Tag Archives: zimbabwe
Here’s a section that got cut from my New Republic story about the use of the US dollar in Zimbabwe
Wait, so a country can just adopt the United States’s currency without our permission?
“The U.S. government has never taken any overt position on dollarization, formal or informal.” This is Benjamin Cohen, a political economy processor at the University of California Santa Barbara, former Fed employee and the author of some articles I’ve been reading to try to understand how one country just gets up one morning and starts using another country’s money.
Ninety percent of the world’s $100 bills, Dr. Cohen says, are in circulation outside of the United States. Dozens of countries are considered to be “highly dollarized,” meaning more than 30 percent of their money supply is in dollars.
Unlike Zimbabwe, which has formally adopted the dollar, most countries use the U.S. dollar informally, in parallel with the local currency. A few years ago I was in Cambodia for work, and found that the local currency, the riel, was only used for small stuff like meals, transport and entertainment. Anything major—a TV, a plane ticket, an iPhone—prices were quoted and paid in U.S. dollars.
It’s not just Cambodia. These sorts of arrangements are commonplace throughout the Middle East, Latin America and Southeast Asia. People use the local currency, but keep U.S. dollars as a hedge against inflation, like Tea Partiers hoarding gold.
According to Cohen, the United States has no reason to prevent these arrangements. Not only does the U.S. dollar provide a quarry of monetary calm for citizens of inflating nations, the U.S. actually makes money every time our money leaves our borders. “Seniorage,” as the economists call it, is the profit the U.S. earns every time a foreigner ‘buys’ a dollar for a dollar (It costs 6 cents to print a $1 bill. If you print one, then use it to buy something that costs a dollar, you’ve just earned 94 cents profit. That’s seniorage.).
This sounds like it shouldn’t be a real thing, but the US earns $20 billion per year from all those $100 bills held internationally. Not a huge proportion of GDP, but hey, free money, right?
The other upsides are obvious. Every time another country uses our currency, it reinforces the U.S. dollar as world’s preferred international currency, just like every time someone drinks a Coke or eats a Big Mac it reinforces the status of those brands.
Foreign countries using our currency even gives us diplomatic power. Panama, one of the first countries to formally adopt the U.S. dollar, froze in its tracks when the U.S. cut off access to hard currency in the late 1980s to put pressure on Noriega.
The only real downside of foreign countries dollarizing, for the U.S. at least, is that it creates a headache for the Fed. The more countries dollarize, the more the Fed has to take them into account when making monetary policy. A million calculations go into the decision to raise or lower interest rates, and the last thing the Fed needs is to add the interests of Cambodian iPod salesmen into the mix.
One of the more significant downsides is if a dollarized country suddenly reintroduced their domestic currency, it might flood the market with millions of now-unneeded U.S. dollars, reducing the value of all of them. It doesn’t even have to be a whole country. If the dollar was used widely enough, huge purchases of dollars by foreigners could significantly affect its value.
This is why, Cohen says, the U.S. takes a policy of “benign neglect” toward foreign countries that want to formally or informally dollarize. You want to buy a bunch of dollars and give them to your citizens in exchange for your old currency? Fine. You want to encourage your banks to offer accounts denominated in U.S. dollars? Have a blast. The U.S. isn’t going to be particularly helpful in helping you set this up, but they’re not going to stop you either.
Ten countries (East Timor, Ecuador, El Salvador, Panama and a bunch of small island nations) are formally dollarized, meaning the U.S. dollar is their official currency (most of them have their own coins though).
Zimbabwe is formally dollarized in that all government spending is in U.S. dollars, but it also recognizes the euro, the British pound, the Botswanan pula and the South African rand (why the Mozambican metical got left out, I have no idea). Stores accept payment in whatever currency you have handy, and sometimes give you change in a different currency than you paid.
One of the things that always surprised me about Zimbabwe was how it just switched to U.S. dollars one day, without any relationship to the U.S. Federal Reserve. It was even under sanctions at the time. Can it just do that?
