Francis Garikayi


Francis Garikayi//11:12pm, Mar 16th '23


The Southern African nation of Zimbabwe became the first country in the world to record hyperinflation in the 21st century. In November 2008, the country’s month-over-month inflation reached 79.6 billion per cent (79.600,000,000%) In early 2009, the country’s central bank, the Reserve Bank of Zimbabwe (RBZ), issued a record-breaking one hundred trillion dollar bill (Z$100,000,000,000,000). The failure to control runaway inflation was followed by the official dollarisation of the economy in April 2009. Since then, Zimbabwe has struggled to manage its currency arrangements.

Like most studies on social phenomena in contemporary Africa, dominant literature on Zimbabwe’s monetary woes has tended to follow a technicist and neo-classical approach.

In neo-classical theory, money is considered neutral: the notion that in the economy money only affects prices, wages, and inflation. In this light, Zimbabwe’s currency has mainly been analysed based on its ability to work as a medium of exchange, as a store of value and as a unit of account. Studies have therefore tended to emphasise the importance of the following causal factors: fiscal policy, institutions, corruption, poor economic growth, dwindling foreign direct investment (FDI), and good governance. Consequently, inflation and currency instability have been approached as a a financial management problems.

For this reason, policy-makers and academics have mostly sought technical solutions to Zimbabwe’s monetary problems. Little attention has been paid to the impact of class relations, interests, and social forces in relation to Zimbabwe’s currency collapse and hyperinflation.

To be more precise, no regard has been given to how Zimbabwe’s economic structure might have influenced its monetary relations. In broad terms, economic structure refers to the configuration of economic sectors; i.e. manufacturing, mining, agriculture, services, and so on.

Let us explore two questions.

First: is there an alternative conception of money capable of throwing light on Zimbabwe’s monetary sovereignty?

Second: what role has money played in the processes of capital accumulation throughout Zimbabwe’s history?

Answering these questions in depth, in the understanding of the inter-relation of factors, reveals why Zimbabwe’s hyperinflation is not merely an aberration but an outcome of the country’s economic structure. Zimbabwe’s monetary system is and has been related to its historically specific processes of capital accumulation.

Let us analyse the relationship between capital accumulation and the evolution of Zimbabwe’s monetary system. During the imperial period, Southern Rhodesia’s monetary system served to facilitate the extraction of gold. With the transition in 1923 from Chartered Company rule to ‘Responsible Government’1 monetary relations shifted towards facilitating the ‘draining-off of surplus’

The idea of a monetary system geared towards draining-off surplus was propounded by Loxley in his study of the Tanzanian monetary and financial system, [John Loxley, “Financial Planning and Control in Tanzania” in Development and Change issue 3(3) (1972)]

Loxley argued that:

Firstly: Tanzania’s colonial financial and monetary system was geared towards the unimpeded creaming-off of surplus.

Secondly: the main objective of Tanzania’s colonial monetary institutions was to export surpluses.

A similar situation could be observed in Rhodesia between the First and Second World Wars [inter-war period 1918-1939]. However, as global conditions changed, Rhodesia became industrialised. At that stage, the monetary system moved towards facilitating the export of processed agricultural and mining products to global markets, as well as manufactured goods to neighbouring countries.

Since Zimbabwe’s independence in 1980, the function of the monetary and financial economic system has strengthened its role in promoting exports in concert with the Washington Consensus2.

Zimbabwe has, therefore, not been spared from financialisation processes. Financialisation in this instance being understood as the increasing power of the owners of money in the management of economic affairs. This conjuncture has undermined the country’s sovereignty.

The rest of this article is structured as follows:

First: an alternative theoretical framework for understanding currencies and monetary relations is outlined.

Second: an empirical account of the historical broad changes and continuities between money and capital accumulation in Zimbabwe.

Third: concluding remarks and some recommendations on how Zimbabwe might attain greater sovereignty.


Southern Rhodesia (now Zimbabwe) was colonised by a private company, the British South Africa Company (BSAC) in 1890 following the granting of a Royal Charter by Queen Victoria, in 1889. The Charter was modelled on that of the British East India Company. The Pioneer Column of white settlers reached the hill where they established Fort Salisbury (now Harare) in September 1890. Northern Rhodesia (now Zambia) was also colonised but settlement and development was centred on Southern Rhodesia. Company rule lasted until 1924 whem the settlers were given self-rule referred to as ‘Responsible Government’. Southern Rhodesia was treated very much as a Dominion like Canada, Australia, New Zealand and South Africa but was never formally given that status due to the small number of white settlers in proportion to the black majority. The Federation of Rhodesia and Nyasaland was established between 1953 and 1963 including Southern Rhodesia, Northern Rhodesia and Nyasaland Northern Rhodesia became independent as Zambia and Nyasaland as Malawi in 1964 after which Southern Rhodesia became simply Rhodesia until Zimbabwe-Rhodesia was briefly established from June to December 1979. The name Southern Rhodesia was used again briefly until Zimbabwe became Independent on 18th April 1980.

WAHINGTON CONSENSUS: The Washington Consensus is a set of ten economic policy prescriptions considered to constitute the standard ‘reform’ package promoted for developing countries by Washington,

D.C. based institutions such as the International Monetary Fund (IMF), World Bank and United States Department of the Treasury. The term was first used in 1989 by English economist John Williamson. The prescriptions encompass free-market promoting policies in such areas as economic opening with respect to both trade and investment, and the expansion of market forces within the domestic economy. The phrase Washington Consensus has come to be used more broadly to refer to a general orientation towards market fundamentalism or neoliberalism.

