The Use of Surrogate Currency to Address Liquidity Crisis: The Zimbabwean Experience

Varaidzo Denhere () and David Mhlanga ()
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Varaidzo Denhere: University of Johannesburg, South Africa
David Mhlanga: University of Johannesburg, South Africa

Eurasian Journal of Economics and Finance, 2021, vol. 9, issue 3, 159-169

Abstract: Zimbabwe has experienced an economic meltdown dating back to 2000, which created perennial economic woes such as a liquidity crisis that continued haunting the country to date. Various possible solutions were explored but did not yield the desired results. Amongst the explored solutions was an introduction of surrogate currency specifically to curb the liquidity crisis. This paper sought to explore the effects of using "surrogate currency" to address the liquidity crisis in Zimbabwe by employing a desk review. Currently, there is a dearth of literature on using surrogate currency in African countries. Hence this study contributes to the existing literature on the use of such currency. The review established that the surrogate currency led to the emergence of bad money as propounded by Gresham’s law of currency systems. Moreover, the surrogate currency rapidly lost its value, whereas the introduction of the surrogate currency failed to address the liquidity crisis, leading to other socio-economic challenges. Finally, financial reporting under the surrogate currency became a challenge as well. This study recommends the withdrawal of the surrogate currency and the use of multicurrency along with the promotion of products for export to attract more foreign currency into the economy.

Keywords: Zimbabwe Currency Crisis; Black Market; Liquidity Crisis; Surrogate Currency (search for similar items in EconPapers)
Date: 2021
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