“It’s totally normal to switch to the U.S. dollar without any relationship to the Fed,” Cohen says. “It doesn’t require an application. Anyone can buy paper money, and anyone can get a dollar bank account. Their own country may restrict those things, but the U.S. doesn’t.”
When Ecuador officially adopted the U.S. dollar in 2000, it carried out a mass currency conversion. The central bank sold their U.S. treasury bonds to the U.S. for cash, brought the cash back to Ecuador and gave Ecuadoreans a window in which to exchange their sucres for U.S. dollars. The U.S. didn’t orchestrate, nor condemn, this process.
Like an introduced species, the U.S. dollar tends to take over an increasingly large percentage of the economy. The only country Cohen knows of that has de-dollarized is Israel, which introduced the U.S. dollar in the late 1970s as a parallel currency, and only managed to get rid of it after a series of economic reforms reinstated confidence in the shekel. Lots of informally dollarized countries, like Argentina, go through waves of increasing, then decreasing dollarization in line with citizens’ confidence in the local currency.
I have no idea what any of this means for Zimbabwe. As I say in the New Republic story, bringing back the Zimbabwe dollar is seen by economists (including the head of the Reserve Bank of Zimbabwe) as a bad idea, but that doesn’t mean it won’t happen.
Dr. Cohen’s written a bunch of interesting, easy to read articles on dollarization from the US perspective
- U.S. Policy on Dollarisation: A Political Analysis (my favorite)
- Dollarization: Pros and Cons
- Is A Dollarized Hemisphere in the U.S. interest?
- Dollarization, Rest in Peace
Thanks for the interview!
I have an essay in The New Republic about my trip to Zimbabwe last year, and my weird obsession with how expensive everything was there.
One of the things they tell nonfiction writers is ’employ holy shit details’, and in Zimbabwe there is almost no other kind. A lot of insane statistics ended up in the piece, but even more ended up on the cutting room floor. Here are some of them:
- In 2003, Zimbabwe was out of foreign reserves to import paper and ink to print more money, and had to switch to ‘bearer checks’, thin pieces of paper in increasingly outlandish denominations. Banks limited withdrawals, and anti-riot police had to be dispatched to prevent bank run.
- Fleeing the cratering economy, Zimbabweans almost singlehandedly raised retail sales in South Africa by 10 percent between 2006 and 2007. Emigrants in South Africa paid bus drivers 20 percent commission to take envelopes of cash, sacks of groceries, back home.
- In 2007 a government order required shops to reduce the prices on basic goods by 50 percent. Instead of stabilizing the economy, it simply reversed the direction of the arbitrage. People bought milk in Mutare for 33,000 Zimbabwe dollars, drove it across the border to Mozambique and sold it for the equivalent of 350,000 Zimbabwe dollars.
- All this time, the government maintained an ‘official’ exchange rate that was orders of magnitude lower than the black market rate. If you wanted to do anything legally—import goods, change money at the banks—you had to use the government rates. ‘I know a guy who worked at a luxury car dealership,’ my friend Colin told me. ‘These generals would come in and say “I’ll buy this car” and he would have to give it to them for the official exchange rate. He was selling cars for $8, $9.’
- Between 2006 and 2009, the government slashed 25 zeroes off the currency. I ask Zimbabweans the prices they last remember at the supermarket and they tell me that a loaf of bread was 22 billion dollars. Which doesn’t actually matter, because you had to be connected to secure one anyway.
- Bank teller wages rose with inflation, and they were partly paid in fuel coupons. They could also ‘burn money’—buy US dollars at the official exchange rate, then sell them at the black market rates. Bank employees were flying to Dubai, buying electronics and coming back to Zimbabwe to sell them on.