The Relationship between Monetary Relations and Capital Accumulation

Processes of capital accumulation have a close relationship with the nature and form of monetary relations. The function and forms of money are closely related to the underlying structure and functioning of an economy. As a result, monetary relations cannot be separated from relations of capital accumulation. Moreover, processes of capital accumulation differ in time and space. Therefore, different situations of monetary sovereignty exist.

In this light, the type and nature of a country’s monetary system are contingent upon specific historical processes of capital accumulation. Money does not emerge independently of any social setting, nor does it spontaneously appear out of the market exchange process. Rather, a monetary system shapes and is shaped by a country’s political and economic history.

Moreover, a monetary system is not simply banks, currency, and transactions. Instead, it encompasses the interaction between financial and other institutions and how they mutually undertake financial functions. Whether a monetary system is supportive of the extraction of surpluses, developmental processes, general commodity exchanges or capital flow is subject to change and is historically and socio-economically specific.

How then can we understand money and financial systems in relation to the structure and money, finance, and capital accumulation in Zimbabwe functioning on an economy?

‘Accumulation frameworks’ are historically determined linkages of capital accumulation that develop between different fractions of capital within a particular situation. Such linkages are both concrete and dynamic. National capital relations are conditioned by global capital relations, but they also contribute to and constitute part of the global whole.

The penetration of capital tends to produce universal development features; for instance, rapid population growth.

However, capitalist reproduction differs across specific concrete situations because there are differences in the interaction between class forces, the state, and productive forces in different countries and different regions of the globe.

A system of accumulation is therefore an articulation of how capitalist value relations are constructed, organised, and reproduced. Here, the role of the state is emphasised, but not as an independent arm of society. State and market are instead considered as constituent parts of the capitalist whole. State and market are viewed as a reflection of social relations.

Accordingly, the evolution and development of a national financial system is theorised as occurring in relation to the character of a country’s capital accumulation processes. Most significantly, the framework recognises that a monetary system is built in relation to existing political and economic structures in a manner in which there is both co-operation and contestation.

Any concept which separates the real economy from the monetary system is here rejected, in particular the prevailing concept of economic and monetary sovereignty as a technical phenomenon. Therefore, in analysing Zimbabwe’s monetary relations, we should not conceptualise the financial system as simply an independently evolving intermediary between lenders and borrowers.

We now proceed to apply the concept of an accumulation framework to the specific case of historical money and capital accumulation in Zimbabwe.

Early Colonial Capital Accumulation and Monetary Relations

The most significant determinant of political-economic development in southern Africa was the discovery of diamond and gold in South Africa in the late 19th century. Thus, it was in the wake of failures on the Transvaal Rand that Southern Rhodesia was established by Cecil John Rhodes’s British South Africa Company (BSAC) in 1890. In this context, the BSAC was set up to represent the interests of international capital whose goal was to extract as many internationally tradeable commodities as possible.

The Chartered Company sought to pursue a ‘Second Rand’ in the area north of the Limpopo River. Just like in South Africa, Rhodesian gold mining relied on metropolitan finance. Because of this, the BSAC had to compete with the Witwatersrand1 of South Africa for foreign capital. And so, early optimism in the prospects of gold in the territory saw an explosion of mining stocks and by April 1900 almost one hundred mining stocks and shares had been listed on the London Stock Exchange. Therefore, at the very outset, the imperial colonial financial system evolved to facilitate the flow of metropolitan finance to gold mining operations.

Indeed, it was share trading and not banks that formed the bedrock of the early financial system. The relative poverty of mineral resources in Rhodesia induced change in development strategy. Most importantly, the BSAC needed to recover its outlays on the railway system, mining claims, and developed land. For this reason, in the early 1900s settlers (the first of which were some of the displaced employees of De Beers after its amalgamation with the Kimberly Company2) companies were impelled to transition money, finance, and capital accumulation in Zimbabwe from mining towards agriculture and other economic activities.3

By the 1930s, a state-supported white agrarian bourgeoisie had emerged. The subsequent increase in commercial activity in mining and agriculture accentuated the demand for currency. To lessen coinage shortages, a banknotes ordinance was passed in 1922 authorising Barclays Bank and Standard Bank (‘expatriate banks’) to issue some notes. But the rapidly growing agricultural sector could not be sustained by privately issued notes, such that by 1938 the Southern Rhodesia Currency Board (SRCB) had been established.

Certainly, the notion of a Currency Board was aimed at ‘draining-off surplus’. The expatriate banks were simply hoarding money without spurring local industrial development. Furthermore, Currency Board arrangements reflected the speculative nature of white agriculture at the time. Farmers tended to switch from crop to crop depending on expected returns. Consequently, the expatriate banks endeavoured to drain-off surpluses emanating from those speculative ventures.

Unsurprisingly, the 1930s economy resembled typical colonial conditions, notwithstanding twenty years of self-government. Capitalist relations were concentrated in the foreign-owned mining and agricultural primary products sectors. In turn, the primary products sector was heavily oriented towards the world market. In fact, most economic activity revolved around gold mining and tobacco-growing, which was destined for the export market.

