Zimbabwe Printing And Pumping Money Into A Fragile Economy

The Zimbabwe ministry of finance and central bank have been promising more bank notes for some time now. Currently the only notes in circulation (besides the sometimes legal, sometimes illegal USD notes) are $2 and $5 notes which are worth about 4 and 10 American cents currently or 8 and 20 American cents respectively if you use the generous official exchange rate.

The notes are here

A report by Zimlive says that a plane carrying the new notes arrived in the country today. This confirms what Eddie Cross, a member of the Reserve Bank of Zimbabwe Monetary Policy Committee recently hinted at:

The plans are far advanced and higher denomination notes will be made available to the public sometime later this month. The Reserve Bank will make the announcement.
They (the notes) are being printed and the appropriate date will be announced soon. We had a meeting yesterday of the MPC and the Governor confirmed to us that the rollout will be in stages so it won’t be a full range of notes initially, but it will only be higher denomination notes.

How much money?

Eddie Cross said ZW$600 million worth of the new notes will be introduced. He says this will add to the ZW$1.3-1.4 billion notes and coins already in circulation.

Is this printing printing or…?

Yes, for some time now the fiscal and monetary authorities have been talking of introducing higher denomination notes to ease the massive cash shortages in Zimbabwe. Every time they have said this we have all raised concerns about ‘printing money.’

Hardly a decade ago excessive printing of money tanked the value of money in Zimbabwe and sent the economy into dizzy hyperinflation. Ask any Zimbabwean what 2008 means and they will tell you why they don’t want to see money printed. Check out this video that shows how inflation in Zim has fared against neighbors in the last 2 decades:

The authorities have always insisted that the new notes will not be added to the money supply but that banks will surrender electronic balances to the central bank in exchange for the notes. If this is true then this would not be ‘printing printing’ but rather adding convenience to those who need cash (ironic that this is being introduced during a deadly viral pandemic).

The minister says Zim is ‘printing printing’ – the real stuff

Here’s what Mthuli Ncube, Zimbabwe’s Minister of Finance and Economic Development said on Twitter yesterday:

Global Financing Facility discussion: I explained Zimbabwe’s $18 billion economic stimulus package. The package includes a combination of fiscal measures and budget re-prioritization, and monetary measures in the form Quantitative Easing and lowering lending rates.

Quantitave easing is a word central banks use to help them sleep better at night after printing and injecting new money into the economies. I like the simple Oxford definition of what quantitative easing is:

the introduction of new money into the money supply by a central bank.

Investopedia calls it an unconventional brand of monetary policy. So yea, they are going to add more money into the economy and they are doing it at a time when we are already at near 2008 levels of inflation.

The truth is probably that the government is introducing and has already introduced way more than the ZW$600 million into the economy. This is why the local currency keeps tanking whether or not the RBZ bans mobile money agents. Tendai Biti, former finance minister made the same claims:

The regime is broke & broke in absolute terms. The coffers are empty & they are generating salaries through the RTGS ponzi scheme. To date Treasury has not disbursed #SafetyNets payment to Min of Social Services. Tobacco sales have had a poor start &donors not coming on board.

What he calls the RTGS ponzi scheme is something the government has already done previously between 2014 and 2018. They were literally just inventing numbers and sending them into people’s bank accounts. Of course, as with all ‘quantitative easing’ government bonds (treasury bills) would change hands.

Why print money?

Well, the root reason is what Biti said: the government is broke. Added to that, the government is under pressure to provide for the nation in the midst of a global pandemic that has decimated global demand for primary commodities like the ones Zimbabwe largely exports as well as slowed down local demand even further than has been happening over the years.

To address some of this, the president announced an ZW$18 billion stimulus package, the one Ncube was referring to in quote above. The president neglected to explain where the money would come from. Alas: the RTGS printing press.

Other countires are printing

A lot of countries around the globe including the United States of America are creating additional money out of the blue. In fact, in the US some economists are attacking the Federal Reserve for not inventing more money.

However, Zimbabwe is not other countries. Zimbabwe’s currency was already on a downward spiral, inflation is already close to 1000% and most importantly trust in the government is totally zero. Zimbabwe doesn’t have the resiliency to print money on the fly. When we do, the shocks are immediately felt.