- These days, Zimbabwean banks are the opposite of too big to fail, they’re too small to succeed. As of January 2013, the entire banking sector held just $3.8 billion in assets, more than half of which were short-term deposits. While the banks are lending out more than they used to, the loans are riskier, since no one has quite figured out how to run a business profitably here. In March 2010, 2 percent of bank loans didn’t get paid back. By December 2012, it was 14 percent .
- A 2013 survey of 150 store owners in a suburb of Harare found that 47 percent of them were using their own savings to raise capital and 13 percent were using their relatives and friends. Only 3 percent were using the banking system.
- What Zimbabwe has gone through in the last 14 years is maybe the greatest loss of productive capacity and personal wealth in modern history. Per capita GDP fell from $644 in 1990 to $376 in 2011. South Africa’s GDP was 17 times larger than Zimbabwe’s in 1996. It was 58 times larger in 2012.
- Almost 70 percent of Zimbabwe’s government budget goes to government salaries alone.
- In 2009 Zimbabwe still had the highest 15-24-year-old literacy rates in Africa, but the aftershocks of the crisis are set to drag that down. As of 2012, only 67 percent of kids finished school, and only 50 percent made it from primary to secondary school.
- The Zimbabwe stock exchange fell 20 percent after Mugabe’s victory was announced , and some estimates say $800 million in investment has left the country since then.
If you want to get a more full view of what Zimbabwe went through during hyperinflation and the challenges it faces now, here’s some publications that give a fuller picture than I was able to, written by people who know more about economics, about Zimbabwe, than me.
- Here’s the Consultancy Africa Intelligence report, written by Tapiwa Mhute, who I spoke to a few times, on the causes and consequences of Zimbabwe’s dollarization.
- Here’s a terrific overview of the path to hyperinflation written, rather randomly, by a graduate student in Japan.
- Here’s a pretty devastating World Bank report on the problems with Zimbabwe’s infrastructure.
- Here’s the report on remittance strategies by families in one neighborhood in Harare.
- Here’s an anthology of articles about the hyperinflation. ‘Negotiating the Zimbabwe–Mozambique Border’ is a complete fucking stunner
- The debate about what ‘really’ saved the Zimbabwean economy is ongoing and, like everything else in Zimbabwe, is totally politicised. Here’s an overview of some of the arguments.
- Here’s an African Development Bank report from 2009, telling Zimbabwe how to fix the crisis. Most of it’s boring technocratic stuff but, like most of these reports, the ‘context’ section gives a great overview of the challenges.
- Here’s the same sort of thing from the IMF and from the World Bank four years later, in 2013. They’re basically giving the same overview I am, only with less Grindr.
- Here’s a Cato Institute (I know, I know) report from 2013: Why Is One of the World’s Least-Free Economies Growing So Fast?
- Here’s Tapiwa Chagonda’s fascinating survey of bank tellers and teachers during hyperinflation.
- Here’s Beyond the Enclave, Godfrey Kanyenze’s searing account of the political factors behind hyperinflation and dollarization.
- And here’s Vince Musewe’s angry, moving columns for The Zimbabwean, giving a more up to date picture of the conditions in Zimbabwe
I mostly worked on the piece in August and September, and I’m sure more reports and statistics have come out since then, so apologies if anything in the story is outdated.
I’m not a journalist, I’m a human rights guy. One thing I’ve realized over the last 18 months, as I’ve spent more and more of my weekday mornings and Sunday nights working on these little longforms, is how dependent journalists are on the generosity and patience of their sources. For this story, I basically cold-called a dozen or so Zimbabwean economists, told them I didn’t know anything about their country or their field and asked if they could, slowly and monosyllabically, walk me through everything they knew.
Amazingly, all of them obliged, and they were super patient with all of my follow ups and hang-on-explain-that-agains. Colin and Lovemore took a risk telling a foreigner about their economic tribulations the last five years, and trusted that I would represent them honestly and wouldn’t publish any details that identified them. Everyone I interviewed, I have nothing to offer them for their time and their trust except my sincere gratitude—and my crushing anxiety that I may have misunderstood or misrepresented them.