This conjuncture assembled an intricate relationship between domestic and international capital. The outcome was decisive in shaping an externally oriented form of capital accumulation that has endured to this day, albeit in different forms.

In the 1930s, the growing influence of settler-led production in mining and tobacco farming meant that domestic capital was earning a surplus from internationally tradable commodities. So, any re- invested surpluses in the export sectors amounted to the real growth of domestic capital. But the external orientation of domestic capital meant that it was de facto international, not least because its reproduction was dependent on importing inputs and exporting output.

For this reason, the expansion of domestic capital heightened the demand for imports. Consequently, import substitution industries emerged. Logically, this called for a system of managing imports and exports. Hence, the Rhodesian state evolved to manage the distribution of international purchasing power economic and monetary sovereignty in 21st century Africa earned in the territory.

In this light, the monetary system simply served to ‘divert’ a portion of the international purchasing power earned from gold and agricultural products for the benefit of the country’s white population. It is important to note that Rhodesia’s pre-war white population comprised a rural bourgeoisie involved in agriculture and mining, wage workers, and a trading petty bourgeoisie.


WITWATERSRAND: The Witwatersrand or locally the Rand is a 56km long rock formation in South Africa consisting of gold-bearing quartzite rock, waterfalls, account for the name Witwatersrand, meaning “white water ridge” in Afrikaans. A great deal of South Africa’s wealth comes from here as well as the name of South Africa’s currency, the Rand.

DE BEERS: Diamonds were discovered on the farm of the de Beers brothers outside Kimberley in the Northern Cape in 1869. A diamond rush followed and in 1871 the de Beers brothers were forced to sell their farm. A young British man, Cecil John Rhodes, began hiring out water pumps to diamond miners and then began buying up mining claims. He was partnered by German Jew Alfred Beit. In 1888 Rhodes bought out his main rival Barney Barnato, owner of the Kimberley Diamond Mining Company with the help of the Rothschild family and formed the De Beers Diamond Mining Company. De Beers then had control of all diamond mining in South Africa. By the end of the 20th century, De Beers controlled over 80% of world trade in rough diamonds; due to growing world competition that is now down to under 30%.

The people of Zimbabwe had been digging and selling gold to foreign traders, Arab, Swahili, Portuguese, Indian and Chinese for centuries before the Pioneer Column. Great Zimbabwe was built largely because of this trade. The most easily available gold had been mined long before colonisation.

War and Post-War Capital Accumulation and Monetary Relations

The outbreak of the Second World War revolutionised capital accumulation processes in Southern Rhodesia. Most significantly, it stimulated a process of remarkable economic growth.

In the 1930s the economy remained underdeveloped, and stagnant in part, because of a lack of internal demand. However, with the War taking up most of the world’s resources, imported goods became scarce. Furthermore, a global shortage of agricultural produce created a huge market for local farmers. This created demand for local industries.

Most impactful though was an air training scheme implemented in the country in conjunction with the British government. Under the scheme, Rhodesia supplied air stations, quarters, land, buildings, and labour to build aerodromes.

Again, this expanded the market for farmers and industrial firms, resulting in the tripling of gross manufacturing output between 1939 and 1946. The upshot was the emergence of a ‘manufacturing capitalist class’ heavily controlled by British and South African capital.

After the war, new external stimulants sustained economic buoyancy; most notably, a post-War high demand for raw materials, an influx of British and South African immigrants, and capital flow into the territory. Added to this were the effects of the collapse of the Gold Standard, which secured Rhodesia a pole position in supplying Britain with tobacco.

Further, the Federation of Rhodesia and Nyasaland which existed from 1953 to 1963 widened the market for Southern Rhodesian industries. As a result, monetary arrangements evolved to support the booming capitalist economy. Local banking started to take root such that the share of local assets to total assets held by the two expatriate banks increased by 56% in 1946, and 71% in 1947.

But most influential after the war was the role of South African and British capital inflows. British capital comprised immigrant remittances, loan repayments, and proceeds from London issued debt. South African capital flows, on the other hand, reflected the heightened apprehension by international capital in the wake of the 1948 victory of the National Party.1

Southern Rhodesia thus became an alternative investment destination. Unlike in the past whereby London investments passed through Johannesburg, from the late 1940s London started to invest directly in Southern Rhodesia. Because of this, foreign investment tripled between 1947 and 1949, reaching £51 million by 1951.

The confluence of rapid industrial led economic growth and heightened capital inflow could no longer be sustained by a Currency Board. Moreover, the rapid expansion of the manufacturing industry brought about economic complexity. This was exacerbated by a shortage of American dollars and an impending sterling devaluation.

Hence, the Southern Rhodesian authorities recognised that if industrialisation were to proceed smoothly, there was a need to control money supply. The ensuing debate revolved around whether financial institutions were allocating resources towards the most productive sectors and how they could be regulated.

In the end, a central bank, the Reserve Bank of Rhodesia, was established in 1956 because it was viewed as more effective at influencing development as well as asserting sovereignty over money compared to a Currency Board. In other words, a central bank was deemed fit for efficiently managing international purchasing power. Although the manufacturing industry was the most influential factor in Rhodesia’s capitalist economic development in the post-war period, it harboured two major contradictions.

