Zimbabwe dollar, why?

Early 2009 marked the demise of the Zimbabwe dollar in favour of a multicurrency system consisting of mainly the U.S. dollar, South African Rand and the Botswana Pula. Rampant inflation had destroyed the value and confidence of the currency. A lot of people lost a lot of their money which was trapped in banks and which they had in their homes.

What has become a tragedy is the failure by the guarantuers of the value of the currency, the Government of Zimbabwe (GOZ) in this case, to reimburse the parties whose money became valueless as a result of the demise of the Zim dollar. The GOZ through the Reserve Bank of Zimbabwe (RBZ) promises to pay the 'bearer', that is, the holders of the currency at any point in time on demand. How is that so when the Zim dollar like most world currencies are fiat, that is, they are not backed up by assets such as metals like gold as in a gold standard? If you go to the RBZ with a 100 dollar bill and request to be paid 'on demand' the monetary authorities will simply give you another 100 dollar bill just like that. Therefore the value of the currency comes from the fact that if I have some cash I can use it to perform my own transactions and the person who gets my money is able to do the same hence confidence in a currency is established. If that confidence is shattered like what happened in the Zim dollar case, the currency becomes worthless.

The problem with the GOZ has been its ability to make informed decisions on time. Such incompetance makes it harder for people to contemplate any near future return of the Zim dollar. Time will not heal wounds on this one folks. All I can say is that the economic management of the Unity Government of Zimbabwe is a mess.