Chapter 3 HEADLINES: The First Hyperinflation of the Twenty-First Century

By 2007 Zimbabwe was almost at an economic standstill, except for the printing presses churning out banknotes. A creeping inflation—58% in 1999, 132% in 2001, 385% in 2003, and 586% in 2005—was about to become hyperinflation, and the long-suffering people faced an accelerating descent into even greater chaos. Three years later, shortly after this news report, the local currency disappeared from use, replaced by U.S. dollars and South African rand.

… Zimbabwe is in the grip of one of the great hyperinflations in world history. The people of this once proud capital have been plunged into a Darwinian struggle to get by. Many have been reduced to peddlers and paupers, hawkers and black-market hustlers, eating just a meal or two a day, their hollowed cheeks a testament to their hunger.

Like countless Zimbabweans, Mrs. Moyo has calculated the price of goods by the number of days she had to spend in line at the bank to withdraw cash to buy them: a day for a bar of soap; another for a bag of salt; and four for a sack of cornmeal.

The withdrawal limit rose on Monday, but with inflation surpassing what independent economists say is an almost unimaginable 40 million percent, she said the value of the new amount would quickly be a pittance, too.

“It’s survival of the fittest,” said Mrs. Moyo, 29, a hair braider who sells the greens she grows in her yard for a dime a bunch. “If you’re not fit, you will starve.”

Economists here and abroad say Zimbabwe’s economic collapse is gaining velocity, radiating instability into the heart of southern Africa. As the bankrupt government prints ever more money, inflation has gone wild, rising from 1,000 percent in 2006 to 12,000 percent in 2007… . In fact, Zimbabwe’s hyperinflation is probably among the five worst of all time, said Jeffrey D. Sachs, a Columbia University economics professor, along with Germany in the 1920s, Greece and Hungary in the 1940s and Yugoslavia in 1993… .

Basic public services, already devastated by an exodus of professionals in recent years, are breaking down on an ever larger scale as tens of thousands of teachers, nurses, garbage collectors and janitors have simply stopped reporting to their jobs because their salaries, more worthless literally by the hour, no longer cover the cost of taking the bus to work… .

The bodies of paupers in advanced states of decay were stacking up in the mortuary at Beitbridge District Hospital because not even government authorities were seeing to their burial… . Harare Central Hospital slashed admissions by almost half because so much of its cleaning staff could no longer afford to get to work.

Most of the capital, though lovely beneath its springtime canopy of lavender jacaranda blooms, was without water because the authorities had stopped paying the bills to transport the treatment chemicals. Garbage is piling up uncollected. Sixteen people have died in an outbreak of cholera in nearby Chitungwiza, spread by contaminated water and sewage… .

Vigilantes in Kwekwe killed a man suspected of stealing two chickens, eggs and a bucket of corn… . And traditional chiefs complained about corrupt politicians and army officers who sold grain needed for the hungry to the politically connected instead.

Source: Celia Dugger, "Life in Zimbabwe: Wait for Useless Money, Then Scour for Food." From The New York Times, October 2, 2008 © 2008 The New York Times. All rights reserved. Used by permission and protected by the Copyright Laws of the United States. The printing, copying, redistribution, or retransmission of this Content without express written permission is prohibited.

Questions to Consider

After reading The First Hyperinflation of the Twenty-First Century, consider the question(s) below. Then “submit” your response.

Question

8fhW/SvEGzAlsXsL/Wt8RLrRCrOVBBSy6u0ZEJzN9giHt9ZWVew1bRLBLf2wpJu+3JdTrVzvSyJa4FM3G4ZyZOdxDvCnEKqMbgLXE19mV5bK6OsiOBzah3G/s4oquHws4wobH0BhXisscdANoMmNqSdKjvf8ElwpLRu+VJYeuc7uz0t2ANjrQODeXf6f+JjrzvXhMWpZlsKBFN7h5Z5tlUJbGyo/keRd28MkE805Y/Z78bvIS+Bu+YVo8ewe32enkkcFcA3CBUPDleRpqtqdz2aWiVhtz/krr9S6JoasN/FDbDoFgdtEMGsz4rf5XTbiCqO5Hi+EOhEk1Cbd666B0WQR48w=
One can find a $100-trillion Zimbabwean bank note on eBay for less than $5.00. Since the Zimbabwe currency is no longer the medium of exchange in Zimbabwe, this price is not an exchange rate. It is the price of a collector’s item, not money.

Question

PpMW4WdCXLqEggh+RlkeT6sb0Ar6AoVzAg/urauH2VJkSvlc1W+9TumMfL94mL/sh06daVeC7gQG/g2UjPaiPyl1TiDv1GMCSuL4GsfNKNKgiN0HNe5u+xCJvWw/wHBlFzkZzBC9aJSmmaMp0ZJpDmcDrl010P5U+unWYRk9Ft/Y8NAfGnjMwz0+p1p50M4h3gqy1JkrwtioATQFsotIl9dAHqBXIg0bVHAkTX2+qEfMDeWJMRoPcHi5VM0pZCbMMIf8GnDyquXAbrespQdXfLmHb5+J6/6ybQjygzSyOVY=
The primary cause of hyperinflation is reckless printing of money to finance government spending. You will find this to be the case of nearly all countries that have had episodes of hyperinflation.

Question

T5Yo+wJH9Mhu3O94ldlMGX8zwZ+I5vm9SBgAHqS8LBp5PDizCB3vTJrHGmJnDQbOGJbzyg==
The primary repercussion is the toll hyperinflation inflicts on the domestic population. As the article points out, production is brought to a halt, savings are wiped out, and most exchange is done by barter or in the black market. This break down leads to violence, sickness, and general misery. Another potential repercussion is the loss of a domestic currency. This was the case for Zimbabwe: the country has resorted to using the South African rand and U.S. dollar. Further costs of hyperinflation are increased borrowing costs, necessity of holding large amounts of foreign currency reserves, and a loss of creditworthiness.

Question

kRoAf+po4XVv5XIUlF9RhLQwJAf2HNASgKR5XLRa5RhToVk+ROAfMqTCwdcdrzuv6zEficoet006C1Y64hPc6E+9hkQsqef7ffbUsLEiDqKQxs7U1yUM7iLOXED7y9bH7VuJW9dRTlUrVz3LruIC8zeiKqK2zcyx
The simple answer is by stopping the printing presses. If the government can discipline itself, then prices may stabilize. Once prices stabilize many countries will introduce a new domestic currency, often removing a large number of zeroes from the notes (This was the case in Germany and Hungary). If a country has trouble disciplining itself, it can adopt another country’s currency as their own (as they did in Zimbabwe). In this case the central bank no longer controls the domestic supply of money. They can no longer cause hyperinflation.