First: due to its infancy, it could not compete on a global scale. For this reason, its success was dependent on an expanded local market. Yet, if demand was to be increased, there was a need to improve the buying power of the majority black population. To do this would have meant reforms to the agricultural sector which, in turn, would have disadvantaged the politically influential white nationalist class.

Second: the expansion of manufacturing industry relied on foreign currency from the export of primary products. It could thus be said Rhodesia had a form of dependent industrialisation.

In sum, Rhodesia’s manufacturing capitalism required for its expansion the relative worsening of living conditions of the very classes on which it still heavily depended.

Socially, War and post-War economic development were accompanied by widespread change.

First: among the country’s white population, there was a shift in power from petty commodity producers towards wage workers. In the late 1950s, Rhodesian white wage workers rose to become some of the best paid globally thanks to the ‘over-full-employment’ in skilled occupations. This conjuncture gave white workers a strong bargaining position.

Second: economic growth accelerated the rise of an African proletariat. In turn, this brought about African nationalism and demands for higher wages and improved working conditions.

Third: mass and capital-intensive production shifted labour demands from unskilled migrant labour of the farming type toward skilled labour.

There was thus an interest by the manufacturing class to weaken the bargaining power of white workers by supporting the expansion of African skilled and non-manual labour.


1. The victory of the National Party in the nearly all-white South African General Election of 1948 was not liked by the British government. [Some Coloured and Africans in the Cape had a limited franchise based on property ownership but could only elect a white person to represent them in Parliament]. The Chamber of Mines and the British government favoured Prime Minister Jan Smuts, but it was D.F. Malan, an Afrikaner who hated the British and who had been a supporter of Nazi Germany who won. The National Party then began to construct apartheid. The colour-bar had long been there, but apartheid was to be much harsher than any former race laws. The formation of the Federation of Rhodesia and Nyasaland in 1953 was an attempt to form a ‘new South Africa’ under British control.

Rhodesia’s Economy after the Unilateral Declaration of Independence

To safeguard their interests against manufacturers, white middle-class and white working-class voters elected the Rhodesian Front (RF) in 1962.

After getting into power, the RF issued their Unilateral Declaration of Independence (UDI) from Britain in 1965 ⸺ Britain’s response to the UDI was an imposition of financial sanctions.1 British sanctions meant Rhodesia’s expulsion from the Sterling Area, denial of access to gold and financial reserves held in London as well as access to the London money and capital markets. Furthermore, under the Southern Rhodesian Act of 1965, the United Kingdom banned the import of Rhodesian tobacco and sugar.

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The UDI thus marked a rupture of the system of distributing international purchasing power that had existed hitherto. British financial sanctions also caused significant shifts in the processes of accumulation; for instance, import substitution manufacturing increased, foreign trade’s economic impact declined, mining industry output increased, dependency on Britain ebbed, and the economy became more integrated into the southern African region.

Moreover, the state took an even more active role in investment. These changes resulted in an economic boom. Between 1966 and 1974, Rhodesia’s yearly GDP growth averaged 9.5%, thanks to the rapid expansion of manufacturing industry. Up to a quarter of gross fixed capital formation originated from manufacturing industries.

In addition, the ratio of Manufacturing Value Added (MVA) rose from 16% in 1966 to about 21% in 1974, spurred by mostly domestic demand. Interestingly, however, is that under conditions of relative sovereignty brought about by sanctions, Southern Rhodesia’s economy thrived.

Besides trapping local finance and corporate profits, sanctions also forced the Southern Rhodesian authorities to implement stringent exchange controls, and to restrict the repatriation of non-resident deposits. Whereas in the past surpluses would have been repatriated to the metropole under the Exchange Control Act, No. 62, 1964, companies were forced to reinvest profits locally. The resulting excess liquidity spawned the development of a white housing sector thanks to high-net- worth white immigration.

Furthermore, the rapid industrial development associated with increased buying power in the economy greatly increased the demand for hire purchase and leasing facilities. This was accompanied by growth in the primary sectors which increased the demand for financing. Between 1965 and 1974, manufacturing and services boomed relative to other sectors.


1. SANCTIONS: There is considerable misunderstanding about both sanctions and the liberation movements in southern Africa. From the time of the armed liberation war in Algeria against the French and the Land and Freedom Army (Mau Mau) uprising against the British in Kenya, the two main colonial powers in Africa, Britain and France, adopted the neo-colonial agenda. They realised that it was not possible to carry on in the same way. In other words, African countries were rapidly given token independence while the colonial power remained in control of the economy. National leaders who did not toe the line were removed from power, blocked or murdered. In the south of the continent, the Portuguese were uninterested in giving even token power to Africans. This ended up with major anti-colonial wars in Mozambique and Angola (as well as Guinea Bissau in West Africa.) backed by the USSR and Cuba. These wars finished with an anti-fascist coup in Portugal in which the Portuguese Communist Party played a major role and resulted in the end of Portuguese colonialism in Africa. It was obvious to the imperialists in Washington, London and Paris that the white settler regimes of Rhodesia and South Africa could not survive. The settlers were there as a result of an earlier form of imperialism. The Afrikaners and Rhodesians were cruel and racist, but they were not the real imperialists. The imperialist wanted black governments but not those which would build economic independence and certainly not those aligned to the socialist world. Sanctions were applied to Rhodesia because the white settlers would not comply with the neo-colonial agenda.

