Friday, March 27, 2009

zimbabwean hyperinflation a thing of the past.

After two-plus years of hyperinflation, of trillion dollar notes needed to buy a loaf of bread, of prices eventually going up 50% per day, it is all over.

Why? What happened?

The Zimbabwean government adopted the U.S. dollar as its official currency. Since the government can't print up a bunch of greenbacks to pay their bills, this policy change had instant credibility and instant results.

This policy, called dollarization, is actually an often-used, effective way of stopping hyperinflation in its tracks. A recent example is Ecuador (2000), and in the 1980's Bolivia did it as did Argentina. (Actually, Argentina came out with a new currency, the Real, which was redeemable for a US$.)

While the Zimbabwean government's solution to hyperinflation is typical, its early reactions were also quite typical:
a) Blaming inflation on greed and profiteering of businesses.
b) Imposing price controls to stop inflation, with the resultant bare shelves in stores.
c) Restricting the public's access to currency from banks.
d) Claiming hyperinflation was the result of economic sabotage by foreign governments (the U.K. and the U.S.).

The only atypical aspects of the Zimbabwean experience was how long the hyperinflation lasted and how long the government stayed in power despite the hyperinflation.

This is my ninth, and hopefully last, post on Zimbabwean hyperinflation**. Zimbabwe has enough real economic challenges without out having to deal with damage caused by the completely unnecessary and quite avoidable phenomenon of hyperinflation.

Be blessed!
RB

**NOTE: My previous posts on hyperinflation in Zimbabwe:
where is the world’s best performing stock market?
what can $25 billion buy (as of tuesday)?
zimbabwe: an underground diary
carpe diem: miscellany
more toilet economics: cost-effectiveness in zimbabwe
wanna be a trillionaire?
betting on mugabe
zimbabwe: bye-bye to trillion dollar notes...for now

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