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Zimbabwe Central Bank Overhaul Seen as Answer to Hyper-inflation

Inflation in Zimbabwe is the highest in the world, with prices having risen over two million percent in the past 12 months. VOA's Barry Wood reports that financial specialists familiar with Zimbabwe say the hyper-inflation would halt if the Reserve Bank of Zimbabwe stopped printing money.

Former World Bank Vice-president Callisto Madavo blames Zimbabwe's central bank and political interference in monetary affairs for the country's financial disaster. Madavo, a Zimbabwean who teaches African development at Washington's Georgetown University, points to what he sees as two major blunders by the Zimbabwe central bank.

"The Reserve Bank of Zimbabwe, through a number of activities, has A, not only been printing money, but B, playing the role of a quasi-finance ministry," said Callisto Madavo. "Which is a recipe for disaster for any economy. This has to stop."

Frank Young, a retired US diplomat who recently returned from a visit to Zimbabwe, says people in the capital have developed their own system to cope with a desperate economy.

"From day to day, they think in terms of what a loaf of bread would be worth, what a liter of petrol would be worth, what a car battery would be worth," said Frank Young. "And they establish networks through which they can trade these items of value, really using barter as the medium of exchange."

Young says since prices change day-to-day and even hour-to-hour, consumers think only in terms of what an item is worth in US dollars or South African rand.

Madavo says for Zimbabwe's inflation to end, central bank chief Gideon Gono must be replaced. More importantly, he says the country needs a successful conclusion to the power-sharing negotiations now underway in Pretoria and Harare. When some public confidence has been restored, he says, policy-makers must then turn their attention to stabilizing the economy.

Former US central bank official Willene Johnson agrees with Madavo that when the Zimbabwe central bank stops printing money the hyper-inflation could end quickly. Zimbabwean policy-makers, she says, need to develop and implement a plan for economic stabilization.

"It's a plan for economic governance which involves not only finance but adherence to a set of rules," said Willene Johnson. "It involves a legal institution, a set of governing structures for the central bank, for the financial institutions."

The Washington-based US Institute of Peace Tuesday organized a conference on the Zimbabwe economy. Speakers, including Johnson, Madavo and Young, stressed the urgent need for reconciliation and an end to the country's ongoing political crisis. Zimbabwe's leader for 28 years, Robert Mugabe, was defeated in a presidential election in March, but is refusing to leave office.