Call me crazy, but if I was a farmer who had some corn, and had a neighbor who had some wheat, I think I’d just trade my corn for his wheat. Avoid the whole 10% (or whatever) tax on 12 billion zimbabwe dollars that would have to take place in between. That whole barter/trade thing, ya know?
The approximate speed of light in miles/second with a transposed digit?
(c ≅ 186,282 mi/sec).
Farming’s a bad example - Zimbabwe’s farms have been almost utterly gutted, and there are food shortages. However, Mugabe has been making noises about ordering factories to produce, and to sell at a government-mandated price.
This is what happens in reality (so told my Zimbo friend on a recent holiday to Cape Town) - because there is such a shortage of everything, when you see (say) sugar on sale, you buy all that you can afford, then stockpile it until you hear that your neighbour managed to find some (say) butter, then pop over and do some swapsies. Without the black market, the country truly would have collapsed…
Grim
The story I heard about pre-war German hyperinflation had someone taking home his wages as a basketful of high-value notes. He put it down to go into a crowded shop and when he came out again the money was still there, but someone had pinched the basket.
I heard a similar story, also about some German, but in this case it was a wheelbarrow full of money. (maybe mine happened a few months later)
There are also stories from Germany about people demanding to be paid in the middle of the day, so they could take their wheelbarrows of bills down to buy some groceries before the rest of the day’s inflation ate up their earnings.
That, and kids being given large bundles of high-denomination bills to use like toy blocks.
This will go w/o a cite, and it’s not even about Zimbabwe…
Some years ago, a cartoonist I admire (Jim Woodring) was corresponding with another cartoonist in Serbia (Sasha Racevich, spelling wrong because of alphabet). Mr. Woodring wrote that Sasha had sent him a 10 billion dinar note, and that at the time Sasha posted the letter (snail mail), it would take 800,000 of these notes to make $1US. Since then, the shooting war has stopped, and Serbia has introduced a new currency, at whatever replacement rate; 100 trillion:1 or whatever.
Currency replacement happens even without catastrophes; Turkey issued new currency a few years ago at 1 million:1, because all those zeroes were getting annoying. For the OP: the *value *of the money, doesn’t change, just the number. The US could, for instance, declare that a new dalter, being issued now, is worth 100 old dollars, and you can exchange old for new at that rate for whatever period of time. The old currency notes would still be worth only 1% of the new dalters, there would just be fewer dalters. Your saved up dollars will NOT go up in value, except maybe for collectors.
Zimbabweans are in such deep shit. I don’t think Mugabe will stop without being dead, and then it’s anyone’s guess what his thugs will do. The irony! South Africa throws off the curse of apartheid, and is now the destination of choice for those fleeing a nightmare slave society next door. Poor Zimbabwe.
So why are people still using the currency, and not generally resorting to barter? Why is Mugabe printing so much money—I have no training in economics whatsoever, yet everybody knows printing too much money is a bad idea.
Further, when hyperinflation sets in, what steps can be taken to stop it?
(The irony is that Mugabe’s currently in the EU for a UN convention on world hunger—Africa’s breadbasket now on the verge of collapse :rolleyes: )
Why do governments print off more money and what exactly does that mean? Do they literally just print out money and say “there, now we have twice as many notes as before.” Now they’re worth half the value, what have they achieved?
Here is a starting point as to why simply printing more money (today it’s really just a change in electronic figures, rather than actual printing of cash) is a bad idea. For a fascinating (to financial geeks like me) real-world example of the process working in the opposite fashion from Zimbabwe’s current situation, see the monetary footnote of Iraq’s so-called Swiss dinar, a subject discussed in a speech (pdf link) by Bank of England Governor Mervyn King.
They now have enough money to pay the army. Until next week, of course, but then they can just print some more.
But isn´t the main reason people stay with him, that they can exchange the money to Euros/Dollars/Whatevers at the **official **exchange rate - which really hasn´t changed that much?
So they actually stand to make quite a bit of money from this hyper-inflation.
As opposed to the real exchange rate which has hit rock bottom.
I doubt there’s many people out there that own currency that is actually worth something (dollar/euro/rupee/etc.) that will happily buy up zimbabwe money, knowing that it’s going to be worth half it’s current amount in 24 hours. :dubious:
I believe it´s the Goverment that sells it to them (and where they get the hard currency is fit for another question).
Same as in the former Eastern Bloc (when they were the EB) and everywhere else where the exchange rate is fixed. E.g China (iirc), North Korea and formerly Iraq.
He has to pay state employees–especially the army and police, without whose loyalty he would fall in an hour. Since the economy is in a state of collapse, he has no tax revenue with which to do so. Ergo, print the money–and print enough of it to outrun prices, so that the army and police will be happy. If next weeks groceries will cost two billion per soldier, print and distribute four billion per soldier.
Of course, once that money goes into circulation, groceries will cost even more, so next week you’ll have to print even more money. But as long as the government controls the printing presses, it can stay a step ahead of prices.
-
Stop printing money.
-
Exchange the old currency for a new currency to get rid of all the zeroes.
Step (1) usually requires that the existing regime be overthrown, or that it become secure enough in power that the economy stabilizes and taxes can be collected.
By the way, an inflation rate of 168,000% means that goods will cost 1,681 times as much after a year as they cost today. Such is the power of compounding that this equals only 2.06% inflation per day. This is very, very bad, but other times and places have seen worse.
So, how often does hyperinflation lead to a peaceful and successful re-currencying (“Trade in your dollars for eXtreme dollars, a billion to one exchange rate!”) and how often does it take a war or similar major conflict period to do it?
Brazil managed to stop Hyperinflation in the late 90’s without a war, and it’s a very healthy economy today. Im not a financial expert but mostly they made a devaluation of their own currency. Just shut down the markets for a day and told everyone the money in their pocket was less than it was. But they also had a big enough economy that the IMF and major investors were willing to help them with their plan to restabilize, Zimbabwe doesn’t have that kind of help.
At this point, the economy is already in total ruin, so a war or whatever wouldn’t actually help or hurt it much. Strictly speaking, the cash economy is already almost dead. Most states eventually get better without a war (Weimar Germany, Hungary) but it often takes a major power shift to get things done. Even if Mugabe were to fall, it’s not clear the new regime would be any better.
As others have said, they may be forced by gun point to keep accepting the money. People surprisingly still obey the law, even in those situations because they know a lot worse can happen for something as seemingly silly as not transacting business.
In “normal” cases (if hyperinflation can be considered normal), regime change and declaration of a new economy/currency/etc. is the least that is needed. Having backing from another third party like the IMF also helps. IMF will “certify” (for lack of a better word) that the troubled country has instituted transparent and normalized accounting and financial practices. The troubled country might also peg their currency to another currency (like the US$), which might be good in the short run, but definitely a contributing factor in the long run. High interest rates also help, but it also stifles the economy. Ultimately, foreign investment (how it gets there is another thing) is what will ultimately help a troubled country short of a war.