanon 2019.
8
A cash withdrawal ceiling set in nominal units has to be raised alongside the note denominations that pay it, because the ceiling can only be dispensed in the notes that exist.
Observed: Zimbabwe 2008.
Changed today: No existing entry gained Zimbabwe 2008. No withdrawal channel closed, the limits came from the central bank rather than from the banks themselves, and no substitute instrument was issued to pay wages. Entry 8 added, on the ceiling and the note denominations having to move together.