Manufacturing-Centric Accumulation: 1965 to 1974

Another significant outcome of UDI was the strengthening of a system of externally oriented manufacturing-centric capital accumulation. Between 1966 and 1974 the volume of manufacturing grew by 9.6%, but because of a policy of import substitution, the manufacturing sector became tightly integrated with the primary sectors.

For instance, in 1965, up to 13% of agricultural output was used as manufacturing inputs, increasing to 44% by 1981/82. In turn, 42% of agricultural inputs came from domestic manufacturers. By the early 1980s, this had increased to 48%.

Trade statistics also reflected the increasing strength of manufacturing. From the time of colonial conquest until UDI, mineral exports, especially gold, had accounted for 50% of Gross National Income. However, during the same period, there was a shift in major exports from mining to agricultural products (mainly tobacco), and then to manufactured goods.

At the point of UDI, manufactured goods accounted for 40% of exports. Two major commodities were exported: processed mineral and agricultural products destined for the world market (cigarettes, ferrochrome, copper, sugar, meats), and manufactured products (clothing, textiles, radios, footwear, iron and steel, fertilisers, etc.). The latter was sold to neighbouring Zambia, Malawi, and South Africa.

After sanctions, South Africa rose to take over 25% of Rhodesia’s manufactured exports. Most significantly, because South African firms were not subject to the restrictions of the Exchange Control Act, they came to dominate Rhodesia’s manufacturing industry.

After 1974, however, manufacturing started to experience significant strains. Production volume declined by 27% between 1974 and 1978.

Both internal and external forces caused this slump. Internally, the effects of the liberation struggle were a major factor. Externally, global gluts and the oil crisis of 1973 played a major role.

Zimbabwe’s 1980 Inheritance

At Independence in 1980, Zimbabwe inherited an economy that was dominated by manufacturing industry, mining, and agriculture. Most notably, the economy was externally oriented because output was mainly exported. Apart from services, manufacturing industry was the single most significant contributor to GDP in 1979. So, despite manufacturing having started to decline in the mid-1970s, Zimbabwe inherited a system of manufacturing-centric accumulation. But as discussed earlier, manufacturing processes were externally oriented.

For this reason, the manufacturing industry mainly existed in support of the extraction and production of internationally tradeable economic and commodities. UDI-era sanctions had brought about a shortage of foreign currency and, in turn, import substitution industrialisation. But that did not mean the diminution in the demand for foreign currency, even though the economy had become almost self-sufficient.

Facing this constraint, the Southern Rhodesian government sought to tightly manage the distribution of international purchasing power through the Exchange Control Act. It is, therefore, crucial to note that independence negotiations were held in this context. Existing economic realities, in part, forced the Zimbabwe African National Union (ZANU) to ditch its vaguely expressed liberation struggle socialist policies. Education and health services were expanded but with little thought or understanding of real economic transformation or the necessities of production. International finance was used mainly for social programmes.

The outcome was a class compromise that left the colonial structure of wealth and income inequality intact. Most constraining were the provisions of the 1979 Lancaster House Agreement between the colonial government and the two liberation movements, ZANU and the Zimbabwe African People’s Union (ZAPU), which blocked radical land reform even as the country faced a severe land problem.

It should be recognised here that the 1930 Land Act and subsequent acts divided the land of Southern Rhodesia giving about half the land to the white minority and half to the white minority with the white’s obtaining most of the best land. However it was in the early 1950s that many of the worst land-grabs by white farmers occurred. By Independence, there was a great land hunger by the peasants who formed more than half of the population and were forced on to marginal land.

Nervertheless, it is reasonable to assume that British capital, in reality was more concerned with what was under the ground ⸺ minerals ⸺ than what was on top of the ground and the plight of their ‘kith and kin’, the white farmers. The nationalisation of mineral resources would have naturally followed any reform of agricultural ownership and production.

For the peasantry who had been at the forefront of the liberation struggle, an era of neo- colonialism commenced; how were their social conditions to be improved if capital was to remain untouched?

As mentioned earlier, at the very outset, ZANU(PF) was forced to jettison the idea of economic transformation although it maintained it rhetorically. For this reason, an externally oriented system of accumulation persisted. stabilisation and structural adjustment: 1980 to 1990.

The dropping of sanctions after legal independence expanded foreign trade, although imports increased more than exports. As a result, Zimbabwe recorded enormous current account deficits between 1981 and 1982. Exports were further hurt by the global recession of 1981–1983 which negatively affected the prices and demand of exports.

Because of this and other external shocks, the country started experiencing a balance of payments crisis. Inevitably, the country accepted an IMF stabilisation package and World Bank loans. In the first few years after independence, Zimbabwe received 9 loans from the World Bank and 4 International Development Assistance (IDA) credits, totalling US$646 million. Of the 9 loans only 2 were specifically targeted towards the promotion of manufactured exports.

Zimbabwe’s manufacturing class had been successful not because of its global competitiveness, but rather because of state protection against international competition. As is common with IMF/World Bank assistance, the funds came with conditions curtailing the role of the state in managing investment.

In this regard, Zimbabwe’s 1982–1983 IMF/World Bank package was conditional on the elimination of budget deficits, the scrapping of food subsidies, export promotion, and currency devaluation. Because UDI had partially isolated Zimbabwe, it was the aim of international financial institutions (IFIs) to firmly integrate Zimbabwe into the global economy. But this policy stance was antagonistic to ZANU’s earlier quest to redress colonial imbalances.