I don’t know if I’ll ever be good at this whole journalism thing, or feel like I have the right to be doing it. I tried really hard to fact-check this story, to avoid giving the impression that my experience was definitive. I arrived in Zimbabwe as an outsider, a tourist. No matter how many people I met, no matter how many reports I read or statistics I double-checked, I departed as one. There is a lot of complicated information out there about Zimbabwe, a lot of conflicting narratives. Mine is just one of them.
Originally posted on The Billfold
“Hey, you want necklaces? I sell you necklaces!”
He’s dishevelled, but not more so than most people you see on the street here. He’s wearing a bright green soccer T-shirt, a team I’ve never heard of, and a goatee. He introduces himself as Paul.
This is Victoria Falls, Zimbabwe. I am backpacked, sunglassed, earbudded, on my way to the waterfall. The only way I could be more obviously a tourist is if I had a fanny pack and an “I ♥ Zim” T-shirt on.
“Thanks, but I’m not interested,” I say. I may have actually physically waved him away.
He walks with me for a few minutes, pushing necklaces, wooden giraffes, 50 billion Zimbabwe dollar notes into my chest. I repeat the same thing: Sorry, not interested. Sorry, no.
Everywhere it’s different but the same. In San Francisco it’s the guy who could visit his sick sister in Portland if he could just get 10 bucks for the bus fare. In Paris it’s children with their arms out. In Istanbul it’s amputees on a sheet of cardboard, literally begging.
And my answer is always the same: “Sorry.” I don’t know when I started saying this, when I stopped bothering to lie about being out of spare change, when I stopped thinking before I said it.
Right after Paul peels off, I take what I think is the turnoff to the falls. The path peters out, I turn around and when I get back to the road, Paul is there.
“Where are you trying to go?” he says.
“Just to the park entrance,” I say.
“Oh there’s a shortcut just up there to the right,” he says. “It’ll only take you five minutes. Make sure you make it to the gorge before dark. Spectacular, man, spectacular!”
I thank him, and realize that as he was talking I was thinking oh, he’s a person.
You’re not supposed to give beggars money. That’s the conventional wisdom, right? You don’t know what they’ll spend it on, you might be encouraging them to stay on the street, you’re not addressing any of the structural issues that got them where they are. I used to live in Copenhagen, and whenever I got panhandled (yes they have panhandlers in Denmark), I wanted to roll my eyes, like, all this free money in your country and you want mine?
Needless to say, that attitude is a lot harder to maintain in Zimbabwe. It’s even harder to maintain for me, considering I am here working for a human rights organization. How do I justify spending two weeks in Harare attending conferences, meeting NGOs, working on statements and recommendations to make this country less poor and then, the minute I’m on vacation, neglect to do the one thing I’m actually equipped, actually qualified to do: Give it some fucking money.
The sun is setting when I come out of the park, and Paul is at the exit, soliciting another tourist. He sees me and breaks off.
“How was the park, my friend?” he says.
“Good,” I say. “How’s business?”
“Not so good today,” he says, the full bouquet of necklaces still dangling from his hand. “Look, can you help me out, just with a dollar? I’m hungry.”
I feel like Paul has taken his mask off, he’s talking to me outside of his role as a street vendor, like we’ve both stepped out of character for a second and it’s just us, man to man. I give him two bucks. He thanks me profusely, leaves without asking for anything else.
Two hours later I see him again. This time I’m on a trail behind Victoria Falls’ fanciest hotel. I’ve just eaten a French croissant pudding that cost 7 times what I gave to Paul.
“My friend!” he says.
“Hi Paul,” I say, weirdly happy to see him. I’m travelling alone, and he’s the only person I’ve spoken to all day.
“Hey, do you have some dollars for me?” he says.
“I just gave you two,” I say,
“But I ate with those, man,” he says. “Can you give me some more for dinner?”
