Zimbabwe's President says "surrogate currency" will prevent dollar outflow

June 9, 2016 4:44 PM

In the grip of its worst drought in a quarter century that has left 4 million people facing food shortages, the southern African nation is also running out of cash, forcing the central bank to impose limits on imports and withdrawals from banks.

Zimbabwe's President Robert Mugabe, file.

Zimbabwean President Robert Mugabe said on Thursday the introduction of local bank notes by the central bank later this year, which he called a "surrogate currency", would help prevent foreigners taking greenbacks out of the country.

He also said the shortage of U.S. dollars in the economy would be overcome soon, although he did not elaborate.

But Zimbabweans are worried that the central bank's plan to introduce banknotes, or "bond notes", in October to ease the dollar shortage could open the door to rampant money printing, as happened in 2008 when inflation hit 500 billion percent, wiping out people's savings and pensions.

Since January 2009 the country has used foreign currencies including the U.S. dollar, British pound and Chinese yuan after dumping its own currency that had come to symbolise a decade of economic collapse.

Mugabe said the introduction of bond notes would discourage criminals from coming to Zimbabwe to "fish" for dollars.

"They will have to deal with bond notes as a surrogate currency, surrogate to the U.S. dollar that we hold in our reserves," he told a meeting of his ruling ZANU-PF party.

The 92-year-old leader said the U.S. dollar had become too attractive for neighbouring countries who are increasing their exports to Zimbabwe following the collapse of their own currencies due to a fall in commodity prices and a strengthening of the greenback.

Mugabe, however, said only increasing Zimbabwe's exports would bring about a long-term solution to the country's economic problems.

He said the current shortage of dollars would not last long.

"Cash shortages are being felt across the board by our people, who cannot easily access their savings and earnings," Mugabe said. "This is a temporary problem whih should be behind us soon, sooner rather than later."