Hyperinflation in Zimbabwe Report - WordPress.com · Germany October 1923 29,500% 20.9% 3.7 days...
Transcript of Hyperinflation in Zimbabwe Report - WordPress.com · Germany October 1923 29,500% 20.9% 3.7 days...
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Adeel T. Umer
28 May 2010
Hyperinflation in Zimbabwe
Inflation is defined as a general rise in prices of goods and services produced within the
boundary of the country over a fixed time period. The rise in prices leads to a fall in the purchasing
power of money i.e. the same amount for money can now be used to buy a lesser amount of goods
and services. Similarly, hyperinflation is defined as a situation in which the price level rises very fast,
causing severe damage to a country's economy and particularly to its currency. In other words,
hyperinflation is when the rate of inflation is so high that it has to be calculated monthly, weekly or
even daily, because the prices rise at a huge pace. Hyperinflation usually precedes a long drawn out
inflation period, paired with an increase in the supply of money in the economy. This report will
discuss hyperinflation in Zimbabwe, mainly the reasons and causes of hyperinflation and the ways to
combat it.
Hyperinflation was never recorded before the use of paper currency as money, instead
metals such as gold were used which never lost their value. The first recorded instance of
hyperinflation was during the French revolution, when the rise in monthly price level was estimated
to be greater than double. The 20th century has shown the world nearly 30 examples of
hyperinflation destroying the economy, a scenario commonly witnessed after the two World Wars.
The deadliest monthly inflation rate was witnessed by Hungary, when halfway through the year
1946; prices took a little more than half a day to double (see Table 1). Other countries namely
Yugoslavia, Germany, Greece and China respectively join Hungary in the list of top five countries in
terms of the highest monthly inflation rates in the 20th century (see Table 1). Similarly, the 21st century
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has been unfortunate enough to witness its first hyperinflation recorded in Zimbabwe, during the 21
month period starting from March 2007 till November 2008, leading to an extinction of the
Zimbabwean Dollar.
Table 1
Highest Monthly Inflation Rates in History
Country Month with highest
inflation rate
Highest monthly
inflation rate
Equivalent
daily inflation
rate
Time required
for prices to
double
Hungary July 1946 1.30 x 1016% 195% 15.6 hours
Zimbabwe Mid-November 2008
(latest measurable) 79,600,000,000% 98.0% 24.7 hours
Yugoslavia January 1994 313,000,000% 64.6% 1.4 days
Germany October 1923 29,500% 20.9% 3.7 days
Greece November 1944 11,300% 17.1% 4.5 days
China May 1949 4,210% 13.4% 5.6 days
Source: Prof. Steve H. Hanke, February 5, 2009.
The commonly blamed reason for hyperinflation in Zimbabwe is the instability of the
government, since the poorly held Presidential elections. The Zimbabwean government however,
points the blame on the corruption in the business environment and illegal sanctions imposed by
Britain and other countries Other reasons for hyperinflation in Zimbabwe include poor performance
over the last decade by all economic sectors, worsening poverty levels and high unemployment.
Shortages of food and other necessities due to decreased output from farming and manufacturing
have also sparked up the inflation level, as the economy has been forced to rely on imports to feed
the country.
The first sign of hyperinflation in Zimbabwe began in March 2007 when the monthly
inflation rate soured to more than 50% (see Table 2). The inflation rate then began a roller coaster
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ride by doubling up the next month before falling back to 50% and rising up again. It was in the
summer of 2007 when the economy seemed to have some control over inflation which declined to
as low as 11% before rising up again (see Table 2).
