Zimbabwe’s 2008 hyperinflation is said to be the second highest in recorded history, and provides an interesting case study of policy failure. We explore possible motivating factors behind the hyperinflation to understand why it happened and persisted for so long, and who benefited from it. The paper examines the exchange rate–inflation spiral and explains how a large parallel foreign exchange market generated high profits for some, especially state-owned enterprises and those with insider connections who could arbitrage the dual exchange rate system. The paper explores the determination of the exchange rate, and tests the purchasing power parity hypothesis. It finds that PPP held for the official exchange rate but not the parallel exchange rate, providing evidence of structural change in the economy. It examines the causality among money, prices and the exchange rate using a vector error correction model to better understand the impact of monetary policy. In examining the hyperinflation, this paper uses the “Impossible Trinity Hypothesis” to explore the possibility that Zimbabwe’s policy-makers may have been trying set both the exchange rate and monetary policy. The paper also examines the “dollarization” exit strategy and post-2008 economic policies. It argues that the choice of using the US dollar as the main currency of the dollarized Zimbabwe was not optimal based on optimal currency area theory. Additionally, subsequent policies to influence domestic liquidity and control investment have created new and serious problems for the country’s economy. This case study of Zimbabwe’s hyperinflation and subsequent dollarization provides lessons for other developing economies about conducting monetary policy and the impact of full dollarization.

Zimbabwe experienced a crippling hyperinflationary economic environment, which created a nation of poverty-stricken billionaires over the past decade until it adopted the multicurrency system (MCS) in January 2009. The paper explores on the impact of the change in monetary regime on socioeconomic conditions of urban dwellers, given their overreliance on the market economy and vulnerability to its fluctuations. Questionnaires, semi-structured interviews, and participatory observations were used targeting household heads, school heads, and sister in charge of the local clinic. The research found that although the multicurrency system has generally improved the quality of life for the majority of people, they still remain in poverty if one considers the quality of life indicators, like the national poverty datum line. There was great change in nature and patterns of sources of income, particularly for informal traders, a sector which had become the backbone of almost all households' income in pre-MCS era. MCS brought with it the inherent problem of inadequacy and, in some cases, unavailability of smaller denominations. The government must adopt a single currency to avoid exchange rate problems, as well as reduce shortages of smaller denominations.

The paper examines the lending behaviour of eleven Zimbabwe’s commercial banks for the period 2009-2015(post dollarization) to estimate a balanced random effect model. The main objective of the paper is to determine the determinants of commercial bank lending in post dollarization era. Lending has been highly skewed to the individuals which is mostly consumptive loans instead of manufacturing, mining, services and other sectors. Confidence in the banking sector was indicated by growing deposits, however the banks were sceptical in advancing loans especially the medium and long term nevertheless this was on the background of growing deposits (demand deposits and time deposits). The research found that, capital worthy, cash reserve required, non-performing loans and total deposits were statistically significant in explaining variations in the loan supply. However, GDP, inflation and return on assets were insignificant. Total deposits had a greater impact on volume of loans extended by commercial banks. Hence the research advises authorities that macroeconomic fundamentals need to accommodate strategies that encourage medium to long term deposits, so as to boost loans in all economic sectors.

The main purpose of this study was to investigate the determinants of BOP dynamics in Zimbabwe between 1981 and 2012, using time series data. Ordinary Least squares method was employed in this study to establish the impact of identified explanatory variables. The results indicate that BOP is determined by FDI, Inflation, Drought, money supply and external debt suggesting that oscillations in BOP of Zimbabwe could be a result of the levels of these variables. The study concluded that transparency and accountability, investment in irrigation schemes, use of fiscal policy, monetary policy and structural adjustments to promote foreign investment flows and financial repression are the panacea to the negative fluctuation in the BOP of Zimbabwe.