Because of this tension, beginning in the mid-1980s, the contentious economic policy issue concerned the degree of openness or market-based reforms that the government ought to undertake. Two extremes emerged. On the one hand, the agrarian class resented the preferential treatment of manufacturers in accessing foreign currency. In addition, agriculturalists were dissatisfied with the exorbitant costs of inputs from local manufacturers. Hence, for the agrarian classes, deregulation meant cheaper inputs and an expanded market for their produce.

On the other hand, the manufacturing class and ruling elites adopted an intermediate position. Indeed, the government had recognised the importance of manufacturing in its First Five-Year National Development Plan (1986-1990) albeit narrowly conceived to promote export-led growth.

With low economic growth, unemployment, burgeoning external debt, and a fiscal deficit, Zimbabwe acquiesced to an Economic Structural Adjustment Programme (ESAP) in 1991. ESAP marked a watershed moment in Zimbabwe’s history and a turning point in monetary relations. It emphasised: moving away from a highly regulated economy to one where market forces were allowed to play a more decisive role, while concurrently taking steps to alleviate any transitional social hardships which may arise from this transition.

ESAP became known as ‘Eternal Suffering for the African People’ and deregulated finance, eased exchange controls, and liberalised trade. In the banking sector, new entrants were encouraged. The government set out to meet a certain inflation target. And high positive interest rates were to be maintained. But in reality, ESAP was a class compromise between international capital, the manufacturing class, the ruling elites, and the agrarian elites.

Finance Minister Bernard Chidzero, who before returning to Zimbabwe had worked for the World Bank, persuaded other members of government that market-based ‘reforms’ provided an opportunity to revive industry given the high levels of unemployment. For the manufacturing class, reforms had the potential of solving foreign currency shortages which hampered production. In terms of finance, the government intervened in the sector to promote an emerging black elite along the lines of neoliberal orthodoxy. The idea was to modernise by furthering the reach and depth of finance.

Key financial institutions in support of black accumulation were either acquired or established. Some of the new financial institutions were funded by the World Bank Group, the International Financial Corporation (IFC), and the Commonwealth Development Corporation (CDC). To cite some examples: the Zimbabwe Investment Centre in 1987, the Indigenous Business Development Centre in 1990, Zimtrade and the Venture Capital Company of Zimbabwe in 1991.

As a result of this, during the 1990s Zimbabwe’s financial sector went through rapid expansion at a time when the removal of trade restrictions protecting local industry led to rapid de- industrialisation. Financial sector liberalisation did not have a pro-poor inclination, it benefited those who were already integrated into the market economy.

An unintended outcome was that the social conditions for war veterans and peasants who had been at the forefront of the liberation struggle worsened. But since the war veterans represented a formidable social force in the balance of power within ZANU(PF), they exacted financial compensation for their participation in the liberation struggle. Moreover, revelations that the War Victims’ Compensation fund had been looted by the ruling elites made it harder for Mugabe’s government to refuse to compensate ordinary war veterans.

In the circumstances, in August 1997 the government conceded to paying an unbudgeted lump sum of Z$50,000 (approximately US$3,000) to each war veteran; in total, the pay-out represented 3% of GDP. In addition to this, the government committed to paying Z$2,000 (approximately US$125) as a monthly pension.

The World Bank reacted by withdrawing US$62.5 million in balance of payments support amid fears Zimbabwe would breach its projected budget deficit. To compound matters, on 5th November 1997, Britain notified Zimbabwe that it did not feel duty bound to meet the costs of land reform as agreed at Lancaster House. Subsequently, on 14th November 1997 (now known as ‘Black Friday’), the Zimbabwe dollar lost 75% of its value against the US dollar in four hours.

The 1997 conjuncture showed that, without monetary sovereignty, Zimbabwe could not radically intervene in the economy without attracting backlash. Furthermore, it signified the climax of a crisis whose roots could be traced to the 1970s, as well as the collapse of the Lancaster House class compromise.

Currency Collapse and Hyperinflation Early 2000 Era

The turn of the new millennium witnessed agitation by classes that hitherto had been subjugated by neo-colonialism. The Independence class compromise, which had resulted in ‘elite acommodation’ started to unravel rapidly. To this end, war veterans and peasants organised for a radical reform of agrarian relations. In fear of losing power, ZANU(PF) ‘co-opted and adopted’ the land occupation movement in 2000.

A negative short-term effect of land reform was its adverse effect on tobacco production ⸺ one of the country’s biggest foreign currency earners. Before 2000, the country produced approximately 200 million kilograms per annum; however, by 2008 production had plummeted to 48.7 million kilograms per annum.

The collapse of export revenues and the imposition of financial sanctions by the United States (US) accelerated the further collapse of the Zimbabwe dollar. The Zimbabwe Democracy and Economic Recovery Act of 2001 (ZIDERA), as amended in 2018, prohibits ‘support that is intended to promote Zimbabwe’s economic recovery and development, the stabilisation of Zimbabwean currency, and the viability of Zimbabwe’s democratic institutions’ until Zimbabwe meets certain political conditions.