Table 2
Zimbabwe’s Hyperinflation
Date Month over Month
Inflation Rate (%) Year-over-Year Inflation Rate (%)
March 2007 50.54 2,200.20
April 2007 100.70 3,713.90
May 2007 55.40 4,530.00
June 2007 86.20 7,251.10
July 2007 31.60 7,634.80
August 2007 11.80 6,592.80
September 2007 38.70 7,982.10
October 2007 135.62 14,840.65
November 2007 131.42 26,470.78
December 2007 240.06 66,212.30
January 2008 120.83 100,580.16
February 2008 125.86 164,900.29
March 2008 281.29 417,823.13
April 2008 212.54 650,599.00
May 2008 433.40 2,233,713.43
June 2008 839.30 11,268,758.90
July 2008 2,600.24 231,150,888.87
August 2008 3,190.00 9,690,000,000.00
September 2008 12,400.00 471,000,000,000.00
October 2008 690,000,000.00 3,840,000,000,000,000,000.00
14 November 2008 79,600,000,000.00 89,700,000,000,000,000,000,000.00
Sources: Reserve Bank of Zimbabwe (2008) and Steve H. Hanke’s calculations.
The following data is from Table 2 above. The real troubles began in the last quarter of the same
year as the inflation rate rose sharply to nearly three times as much and it stayed there till almost the
end of the year. The worst part however, was after 5 months in 2008 when the inflation rate rose
steeply to more than 400%, and then doubled up the next month. In July of the same year, the
inflation broke the 1,000% mark to reach 2,600% and in August it crossed the 10,000% mark after
reaching 12,400% per month. It then further zoomed of out of control October ’08 b
than 600 million percent per month, before it touched an all time high of 79 billion percent by mid
November’08.
The following data is from Table 2 and Graph 1 above.
was already well out of control si
Inflation Rate in Saudi Arabia during the year 2007 stood at 4.1% and in 2008 at 9.9%, with the
latter also being regarded as a high
inflation rate in Zimbabwe climbed in direct proportion to the monthly inflation rate.
rate over passed the 10,000% mark in Oct’07 and at the start of the new year it had already sped
over 100,000%. It took, however, 5 months for the rate to cross the 200,000% mark, but only 2
2,200
3,714
4,530
7,251
7,635
6,593
7,982
14,841
26,471
66,212
100,580
164,900
417,823
650,599
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than 400%, and then doubled up the next month. In July of the same year, the
inflation broke the 1,000% mark to reach 2,600% and in August it crossed the 10,000% mark after
reaching 12,400% per month. It then further zoomed of out of control October ’08 b
than 600 million percent per month, before it touched an all time high of 79 billion percent by mid
The following data is from Table 2 and Graph 1 above. The annual inflation rate for Zimbabwe
out of control since March 2007 at 2200%. To allow comparison, the Annual
Inflation Rate in Saudi Arabia during the year 2007 stood at 4.1% and in 2008 at 9.9%, with the
high inflation level. The further the months progressed, the higher the
climbed in direct proportion to the monthly inflation rate.
rate over passed the 10,000% mark in Oct’07 and at the start of the new year it had already sped
over 100,000%. It took, however, 5 months for the rate to cross the 200,000% mark, but only 2
100,580
164,900
417,823
650,599
2,233,713
11,268,759
231,150,889
9.69 billion
471 billion
3.84 quintillion
Graph 1 (21 months starting from Mar '07 to Nov'08)
Year Over Year Inflation Rate (%)
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than 400%, and then doubled up the next month. In July of the same year, the
inflation broke the 1,000% mark to reach 2,600% and in August it crossed the 10,000% mark after
reaching 12,400% per month. It then further zoomed of out of control October ’08 by going more
than 600 million percent per month, before it touched an all time high of 79 billion percent by mid
The annual inflation rate for Zimbabwe
To allow comparison, the Annual
Inflation Rate in Saudi Arabia during the year 2007 stood at 4.1% and in 2008 at 9.9%, with the
The further the months progressed, the higher the
climbed in direct proportion to the monthly inflation rate. The inflation
rate over passed the 10,000% mark in Oct’07 and at the start of the new year it had already sped
over 100,000%. It took, however, 5 months for the rate to cross the 200,000% mark, but only 2
3.84 quintillion
8.97 sextillion
(21 months starting from Mar '07 to Nov'08)
Year Over Year Inflation Rate (%)
months after that to rise 10 times as much.
