What Was the Zimbabwe Dollar (ZWD)? Definition and What Happened

What Was the Zimbabwe Dollar (ZWD)?

The Zimbabwe dollar (ZWD) was the official currency for the Republic of Zimbabwe from 1980 to 2009. It is famous for undergoing one of the greatest hyperinflations in modern history.

The original Zimbabwe dollar (ZWD) is no longer minted or recognized as the official currency of Zimbabwe. The country re-issued new Zimbabwean dollars with the 2009 version (ZWL) effectively removing twelve zeroes from the earlier denominations. Still, the ZWL experienced rapid devaluation, and from that point until 2019 the country has relied on several foreign currencies such as the U.S. dollar, Euro, and South African Rand, among others. In 2019, Zimbabwe re-introduced the ZWL as the RTGS dollar (real-time gross settlement) dollar.

Understanding the Zimbabwe Dollar (ZWD)

The Zimbabwe dollar was made up of 100 cents and was often presented with the symbol $, or sometimes Z$ to distinguish it from other currencies denominated in dollars.

The turbulent history of the Zimbabwe dollar (ZWD) in many ways aligns with the ups and downs the country, and its people, have gone through in recent years. Once one of the agricultural centers of the region that produced large volumes of food for the surrounding areas, Zimbabwe and its financial landscape have experienced some significant challenges that had severe effects on the country’s economy. For most of the past two decades, the people of Zimbabwe have endured widespread famine due to severe droughts. This weather challenge, in turn, led to poverty and food shortages in many parts of the nation.

History of the Zimbabwe Dollar

First introduced in 1980, the Zimbabwe dollar replaced the Rhodesian dollar at par. This valuation made it worth more than the U.S. dollar, but that value quickly fell due to hyperinflation in the country. This out-of-control inflation drove the ZWD down, and at one point it was one of the least valuable currencies in the world.

Redenomination of the Zimbabwe dollar happened in 2006, 2008, and again in August of 2009. Nicknamed "Operation Sunrise," the first ZWD revalued at 1000:1 to the second issue of the Zimbabwe dollar in 2006. The following year the Reserve Bank of Zimbabwe declared inflation illegal and banned the raising of prices. However, inflation still ran at 1,000%.

The second revaluation began in 2008. The government started to allow some retailers to accept other foreign currencies as they printed banknotes with higher and higher values to keep up with inflation. Finally, in 2009, the government announced a third revaluation with 1,000,000,000,000 third dollars exchanging for 1 of the fourth issue dollars. Inflation continued to devastate the economy, and the Reserve Bank continued to print more banknotes. 

Zimbabwe's Hyperinflation

Zimbabwe’s inflation problems started well before the official hyperinflation period that began in 2007. In 1998, the African country's annual inflation was running at 47%, and except for a slight decrease in 2000, it steadily rose through to the hyperinflation period, the end of which saw the Zimbabwean dollar abandoned in favor of a number of foreign currencies.

Following its independence in 1980, Zimbabwe's government pursued relatively disciplined fiscal policies. This would all change once the government decided that the need to shore up its waning political support took precedence over fiscal prudence. In the latter half of 1997, a combination of payouts owed to war veterans and the government's announced decision to compulsorily acquire (with partial compensation) White-owned commercial farms to redistribute to the landless Black majority fueled worries over the government’s fiscal position. Numerous runs on the currency led to a depreciation of the exchange rate, which caused import prices to rise, sparking the beginning of the country’s inflation woes.

This initial cost-push inflation would be worsened by the government’s decision, in 2000, to follow through with its land reform initiative to compulsorily acquire White-owned commercial farms. This redistribution created such upheaval on the farms that agricultural production fell dramatically in just a few years. In turn, this supply shock pushed prices higher, motivating a newly appointed central bank governor to name inflation as Zimbabwe's number one enemy in 2004.

While successful in decelerating inflation, a tighter monetary policy put pressures on both banks and domestic producers, threatening to completely destabilize the financial system and wider economy. Zimbabwe's central bank was forced to engage in quasi-fiscal policies to mitigate the destabilizing effects of the tighter monetary policy, which in turn served to undo any previous anti-inflationary successes by creating a demand-pull style of inflation that escalated into hyperinflation beginning in 2007. This hyperinflation remained in Zimbabwe until foreign currency used as a medium of exchange became predominant.

Death of the Ailing Zimbabwe Dollar

After years of hyperinflation, the government of Zimbabwe announced the demonetization of the ZWD in 2009, which became final in 2015. Demonetization is the process of officially removing the legal status of a currency unit. Also in 2009, the government legalized the use of foreign currencies and abandoned the use of the ZWD in April.

The Multiple Currency System

The country would gradually transition from the Zimbabwe dollar to the use of multiple currency systems over the next few years including the Botswana pula (BWP), Indian rupee (INR), euro (EUR), U.S. dollar (USD), and South African rand (ZAR). At least nine different currencies acted as legal tender in the country. In 2015, the government announced that those who had bank accounts could exchange 35 quadrillion Zimbabwe dollars for 1 USD in those accounts.

Traders in Zimbabwe have had their preferences as to which type of money to accept, but the U.S. dollar has been the most widely accepted throughout the country. In late 2016, the government of Zimbabwe also introduced a batch of bond notes as a form of alternative currency, with a bond note having an exchange rate of 1:1 with the U.S. dollar.

The New Zimbabwe RTGS Dollar

In June of 2019, the Reserve Bank of Zimbabwe suspended the multiple currency system and replaced it with a new Zimbabwe dollar known as the RTGS Dollar, and it was based on the success of the 2016 U.S. dollar-linked notes. In 2020, however, the multiple currency system was reinstated.

According to World Bank data, Zimbabwe has begun to get its problems with inflation under control. However, its annual inflation rate has begun to rise again, currently at around 610%, and its annual gross domestic product (GDP) growth rate has gone negative to post a reading of -8.0%, as of 2020, which is the most current year of available data.