According to Gideon Gono, who served as Governor of the Reserve Bank of Zimbabwe (RBZ) from 2004-2013, Zimbabwe had maintained foreign currency reserves worth three months of imports in 1996, but this had fallen to cover of less than one month by 2007. Hence, the convergence of foreign currency shortages, financial sanctions, current account deficits, and low capital inflows shifted capital accumulation processes towards speculative activities.

For the majority of the country’s citizens, a new economic logic of ‘kukiya-kiya’ or ‘making do’ to ‘get by’ became the only means of subsistence.

The Era of Bank Failures in Zimbabwe: 2003 to 2005

Between 2003 and 2008, Zimbabwe’s economy effectively became a ‘casino’. Money laundering activities became endemic, and a series of ‘indigenous’ banks and financial institutions failed. Corporations could profit more from dealing in foreign currency instead of engaging in productive activities.

For instance, in 2006, Gideon Gono, revealed that less than 25% of the issued currency was operating in the official financial system.

Firms and individuals were thus engaged in, inter-alia, one-way exporting, offshoring executive management employment benefits, over-invoicing imports, transfer pricing, diamond smuggling, and externalising funds from hunting conventions.

The upshot was a dramatic expansion of the financial sector. In the early 2000 period, broad money, as represented by the ratio of liquid liabilities to GDP, rose remarkably. Simultaneously, the ratio of central bank assets to GDP remained virtually constant whilst banks and other financial institutions increased their claims on the non-financial sector. This is reflected by the spike in the ratio of deposit bank money assets to GDP. Most notable, however, is that financial sector expansion went hand in glove with runaway inflation.

By the end of August 2006, inflation had reached 1,204%, a world record at the time. Because of high inflation, most bank assets were now comprised of illiquid investments in properties and equities (as a way of hedging). As a result of this, the Zimbabwe Stock Exchange (ZSE) boomed. Zimbabwe was now awash with worthless money.

While many factors contributed to this, including, for example, the decline in real output, the exposition of the actual mechanics is beyond the scope of this article ⸺ suffice it to say that the World Bank attributed the 2002-2003 crisis to inappropriate policies.

By late 2003, the hubris of financial enterprise became a nemesis, especially as inflation continued to rise. Shortages, exacerbated by the country’s inability to borrow from International Financial Institutions, affected the central bank’s ability to import paper and ink for printing banknotes. For this reason, a cash crisis ensued. This compelled the central bank to tighten liquidity by hiking interest rates; by March 2004 interest rates had risen to 5,242%. Because of this, many banks struggled to cover their positions, resulting in, mostly indigenous, banks failing.

Part of the reason why indigenous banks failed was because they tended to provide loans to low- income groups. Because of this, their default rate was higher compared to those of multinational banks. After many bank failures, the central bank became actively involved in almost all sectors of the economy through Quasi-Fiscal Activities (QFAs).

[A QFA is an operation or measure carried out by a central bank or other public financial institution with an effect that can, in principle, be duplicated by budgetary measures in the form of an explicit tax, subsidy, or direct expenditure and that has or may have an impact on the financial operations of the central bank, other public financial institutions, or government.]

Hyperinflation and the Quest for Foreign Currency: 2006 to 2008

To fund QFAs, the central bank expropriated foreign currency accounts of corporations, Non- Governmental Organisations (NGOs), and banks. To recompense the affected parties, the Reserve Bank of Zimbabwe (RBZ) issued debt instruments.

By January 2009, debt from QFAs had reached approximately US$200 million. Described by former RBZ Governor Gideon Gono as an “extraordinary measures for extraordinary challenges,” QFAs comprised subsidies, foreign exchange trading, and the interest expense of sterilisation operations.

These measures were only ‘extraordinary’ because of Zimbabwe’s weak monetary sovereignty.

Without foreign currency, the country’s economy would have totally collapsed. To this end, four schemes were implemented:

First: the Reserve Bank provided ‘free’ foreign currency to parastatals for the importation of grain, fuel, and electricity on behalf of the government. The foreign currency was free in the sense that the transaction was treated as an interest-free loan to the government.

Second: the RBZ provided subsidies to private sector exporters as compensation for an overvalued exchange rate.

Third: the RBZ availed funds to failed financial institutions under the Troubled Bank Fund.

Fourth: the RBZ subsidised commercial bank lending to farmers, manufacturers, and public enterprises under the Productive Sector Facility (PSF) and the Agricultural Sector Productivity Enhancement Facility (ASPEF).

These schemes were highly inflationary, not least because the money that was created to fund them did not stimulate production. Instead, they were used to acquire foreign currency for goods for consumption, frequently luxury items for conspicuous consumption by the elite.

The nature of QFAs also demonstrated the strength of the manufacturing and exporting class. The strain of international financial sanctions meant that the state had to be more assertive in managing the distribution of international purchasing power. Consequently, in 2004, the RBZ introduced a foreign currency auction system. This was followed by tighter regulation on international transactions. Additionally, a retention scheme in terms of which exporters were obliged to surrender 25% of export proceeds to the Reserve Bank at a prescribed exchange rate was introduced. These measures were augmented by a scheme of multiple exchange rates. A higher than market exchange rate for diaspora remittances was maintained.

Accordingly, members of the public could only buy foreign currency from the highly controlled foreign currency ‘auction’ system. Meanwhile, exporters were paid the higher of the auction-rate or diaspora rate while importers had currency sold to them at the auction rate.

