ZIMBABWE CURRENCY CASE STUDY

Zimbabwe Abandoned Its own Currency in 2009. At that time, what was the exchange rate?

What leads to a massive depreciation of the Zimbabwean Dollar? Hyperinflation destroyed the ZIM dollar. The two main factors that contributed to hyperinflation were: 1. A massive decline in agricultural exports, leading to a loss of foreign reserves, and shortages in the country. 2. Excessive Printing of Money by the Central Bank of Zimbabwe.

What caused Hyperinflation in Zimbabwe? 1. A Major Decline in Agricultural Exports In the early 2000s, Robert Mugabe (the President) implemented a series of land redistribution reforms. Land owned by white farmers was forcefully taken (with no compensation) and handed to the black population of the country. The people that were given the land had little managerial experience in running farms and agricultural production declined significantly. Agricultural production was the major export earner for the Zimbabwe and allowed the country to obtain valuable hard currencies. With declining hard currencies to pay for the necessary imports, major shortages occurred leading to significant price rises.

What caused Hyperinflation in Zimbabwe? Excess Printing of Money The major cause of hyperinflation was a massive increase in the amount of money (estimated at 17,000%) which was not supported by growth in the output of goods and services. The result is an imbalance between the supply and demand for a currency. From 2006 to 2009, there was a significant increase in the money supply and as a consequence hyperinflation occurred.

Who did the President of Zimbabwe blame for the economic crisis? President Mugabe claimed sanctions placed on his country (by western nations) made it difficult to sell goods and service in the international market place. These sanctions were both economic and political in nature. Sanctions were placed on Zimbabwe due to major violations of human rights. However, there were many countries that would still buy goods from Zimbabwe, but Zimbabwe had little to sell to the world!

The Demise of the ZIM Dollar in 2009 & The Rise of Multi-Currency System The official demise of the ZIM dollar occurred in February 2009. The government established a multi-currency system. Transactions in hard foreign currencies were authorized and payment of taxes in foreign exchange are now required. The South African Rand, the Botswana Pula and the US dollar were granted official status. However, the US Dollar became the principal currency. Today, with more trade with China the RMB is now also part of the multi-currency system.

Advantages of Multi-Currency System Significantly reduced inflation to a manageable level. Shortages were eliminated. Trade with neighboring countries like South Africa became significantly easier. Hard currencies are convertible on global markets, making travelling and trade easier for Zimbabweans.

Lack of monetary policy sovereignty Disadvantages of A Multi Currency System OR The Disadvantages Not Having Your Own Currency Lack of monetary policy sovereignty No ability to devalue currency (improving exports) Individual stores accept different currencies (e.g. some might accept RMB, some might not). Trade within country can be problematic Etc.

The Government of Zimbabwe tried to control hyperinflation with Price Controls. But look what happens…

  http://conversableeconomist.blogspot.com/2012/03/hyperinflation-and-zimbabwe-example.html

: http://www.pprune.org/jet-blast/450727-oil-price-collapsing-2.html

Source; http://www. mises. co

Source: http://moneytipcentral

Source; http://blog. artasmoney

Source; http://www.zapiro.com/Cartoons?page=18&sort=yr%2BDESC

Source: http://cheezburger.com/1365030656

Note: The Central Bank of Zimbabwe stopped reporting the official inflation figures in July 2008 at 231 million %. However, unofficial figures for the rest of the rest of the year, suggest the rate was as high as….. (unbelievable??)

The Economic Consequences of Hyperinflation