As much as I hate to admit it, this irks me. I already gave you money, dude, coming back for more just makes me feel like a mark—like this is a business model. If you don’t get tourist money with merch, get it with sympathy.
“Sorry,” I say.
Later, I wonder what outcome I was actually trying to protect myself against. Giving money to someone who is demonstrably worse off than me? Maybe Paul used that money to buy himself lunch, maybe he didn’t. What am I, USAID? Who cares what he spent it on. If those two dollars (or 10, or 20) magically disappeared from my back pocket, I never would have noticed. Why am I Jay Gatsby when it goes to making me better off, but Ebeneezer Scrooge if it does that for someone else? All that shit about enabling, it’s just an excuse for me to keep what I feel is mine.
In development circles, everyone is all excited about this “just give money” thing. The idea is: Poor people know better what to do with their money than we do, so if you want to help, don’t tie a donation to some entrepreneurship scheme, behavior modification, Excel-sheeted output, just hand over some scrilla, no questions asked.
Apparently it worked in Uganda, another country I have visited to do development work in the daytime and say “sorry” on evenings and weekends. If this idea is real, maybe I should be refusing all the conferences and acquiescing to all the beggars.
I have no idea what I should do. When I travel to developing countries for work, should I set a daily amount that I can afford, say $20, and hand it out randomly? Should I start donating regularly to charities who do that? What is, as the MBAs say, ‘best practice’?
I am in Victoria Falls for two more days. I will probably run into Paul again. He will probably ask me for money, and I will probably give some to him. I might even give him enough to try that French croissant pudding.
First I go to the Air Zimbabwe website and click ‘Online Reservations’. Error 404, this website does not exist.
I call Air Zimbabwe.
‘Hello?’ A woman’s voice.
‘Hi, I’d like to book a flight.’
The line goes dead. I call again. This time, I get an automatic answering system. I press 7 for reservations. Click, wait, ring-ring. Ring-ring. Ring-ring. After four minutes, I hang up.
I wait an hour, try again. I get the ‘hello’ lady.
‘I’d like to book a flight,’ I say.
‘When are you leaving?’
‘Well, if it’s not urgent, can you call back tomorrow?’
I call again the next day, 8.01, right after they open. I get the same lady, she takes my dates, destination, last name.
‘So do I pay over the phone, or?’
‘You have to go to our booking center in Harare. Or the airport, whichever is closer for you.’
The next day I go to the booking office in Harare. It’s open-plan, desks on one side of the room, counters on the other and a couch in between where at least 10 people are waiting. They seem to be lined up to talk to the booking agents at the desks, so I go straight to the ‘pay here’ counter.
I give the counter-lady my reservation number and tell her I need to pay. She tells me I have to go to the desks.
I sit on the couch for 15 minutes, then I’m called to one of the desks. I give the desk-lady my reservation number. She tells me the times of my flights have changed, each one has been bumped back 30 minutes. She also tells me the flights are half the price they told me on the phone. She rips a corner off a piece of paper, writes my reservation number on it. ‘Pay at the counter,’ she says.
I go to the counter-lady again, give her the scrap of paper. She prints out my booking from an old printer, one line at a time. She rips off the little hole-punch strips from both sides, staples it to my flight tickets. I pull my credit card out of my back pocket.
‘Credit card? You have to go back to the desks.’
I wait 15 minutes on the couch again, get called by the same desk-lady, give her back the scrap of paper. She looks at it, types it into her computer.
‘I gave you the wrong price,’ she says. Now the price is back up to what the phone-lady quoted me originally. I give her my credit card and she pulls out one of those old swiper-things. She asks me to write my address on the piece of carbon paper and sign it. K-chunk, k-chunk, she prints out my booking again.
Then she leaves and goes to the other side of the room. I can see her talking to the counter-lady behind the glass. I wait 10 more minutes. She comes back, hands me my receipt and my tickets.
‘Thanks,’ I say.
‘Have a lovely trip,’ she says. ‘Next!’
Photo by Flickr user maarten-sr