HYPER INFLATION IN ZIMBABWE
Inflation is dangerous to society. Well, now, assess the repercussions of hyperinflation. As we know, the central bank of any country is free to issue/print currency without any limit. Then why do they not attempt to print unlimited currency notes and make their country prosperous? What is tying up their hands? One word answer, Inflation. Why is inflation a pest to the economy? Why is every country trying to run away from inflation? Here is the analysis of the hyperinflation affected country, Zimbabwe. Having a deep understanding of this country would help us clear out all the doubts we have in our minds about inflation.
Let us know how bad is the inflation in Zimbabwe. The toilet paper costs $145,750 (Zimbabwe dollars) which equals to 69 cents in American currency. Today $35 quadrillion dollars of Zimbabwe equal to $1 of USA. In 2008, the inflation rate hit 3.5 million% points leading to chaos and instability in the economy.
Let us now dig back into the history of this country. Zimbabwe is an African country that gained its independence from the British on 18th April 1980. After independence, the currency changed from the Rhodesian dollar to the Zimbabwe dollar at the par value. During the initial years, the country experienced a steady upward growth which continued till the mid-1990s. However, there was a plunge in the growth of the economy due to the under administration of the state.
Throughout the colonial history of Zimbabwe, and through the '80s and '90s, Zimbabwe has experienced a large scale agricultural exports and relative economic success. During this period, most of the country's most productive farmland remained in the hands of British people. Soon after the independence, and through the 1990s, President Robert Mugabe government worked to shift the ownership of this land to the natives and benefit them. During the reform period, most of the farmlands were acquired by the local people and the government officials who merely had any idea about agriculture and related activities. As a result, production from the farms declined rapidly.
The annual wheat production which was 300,000 tonnes in 1990 plummeted to 50,000 in 2007. The tobacco industry, which was Zimbabwe’s single largest generator of foreign exchange accounted for almost a third of Zimbabwe’s forex earnings in 2000, had completely collapsed. Thus the agricultural industry collapsed beyond recovery. Within no time, the country had become an importer leaving behind its past glory of exporting the goods. Zimbabwe now does not have any food for itself left over. The banking sector had collapsed making it difficult for farmers to obtain loans for the capital institution. The country was not able to repay huge loans and its debt accumulated day by day. This resulted in the halt of external and internal debt as none wilfully came forward to lend them. At the peak of the crisis, the government mostly relied on aid from international organizations.
Also, in the late 1990s, Mugabe authorized Zimbabwean troops to fight in the Second Congo War. In September 1998, even as the economic conditions continued to decline, the President sent 11,000 troops to the Democratic Republic of the Congo (DRC) to back the discredited leader, Laurent Kabila. Its involvement in the war drained so much of its monetary reserves in the wake of the 21st century. The Mugabe government was printing more money to help finance the war thus starting to under-report its war spending to the International Monetary Fund by perhaps $22 million a month.
The money flow in the market became easy invoking the demand and thereby for the prices to rise. The money supply has increased so much that the value of money in terms of foreign currency started to devalue. The devaluation was the worst scenario for the already import-dependent country. Imports' costs started to rise rapidly. The country could not face the disastrous devaluation due to the issuance of more and more currency into the market. Thus, people reached the highest point of starvation and the country turned itself into a graveyard. People started carrying money in dump bags to buy a loaf of bread. The government continued to print currency until 2009 and realized that the demonetization of currency is the only way to solve the deadlock and introduced a multi-currency system that included dollar, yen, rupee and any other currency. After the inflation, the country has fallen into the deflation track with no sufficient money flow as more Zimbabwe dollars were exchanged for not as much of other foreign currencies and traded internally likewise. This exhausted the money supply in the market leaving people drained. This ought to be the Dark Age in the country’s history, which all happened with the negligence of the government. Let us hope to see the lights in the people’s lives with the recovery of the economy.
Such are the worst consequences a country could face due to the continuous rise in inflation. So are the countries worried about the surge in the inflation within? Check out my next blog post for more information regarding inflation.
Let us know how bad is the inflation in Zimbabwe. The toilet paper costs $145,750 (Zimbabwe dollars) which equals to 69 cents in American currency. Today $35 quadrillion dollars of Zimbabwe equal to $1 of USA. In 2008, the inflation rate hit 3.5 million% points leading to chaos and instability in the economy.
Let us now dig back into the history of this country. Zimbabwe is an African country that gained its independence from the British on 18th April 1980. After independence, the currency changed from the Rhodesian dollar to the Zimbabwe dollar at the par value. During the initial years, the country experienced a steady upward growth which continued till the mid-1990s. However, there was a plunge in the growth of the economy due to the under administration of the state.
Throughout the colonial history of Zimbabwe, and through the '80s and '90s, Zimbabwe has experienced a large scale agricultural exports and relative economic success. During this period, most of the country's most productive farmland remained in the hands of British people. Soon after the independence, and through the 1990s, President Robert Mugabe government worked to shift the ownership of this land to the natives and benefit them. During the reform period, most of the farmlands were acquired by the local people and the government officials who merely had any idea about agriculture and related activities. As a result, production from the farms declined rapidly.
The annual wheat production which was 300,000 tonnes in 1990 plummeted to 50,000 in 2007. The tobacco industry, which was Zimbabwe’s single largest generator of foreign exchange accounted for almost a third of Zimbabwe’s forex earnings in 2000, had completely collapsed. Thus the agricultural industry collapsed beyond recovery. Within no time, the country had become an importer leaving behind its past glory of exporting the goods. Zimbabwe now does not have any food for itself left over. The banking sector had collapsed making it difficult for farmers to obtain loans for the capital institution. The country was not able to repay huge loans and its debt accumulated day by day. This resulted in the halt of external and internal debt as none wilfully came forward to lend them. At the peak of the crisis, the government mostly relied on aid from international organizations.
Also, in the late 1990s, Mugabe authorized Zimbabwean troops to fight in the Second Congo War. In September 1998, even as the economic conditions continued to decline, the President sent 11,000 troops to the Democratic Republic of the Congo (DRC) to back the discredited leader, Laurent Kabila. Its involvement in the war drained so much of its monetary reserves in the wake of the 21st century. The Mugabe government was printing more money to help finance the war thus starting to under-report its war spending to the International Monetary Fund by perhaps $22 million a month.
The money flow in the market became easy invoking the demand and thereby for the prices to rise. The money supply has increased so much that the value of money in terms of foreign currency started to devalue. The devaluation was the worst scenario for the already import-dependent country. Imports' costs started to rise rapidly. The country could not face the disastrous devaluation due to the issuance of more and more currency into the market. Thus, people reached the highest point of starvation and the country turned itself into a graveyard. People started carrying money in dump bags to buy a loaf of bread. The government continued to print currency until 2009 and realized that the demonetization of currency is the only way to solve the deadlock and introduced a multi-currency system that included dollar, yen, rupee and any other currency. After the inflation, the country has fallen into the deflation track with no sufficient money flow as more Zimbabwe dollars were exchanged for not as much of other foreign currencies and traded internally likewise. This exhausted the money supply in the market leaving people drained. This ought to be the Dark Age in the country’s history, which all happened with the negligence of the government. Let us hope to see the lights in the people’s lives with the recovery of the economy.
Such are the worst consequences a country could face due to the continuous rise in inflation. So are the countries worried about the surge in the inflation within? Check out my next blog post for more information regarding inflation.
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