Dollarization in Zimbabwe

Dollarization In Zimbabwe: Causes and Effects Background and Introduction: The small African nation of Zimbabwe gained independence in 1980, and it was in the same year that the Zimbabwean dollar replaced the Rhodesian dollar at par rate as the official state currency. In its younger years Zimbabwe was seen by many as a contender to give South Africa a tough fight for the top spot in Africa for economic supremacy. No one could have predicted what was to follow. Zimbabwe entered the 21st century on the verge of being labeled a failed state. A title it was about to receive courtesy of an economic slump rarely seen in the Sub- Sahara African continent. Hyperinflation had a firm grip on the nation’s economy within the early years of the new Millennium such that inflation was at 24000%. The 100 trillion dollar notes were being used as toilet paper and crowds sweeped the nation holding signs that said“broke billionaire, HELP!”. . Hyperinflation is a phenomena in which the domestic currency of a state becomes so much devalued that it barely has any value left. In other words hyperinflation results due to the excess supply of domestic currency in the national money market. This results in an imbalance of demand and supply of monet which eventually leads to inflation spiraling out of control.There have been around 29 such cases of hyperinflation in recent memory. Hyperinflation is primarily a monetary phenomenon that has been tackled by various government with different strategies. Zimbabwe turned to the dollarization of its economy to counter this economic disease. The focus of this paper will be to analyze the underlying causes which lead to Zimbabwe dollarizing, and the subsequent effectiveness of this strategy

Cause of Hyperinflation and eventual Dollarization. The causes for the ecomonic demise of Zimbabwe has been a hotly debated topic among economists for a decade. Though there are a few