Zimbabwe’s currency ‘curse’ and the economic malaise

This policy brief analyzes Zimbabwe's history of currency instability, noting that the country's failure to align its exchange rate with macroeconomic fundamentals led to hyperinflation and a decade of full dollarisation (2009-2019). The author argues that the 2019 reintroduction of the Zimbabwean dollar is unlikely to succeed without deep structural reforms, including reducing fiscal deficits, ending the taxation of exporters, and regaining access to international capital markets. As an alternative to the US dollar, the author suggests the adoption of the South African rand to better align with Zimbabwe's trade patterns, provided the South African government agrees.

• Zimbabwe experienced a period of full dollarisation from 2009 to 2019, which followed a period of hyperinflation and the collapse of the Zimbabwean dollar. This regime ended in June 2019 when the government banned the multicurrency system and reintroduced the Zimbabwean dollar (as RTGS dollars) as the sole legal tender.
• The primary causes of Zimbabwe's monetary instability were the attempt to maintain a fixed exchange rate peg to the US dollar that was inconsistent with economic fundamentals, large government budget deficits, and the rapid expansion of the money supply. The Reserve Bank of Zimbabwe (RBZ) contributed to hyperinflation through quasi-fiscal activities, such as spending on agricultural subsidy schemes.
• Zimbabwe's current economic crisis is exacerbated by a substantial current account deficit and a lack of foreign currency inflows. The country is discouraged from receiving foreign direct investment (FDI) due to high political and economic risk and lacks access to international capital markets for borrowing because of outstanding debt arrears.
• The author asserts that there is no recent historical precedent for a country that abandoned its currency due to instability, became dollarised, and then successfully reintroduced a domestic currency. While some countries have recovered from partial dollarisation, Zimbabwe's situation is distinct because it involves introducing a brand new currency rather than reviving an existing one.
• To achieve macroeconomic stabilisation, Zimbabwe needs to stop taxing exporters via compulsory currency surrender requirements and reduce import subsidies, specifically fuel subsidies. Additionally, the RBZ requires greater policy independence to end 'fiscal dominance', where it is forced to lend to the government to finance deficits.
• If the Zimbabwean dollar cannot be stabilised, the author suggests considering the adoption of the South African rand as legal tender. The rand is viewed as more appropriate than the US dollar because it is more relevant to Zimbabwe's trade patterns and less likely to cause competitiveness problems. However, this would require the agreement of the South African government and potentially joining the Common Monetary Area (CMA).

APA

Jefferis, K. (2020). Zimbabwe’s currency ‘curse’ and the economic malaise. Institute for Security Studies. https://issafrica.s3.amazonaws.com/site/uploads/pb140.pdf

Chicago

Jefferis, Keith. Zimbabwe’s currency ‘curse’ and the economic malaise. Institute for Security Studies, 2020. https://issafrica.s3.amazonaws.com/site/uploads/pb140.pdf.

Wikipedia

{{cite report |last1=Jefferis |first1=Keith |title=Zimbabwe’s currency ‘curse’ and the economic malaise |publisher=Institute for Security Studies |date=2020 |url=https://issafrica.s3.amazonaws.com/site/uploads/pb140.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{jefferis2020zimbabwes, author = {Jefferis, Keith}, title = {{Zimbabwe’s currency ‘curse’ and the economic malaise}}, institution = {Institute for Security Studies}, year = {2020}, url = {https://issafrica.s3.amazonaws.com/site/uploads/pb140.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }