Hyperinflation

Hyperinflation starts when a country’s government begins printing money to pay for its spending. As it increases the money supply, prices rise as in regular inflation. However with hyperinflation, the government prints too much money. Some of you may have read about the current crisis in Venezuela concerning hyperinflation. Currently the exchange rate for 1 VES is .0012 USD. VES is the currency of Venezuela. It would take 833 bolivares to make one dollar. If you wanted change for a $20, you would receive almost 17,000 bolívares. Can you see how this can get crazy? If you bought a Cadillac using Venezuelan bolivares and the car cost a modest $46,000 USD, then you would have to have a staggering $39 million bolivares for the diamond in the back, sunroof top, digging on the scene machine. If you just want to lean back with a coffee and newspaper, give me $2000 bolivares. Unbelievable right? What if I told you there was a country that had “super“, hyperinflation?

In 2008 at the peak of it hyperinflation crisis, Zimbabwe’s inflation was estimated to be 79.6 billion percent. That’s “B” with a billion. Inflation was so bad there, they started printing “trillion” dollar notes. The official currency was called the Zimbabwean dollar. (ZD) ” How much for that TV there sir? Well sir this particular model is on sale for $32.5 million.” I have been warned about being so flip… “chile I told you bout that!!” That’s why I have trouble recognizing daylight sometimes… Zimbabwe gained their freedom from the former British colony of Southern Rhodesia in 1980.  When Zimbabwe gained its independence, the newly introduced Zimbabwean dollar was initially more valuable than the United States dollar at the official exchange rates. Yes, at first their money was more valuable than the green back!

Enter Robert Mugabe, who in 1980 was voted by over 80% of the country’s electorate to be come leader of Zimbabwe. The Mugabe story is fascinating and we will be doing a piece on him in the near future. Anyway, pursuing decolonization, Mugabe emphasized the redistribution of land controlled by white farmers to landless blacks, initially on a “willing seller–willing buyer” basis. Frustrated at the slow rate of redistribution, from 2000 he encouraged the violent seizure of white-owned land. Now you and I both know, that they wasn’t going to let them black folks take those white folks farm with out repercussions. It was said that after taking the those people farms, the black farmers did not have the necessary experience to run them. From 1999 to 2009, the country experienced a sharp drop in food production. Remember when we mentioned the repercussions? The banking sector collapsed with farmers unable to obtain loans for capital development, food output capacity fell 45%, manufacturing output 29%, unemployment rose to 80%.and life expectancy dropped. Ms. Auolyte’s cat was also missing, but that’s another story.

The Reserve Bank of Zimbabwe blamed the hyperinflation on economic sanctions imposed by the United States of America, the IMF and the European Union.These sanctions affected the government of Zimbabwe, asset freezes and visa denials targeted at 200 specific Zimbabweans closely tied to the Mugabe regime.There were also restrictions placed on trade with Zimbabwe, by both individual businesses and the US Treasury Department’s Office of Foreign Assets Control. I would use the “R” word here but… wait its dark now.. This is some straight up racist bull engineered by the IMF and the United States. Although I don’t condone Mugabe’s methods, you can’t have a few thousands whites controlling millions of blacks in their own country through money. Hell, the founder of Rhodesia, Cecil Rhodes was a racist without par, up until Hitler. By the way, those diamonds you may be purchasing from De Beers, that’s his company. Its run by his heirs till this very day… anywho…

Over the course of the five-year span of hyperinflation, the inflation rate fluctuated greatly. At one point, the US Ambassador to Zimbabwe predicted that it would reach 1.5 million percent. In June 2008 the annual rate of price growth was 11.2 million percent. The worst of the inflation occurred in 2008, leading to the abandonment of the currency. The peak month of hyperinflation occurred in mid-November 2008 with a rate estimated at 79,600,000,000% per month. This resulted in US$1 becoming equivalent to the unbelievable sum of Z$2,621,984,228. That’s right, over $2 billion ZD.

In December 2008, the Reserve Bank of Zimbabwe licensed around 1,000 shops to deal in foreign currency. Citizens had increasingly been using foreign currency in daily exchanges, as local shops stated fewer prices in Zimbabwe dollars because they needed foreign currency to import foreign goods.  After all who is going to accept 1.5 million ZD for a loaf of bread? There had been a restriction that the citizens could only use ZD currency, however that was lifted in January 2009, acting Finance Minister Patrick Chinamas. However, teachers and civil servants were still being paid in Zimbabwean dollars. Even though their salaries were in the trillions per month, this amounted to around US$1, or half the daily bus fare. The government also used a restriction on bank withdrawals to try to limit the amount of money that was in circulation. It limited cash withdrawals to $Z500,000 which was around US$0.25. To make a long story short, it didn’t work.

A solution effectively adopted by Zimbabwe was to adopt some foreign currency as official.  In 2009, the government abandoned printing Zimbabwean dollars at all. This implicitly solved the chronic problem of lack of confidence in the Zimbabwean dollar, and compelled people to use the foreign currency of their choice. Since then Zimbabwe has used a combination of foreign currencies, mostly US dollars. The July 2018 inflation rate in Zimbabwe is 4.3%. I love happy endings. I also learned a lesson. No good deed goes unpunished. On 15 November 2017, the Zimbabwe National Army placed Mugabe under house arrest as part of what it described as an action against “criminals” in Mugabe’s circle. After some political posturing Mugabe resigned. Mugabe and his wife negotiated a deal before his resignation, under which he and his kin are exempted from prosecution, his business interests will remain untouched, and he is set to receive a payment of at least $10 million. He was given full diplomatic status in late December 2017 and was entitled to a house, up to 23 staff members, and personal vehicles. Robert Mugabe is 94 and still resides in Zimbabwe.