Zimbabwe Undergoes Cash Crunch as Economy Struggles

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Central bank governor John Mangudya urged Zimbabweans to limit cash usage as the nation’s cash shortage grew worse this week.

Zimbabwe discarded its defunct currency in 2009 in response to hyperinflation, and additional provisions prevented the central bank from printing the Zimbabwe dollar.

Zimbabwe switched to the U.S. dollar as one of its main currencies, but the economy is running out of American dollars. In response to the cash crunch, the government has limited bank withdraws and shut down some ATMs.

Zimbabwe’s cash problem is a symptom of stagnant growth and bad management decisions, causing the southern African country to suffer through waning export output and lackluster business activity.

The economy also never fully recovered from commodity price dips and a hollow manufacturing sector that is not strong enough to produce a surplus of jobs. Moreover, the economy failed to attract a wide base of foreign investment and it has driven away many established businesses.

The Land Issue

Zimbabwe’s downfall began with a 2000 land reform program, which seized land from white farmers for the benefit of the black community. Zimbabwe’s reckoning took place in late 2008, when the government printed notes in excess. Such a move resulted in a currency collapse, forcing the government to adopt foreign currencies to secure stability.

Officials successfully navigated through the crisis, but leadership is far from implementing the necessary structural reforms that would foster growth. Mugabe has ruled since 1987, but has done very little to create jobs and uplift people out of poverty. Many people throughout Zimbabwe live without hope and opportunity, and citizens contend with a devastating drought affecting their food supply.

Further, a cult of personality surrounds Mugabe, and he rules in a manner that hampers progress and damages Zimbabwe’s reputation on the world stage. The government has also cracked down on social media accounts, arresting anyone who insults Mugabe, and the country’s horrible human rights record casts a black eye on Zimbabwe.

Making Amends

The government is growing more repressive as the economy is in tatters, but leaders recognize the need for reform, which is why policymakers may financially compensate white farmers whose land had been taken away. Leaders intend to raise money by issuing treasury bills and taxing black farmers, and while such a proposal would be a positive step, the government may run into obstacles, as many farmers cannot afford additional taxation to support the new proposal.

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