The U.S. Dollar Is Zimbabwe's Main Currency, And It's Disappearing Fast

The last time Zimbabwe went into economic freefall, in 2009, inflation was a mind-boggling 200 million percent. Shoppers had to carry the colorful bank notes, in billion- and trillion-dollar denominations, in bags to pay for basics.

To address the crisis, President Robert Mugabe's government abandoned Zimbabwe's own currency and adopted the U.S. dollar as legal tender. That helped end hyperinflation and helped stabilize Zimbabwe's economy.

But today, the economy is again in a tailspin and the country is in desperate need of a new solution. U.S. dollars are still the main currency, but they are in critically short supply.

A visible sign of the latest crisis is evident in the long, winding lines outside all banks and ATMs in the capital, Harare, where customers are desperate to withdraw cash. Audrey Munemo says she's been waiting since dawn.

"I have been here in the queue at the bank for about four hours, ever since morning, and the banks are saying they don't have money," she says. "I was just trying to withdraw all my money before these bond notes start circulating, because we don't know what these authorities are planning to do."

Last week, local and foreign-based banks reduced cash withdrawal limits to a maximum of $50 a day, though some bigger banks allowed withdrawals of up to $200. Yet many frustrated customers left banking halls and ATMs empty-handed after waiting for hours.

Munemo is talking about the Zimbabwe Reserve Bank's plan to bring in new bond notes at the end of October.

In theory, they will be on par with the U.S. dollar. But Zimbabweans have no faith that this will be the reality.

Fiscal mismanagement and a crippled economy have driven many to frantically ship their cash out of the country and have left dollars in short supply.

As cash runs out, talk of the new notes has caused panic, despite assurances from Zimbabwe's Reserve Bank governor, John Mangudya. He says the incoming bond notes are intended to help increase exports and are backed by a $200 million loan from the Africa Export-Import Bank.

"The purpose of bond notes is to deal with an incentive for exporters, but I think people are now confusing that the bond notes are to cater for cash shortages. No. There is no relationship. It's purely an export incentive scheme," says Mangudya.

Zimbabweans stand in line for hours outside an ATM at a bank in Harare in order to withdraw U.S. dollars from their accounts. Many fear they will lose access to their dollars when the government introduces new bond notes it says will be equivalent to the U.S. currency.

Ofeibea Quist-Arcton

Zimbabweans are not convinced. The governor's announcement has led to a run on the banks.

Patricia Sharaunga, a mother of three, is wearing a large purple hat, a matching dress and sneakers, as she stands in a long line outside a bank. Like the others, she hopes to withdraw as many U.S. dollars as she can from her account.

"It is frustrating, because I should be in the bank 20, 30 minutes, I take my money, I go home and I shop for my children. I've been four hours here," she says.

Like many Zimbabweans, Sharaunga juggles several jobs. She teaches schoolchildren road safety and also sells whatever she can – tomatoes, onions, goats — to look after her family.

"We are surviving hand to mouth," she adds. "No more luxuries these days, it's just basics. Pay rent, buy electricity, pay school fees for the children. That's it."

There have been increasing numbers of protests, in the streets and on social media, calling for Mugabe to go. His government is still struggling to pay government workers, and says the economic problems should be blamed on the West.

Zimbabwe's President Robert Mugabe inspects the guard of honor at Parliament on Oct. 6. During his 36-year rule, the country has endured multiple economic crises, which the government blames on Western sanctions.

Tsvangirayi Mukwazhi/AP

"Every country has its own economic problems," says Home Affairs Minister Ignatius Chombo. "You are fully aware that Zimbabwe is under sanctions from the West, so [protesters] should be demonstrating at Western embassies, where those sanctions are coming from."

In 2002, the U.S. and other Western governments slapped individual sanctions on Mugabe, his family members and loyalists for violations of human and democratic rights. But the president and his supporters see it as part of a larger effort to undermine the government.

"That is exactly the impact of the sanctions which you are calling selective," says Chombo. "They are just sanctions imposed on Zimbabweans so that Zimbabweans can rise and remove a legitimately elected government."

Economist Prosper Chitambara says the government must rein in profligate spending, woo potential investors and rethink its priorities if Zimbabwe's economy is to recover.

"We need some serious fiscal austerity," he says. "We also need to rationalize the bloated structure of our government so that it's in line with the population of Zimbabwe and also with the size of the economy of Zimbabwe. And that could entail, for example, reducing the cabinet, reducing the size of parliament, firing deputy ministers — we have ministries for almost everything."

Zimbabwe, a country of about 16 million, has a cabinet that includes 41 ministers and 20 deputy ministers.

There are calls for an international conference to help ease Zimbabwe's foreign debt problem. Yet there are also critics of the president who oppose any such bailout, saying it would only prop up a president who has presided over multiple financial crises during his 36 years of rule and must go.