1. Hyperinflation In Zimbabwe

2. 100,000,000,000,000

3. Hyperinflation defined
Begins when monthly inflation rates exceed 50 percent
Ends when rate falls under 50 percent where it must stay for a year – Philip Cagan (1956)
Zimbabwe entered hyperinflation period in March 2007; ended in 2009
Zimbabwe marked 30th such episode in history

4. Overview Introduction to Zimbabwe Before and during hyperinflation
Zimbabwe’s inflation nightmare
Effects of hyperinflation
Stopping spiraling inflation
Life after hyperinflation

5. Facts about Zimbabwe Located in Southern Africa 150,871 square miles
Bordered by Zambia, Mozambique,
S. Africa, & Botswana
150,871 square miles
About the size of California
2011 population – 12.7 million
Colonized by the British
Gained independence in 1980
Robert Mugabe – 1st prime minister
Mugabe government still in power
Agricultural economy
Main cash crop is tobacco
First country to experience hyperinflation in the 21st century

6. Before Hyperinflation
1980
Annual inflation at 5.4 percent
Largest currency denomination – Z$20
Z$ used in 95 percent of transactions
1US$ exchanged for Z$0.65
Real GDP expanded 14.6 percent
Real GDP per capita at US$ 232
Unemployment rate at 10.8 percent in 1982

7. Before and During Hyperinflation
1980
2008—2009
Annual inflation at 5.4 percent
Inflation at 231 million percent
Largest currency denomination – Z$20
Largest Z$ denomination – Z$100 trillion
Z$ used in 95 percent of transactions
US$, S.A rand used in almost all transactions
1US$ exchanged for Z$0.65
1US$ officially traded for Z$4million in 2008
Real GDP expanded 14.6 percent
Real GDP contracted by 17 percent
Real GDP per capita at US$ 232
Real GDP per capita at US$ 136
Unemployment rate at 10.8 percent in 1982
Unemployment rate at 94 percent

8. After Hyperinflation 2010—2011
Z$ no longer in circulation
US$ used in all transactions
Annual inflation averaged 3 percent
Real GDP expanded 9 percent
Real GDP per capita increased 6 percent

9. Inflation soars amid hyperinflationary period

10. Real GDP contracts during most of the past decade

11. Zimbabwe’s tobacco production declines
64% drop

12. Population and labor force decline

13. Zimbabwe central bank government debt holdings increase sharply

14. Zimbabwe dollar depreciates sharply during hyperinflation era

15. Economic decline wipes out 53 years of income growth

16. Effects of hyperInflation
“…a loaf of bread now costs what 12 new cars did a decade ago, and a small pack of locally produced coffee beans costs just short of 1 billion Zimbabwe dollars. A decade ago, that sum would have bought 60 new cars.”
–Economic Times, June 13, 2008

17. “Inflation is always and everywhere a monetary phenomenon”
—Milton Friedman

18. Inflation and money supply move in tandem
Money Supply Growth, year/year
Inflation, year/year

19. Stopping spiraling inflation
Inflation expectations play a crucial role
Government finance must be credible
Adoption of an independent central bank
Alteration of fiscal regime
Exchange rate stabilization
Adoption of a more credible currency

20. Post-hyperInflation Zimbabwe
Encouraging signs of recovery
Inflation down to single digits
2010 GDP expanded 9 percent
GDP per capita expanded 6 percent in 2010

21. Inflation down since dollarization

22. Recovery expected to continue
Real GDP growth
International Monetary Fund Forecasts

23. Challenges remain
Rebuild public finances & trust
Institute policies to control government spending
Reduce poverty
Promote economic growth

24. Trust takes time to rebuild

25. Summary
Zimbabwe – First country to experience hyperinflation in 21st century
Excess money supply not backed by economic growth leads to loss of confidence in currency
Hyperinflation produces adverse impacts
Z$100 trillion – largest denomination in the history of money
Zimbabwe’s case – a reminder of what happens when inflation and fiscal balances go unchecked

26. 100,000,000,000,000

27. Thank you!