was since August’08 that the percentage rise in
price level had to be quoted in billions and in
October’08 it was calculated to be more than
3quintillion. The last reported percentage
available is of mid November’08 when the
inflation rate stood at 89.7sextillion, and it was
during that time that the Zimbabwean dollar
had completely vanished as it was no longer worth more tha
As already mentioned the worst consequence of hyperinflation was the total fall in the value
of Zimbabwean Dollar (Z$), so much so that the people were forced to
buy two loafs of bread or three newspapers. As a result, the government revalued the Zimbabwean
currency in August 2008 by removing 10 zeros, so that Z$10billion became Z$1. This
economists had predicted, backfired to
create further hyperinflation and forcing
the government to issue high value notes.
The highest value note in circulation was
the 100trillion dollar note (as shown in the
image on right).
Other devastating consequences of
hyperinflation included the magnified rise
in the poverty levels and severe food crises
due to very high prices of food necessities.
High inflation was also indirectly responsible for a massive cholera outbreak as medication was hard
months after that to rise 10 times as much. It
since August’08 that the percentage rise in
level had to be quoted in billions and in
October’08 it was calculated to be more than
3quintillion. The last reported percentage
available is of mid November’08 when the
lion, and it was
during that time that the Zimbabwean dollar
had completely vanished as it was no longer worth more than toilet tissue in value.
As already mentioned the worst consequence of hyperinflation was the total fall in the value
lar (Z$), so much so that the people were forced to use a Z$50billion note to
buy two loafs of bread or three newspapers. As a result, the government revalued the Zimbabwean
currency in August 2008 by removing 10 zeros, so that Z$10billion became Z$1. This
economists had predicted, backfired to
create further hyperinflation and forcing
the government to issue high value notes.
The highest value note in circulation was
the 100trillion dollar note (as shown in the
ing consequences of
hyperinflation included the magnified rise
and severe food crises
due to very high prices of food necessities.
High inflation was also indirectly responsible for a massive cholera outbreak as medication was hard
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As already mentioned the worst consequence of hyperinflation was the total fall in the value
use a Z$50billion note to
buy two loafs of bread or three newspapers. As a result, the government revalued the Zimbabwean
currency in August 2008 by removing 10 zeros, so that Z$10billion became Z$1. This strategy, as
High inflation was also indirectly responsible for a massive cholera outbreak as medication was hard
to find and too expensive to be affordable. The constant rise in prices meant that the salaries were
never enough to live with and the people were also forced into an income crisis, on top of
everything else.
As a final result, the Zimbabwean Dollar was tota
license the use of foreign currency because everyone from the street venders to branded shops now
refused to accept Zimbabwean Dollar in exchange for their merchandise.
legally used in Zimbabwe are US dollars and South African Rand.
The picture on the left shows a restaurant bill being paid in Zimbabwe Dollars and the
picture on the right shows the value of 100billion Zimbabwe Dollars
As they say, “If you want to be a billionaire, just spend a week in Zimbabwe.”
find and too expensive to be affordable. The constant rise in prices meant that the salaries were
never enough to live with and the people were also forced into an income crisis, on top of
As a final result, the Zimbabwean Dollar was totally extinct and the government was forced
license the use of foreign currency because everyone from the street venders to branded shops now
refused to accept Zimbabwean Dollar in exchange for their merchandise. The currencies now being
abwe are US dollars and South African Rand.
The picture on the left shows a restaurant bill being paid in Zimbabwe Dollars and the
picture on the right shows the value of 100billion Zimbabwe Dollars being equal to three eggs.
to be a billionaire, just spend a week in Zimbabwe.”
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find and too expensive to be affordable. The constant rise in prices meant that the salaries were
never enough to live with and the people were also forced into an income crisis, on top of
lly extinct and the government was forced
license the use of foreign currency because everyone from the street venders to branded shops now
The currencies now being
The picture on the left shows a restaurant bill being paid in Zimbabwe Dollars and the
equal to three eggs.