Those notes won’t be worthless, however. Zimbabwe’s version of the dollar will be backed by $200 million in support from the African Export-Import Bank, a Cairo-based institution that promotes trade within the continent. Zimbabwe, then, will produce $200 million worth of new bills.
Among other measures announced this week to address the monetary problems: Officials have limited the amount of money that people can take out of the country to $1,000; and the central bank will convert 40 percent of all bank deposits that come from exports to the South African rand, and an additional 10 percent to euros.
The dollar is used as the official currency in other countries, as well. El Salvador, the Marshall Islands, the Federated States of Micronesia, Palau, and the islands of the Caribbean Netherlands—Bonaire, Sint Eustatius, and Saba—all use the dollar as their official currency.
Other countries have also adopted the dollar as their currency, but issued their own coins that are valued the same as American dimes, quarters, or nickels. Panama, East Timor, and Ecuador use American paper money, alongside their own individual coins. Similarly, since 2014, Zimbabwe has designed and circulated one-, five-, 10-, and 25-cent “bond coins” that are set to the value of the U.S. dollar. The coins bear little resemblance to their American counterparts. Zimbabwe’s new paper money will be made in the same vein.
Zimbabwe made the switch to the U.S. dollar in 2009 after its currency virtually had no value from over-printing and its economy collapsed following policies instituted by the government of longtime President Robert Mugabe. During that period, Zimbabwe produced 100-trillion-dollar notes. It got so bad that by the end of 2008, the inflation rate was 79.6 billion percent. By then, 1 U.S. dollar equated to 2.6 decillion (1033) Zimbabwean dollars.
Seven years later, the country isn’t facing hyperinflation, where there’s too much currency, but deflation, as there’s not enough physical cash around.
“It’s an indication of the lack of confidence in the Zimbabwean Central Bank,” says Russell Green, an international economics fellow at Rice University’s Baker Institution. “They want to print their own money, but they know that they’ve gotten in trouble in the past printing their own money.”
The absorption of the U.S. dollar as a country’s own currency, or even the attachment of its currency rate to the dollar, has previously proved perilous to other countries. Argentina’s peso had a fixed exchange rate to the U.S. dollar, and for a decade every one peso was equivalent to one dollar. However, after an economic depression that lasted from 1998 to 2002, which led to the fall of the government and a $95 billion default on its foreign debt, Argentina dropped the fixed exchange rate. Argentina’s central bank ran out of money during that time.