By directly intervening in the foreign exchange market, the RBZ balanced the interests of exporters and the state. The former could benefit by retaining 75% of their proceeds offshore. In addition, they received a higher rate for the 25% mandatory surrender. Thus, locally denominated transactions were effectively subsidised by the central bank through the higher exchange rate.

The public sector, on the other hand, purchased foreign currency at the below-market exchange rate. Any realised exchange losses from these transactions were funded by printing currency. To curb the subsequent money growth, the RBZ issued bills with interest rates of more than 900% per annum.

Because of this, the central bank incurred massive inflationary domestic debt related to sterilisation operations. By 2005, the interest expense of sterilisation operations had reached 40% of GDP. What this shows is that the RBZ engaged in inflationary activities to balance the interests of exporters, manufacturers, and the state. Under sanctions, international purchasing power had to be carefully managed, notwithstanding the consequent inflation.

In 2015, Parliament passed a bill to assume the RBZ debt of US$1.4 billion, most of which related to the QFAs. A significant portion of this foreign currency-denominated debt is owed to financial institutions, banks, and companies in the mining and agricultural sectors. It is therefore apparent that Zimbabwe’s hyperinflation and currency collapse was not a progenitor of mismanagement or fiscal indiscipline. Rather, the country’s central bank successfully managed the distribution of international purchasing power among the state, manufacturers, and primary producers. Put differently, externally oriented capital accumulation under sanctions-induced financial asphyxiation fuelled hyperinflation.

Without inflationary foreign currency subsidies, capital accumulation in mining, agriculture, and manufacturing would have grounded to a halt. It is well established in the literature that inflation is beneficial to manufacturers, producers, and exporters because wages, taxes, and mortgage debts never keep up with inflation.

In Zimbabwe, the negative outcomes of hyperinflation were borne by ordinary citizens who were forced to ‘kiya-kiya’ or eke out a living. During the period 2000–2008, there were job losses, basic commodities became unaffordable, hunger and poverty increased, health and educational outcomes worsened, and school enrolment declined. All this in a bid to protect manufacturers and exporters of primary products.

Although some social protection schemes were launched by the central bank, their success was ambivalent. In March 2007, Zimbabwean prices had reached hyperinflation, and by mid-November 2008 inflation was calculated at 79.6 billion per cent (79,600,000,000 ⸺ a position second to Hungary immediately after the Second World War in world record terms.

At this stage, the country’s currency effectively collapsed. Many Zimbabweans refused to accept the Zimbabwean dollar as legal tender. For this reason, in 2009, Zimbabwe phased out its currency in favour of a basket of currencies led by the US dollar.

If Zimbabwe was productively sovereign, then increasing money supply might have resulted in different outcomes. Instead, money supply was channelled towards accessing foreign currency rather than promoting production. As I have argued earlier, Zimbabwe’s economy revolves around the production and extraction of internationally tradeable commodities from manufacturing, mining, and agriculture.

Most significantly, Zimbabwe’s manufacturing industry mainly exists in service of mining and agriculture instead of providing basic consumer goods. A situation therefore persists whereby consumption needs are imported, and local production is almost entirely geared towards the export market. Under such circumstances it is hard to be sovereign.

Conclusion and Recommendations

This article has argued that Zimbabwe’s monetary system is and has been related to its processes of externally oriented capital accumulation. During the imperial period, Zimbabwe’s monetary system served to facilitate the extraction of gold from the colony. To this end, foreign finance flowed through the stock exchange system to facilitate mining infrastructural development. When the so-called Responsible Government took over in 1923, monetary relations shifted towards facilitating the ‘draining-off of surplus’ from speculative agricultural and mining ventures.

During the Second World War and the Post-War period, Rhodesia became industrialised and manufacturing capitalism became dominant. Consequently, the monetary system shifted towards facilitating trade and increasing local demand. Since Zimbabwe’s independence, the function of money has strengthened its focus on promoting exports, in concert with the Washington Consensus. In the early 1990s, Zimbabwe deregulated finance and promoted the establishment of new financial institutions and instruments. These policies were supported by international and manufacturing capital. By the early 2000s, most of the established financial institutions had failed,

leading to a financial crisis.

To compound matters, Zimbabwe was officially cut off from accessing balance of payments support by US government sanctions. This called for a much more assertive management of international purchasing power by the Reserve Bank. To overcome the crisis, Zimbabwean authorities, in conjunction with miners, manufacturers, and tobacco exporters, turned to finance. However, in the absence of local productive capacity the result was hyperinflation and eventual currency collapse. Too much money chased too few goods.

The Zimbabwe dollar was reintroduced in 2019. Regardless of this, earning foreign currency remains a major economic policy objective. It is fair to conclude that the enduring importance of primary commodities in Zimbabwe’s political economy means that prospects of economic sovereignty are distant.

This is not to argue that there are no options.

To overcome its socio-economic problems, Zimbabwe must embark on a radical industrialisation programme. This would entail altering the existing externally oriented productive structure. Such a programme would strive for worker participation in the organisation of production. One can’t help but imagine that if Zimbabwe’s QFAs had focused on the reproduction of labour and not capital, the outcomes could have been quite different.

This was first published as an academic piece for the collection Economic and Monetary Sovereignty in 21st Century Africa edited by Ben Gadha and others and published by Pluto Press in 2021. Some of the language has been simplified and explanatory notes added to assist the general reader with the permission of the author.

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