Change comes to Zimbabwe - report

With their eyes on a potential shift in monetary policy halfway around the world, Zimbabweans are reuniting with something they abandoned long ago: coins issued by the state, Patrick McGroarty of wsj.com writes.

President Robert Mugabe's government decommissioned Zimbabwe's own dollars six years ago, as the country faced a broken local economy and runaway inflation. Since then, consumers have had to use U.S. dollars for larger purchases and rand coins from neighboring South Africa for smaller ones.

Now, a combination of forces is stretching this workaround to a breaking point. Expectations that U.S. interest rates will soon rise, for the first time in years, and economic turmoil in South Africa have widened the gap between the value of the dollar and the rand, which has shed more than 12% of its value against the dollar this year.

In response, Zimbabwe's government has started minting a small amount of gold- and silver-colored coins. The Reserve Bank of Zimbabwe released $10 million of newly minted coins in December, in denominations equivalent to U.S. pennies, nickels, dimes and quarters.

Many people who lost their life savings in the 2009 currency collapse were initially afraid to use them, but the coins have begun to catch on.

"I still don't trust those people at the reserve bank or anyone in this government," said Enniah Muzvande, a hairdresser in Harare, Zimbabwe's capital, who like many Zimbabweans lost most of her savings when the Zimbabwean dollar collapsed. "But at least the coins are working."

Merchants are shunning the one- and two-rand coins that used to stand in for dimes and quarters, because their value is slipping so rapidly. Zimbabweans have grown to favor the dollar-backed "bond coins," which were minted in South Africa and backed by a $50 million bond, over the increasingly cheap South African change.

Street vendor Bothwell Runzero used to charge his customers more in bond coins than rand for a loose cigarette. "Just to protect myself," said Mr. Runzero, who was laid off from his job as an insurance salesman last year and now makes a living selling cigarettes and snacks on a Harare street corner.

Lately, his hedge has reversed: He charges a bond-coin dime, equal to 10 U.S. cents, for a smoke. He charges two rand, which is worth about 16 U.S. cents today but possibly less tomorrow, Mr. Runzero and his peers reckon.

"The coins have been accepted because people needed to make change," said John Robertson, an economist in Harare.

Once one of Africa's most industrialized economies, Zimbabwe's economic collapse has left two-thirds of the country's 15 million people struggling to make ends meet. The World Bank sees Zimbabwe's economy growing just 1% this year, the weakest expansion since the country's 2008 currency crisis. Deflation advanced to 2.8% annually in June. Unemployment has exploded.

Though the U.S. dollar has become the country's de facto currency, some of the most common transactions in Zimbabwe cost less than a dollar. As a result, people have grown used to using rand coins as change - or making other workarounds, with stores giving out sweets and gum as change, for instance.

Some observers think the reintroduction of locally minted coins is a step toward a full-blown effort to launch a new domestic currency, a move they say would be ill-advised.

"I have a sneaking suspicion it was a way to do a toe-test of people's feeling about introducing a new currency," said Tapiwa Shamu, a Zimbabwe-born investment banker at Nedbank Group Ltd.in Johannesburg.

But Reserve Bank of Zimbabwe Gov. John Mangudya reiterated that the Zimbabwean dollar won't return soon. "That is not going to happen," he said. "Our economy is just not ready."

Mr. Mangudya said the bond coins are meant to stoke spending. To get more in circulation, he is encouraging people to trade in their old Zimbabwe dollar notes, receiving 40 U.S. cents worth of bond coins for each 100 trillion-dollar bill - the largest denomination note ever printed.

Zimbabweans are slowly coming around.

Kempton Gurajene, another street vendor, said his business importing household goods from South Africa has grown more complicated due to the rand's collapse against the dollar. "I pay more if I buy my stock in rands than when I use dollars, so accepting rands from customers is becoming costly," Mr. Gurajene said.

Write to Patrick McGroarty at patrick.mcgroarty@wsj.com