Coffee? That will be one billion dollars, please

Annual (hyper)inflation in Zimbabwe, according to one source, has reached 500 billion percent. Many estimate it to be even higher. That’s 500,000,000,000%. That means that prices increase roughly by 50% every week. So essentially, your savings will be worth nothing in a few months.

In fact because of this, the Zimbabwean Dollar has now been taken off the market, with the South African Rand being the primary currency in Zimbabwe at the moment. Unfortunately, this doesn’t solve anything for most people. Where is the average Zimbabwean going to get foreign currency from? It is not as simple as going to the Bureau de Change and exchanging all your money for another currency. If I gave you Z$, would you exchange them? Didn’t think so. In fact, many currency websites are quoting the exchange rate between Z$ and other currencies as negative, to reflect the fact that people would rather eat a monkey’s butt than give you their real money for ‘monopoly-like’ Z$.

I cannot get my head around how this was allowed to happen. If you read my quantity theory of money article, differentiating both sides of the identity will tell you that money growth is proportional to the inflation rate. In basic terms, printing more and more money = more inflation. This has been the leading cause of most historic hyperinflations – the government influences the central bank into printing large quantities of money to finance its debt, and more and more needs to be printed because the money becomes quickly worthless. And yet, the condition in Zimbabwe has been allowed to deteriorate over the past 10 or so years.

The man in the photo is Gideon Gono, Governor of the Reserve Bank of Zimbabwe. He is widely credited for destroying Zimbabwe’s monetary system. Instead of following logical economic principles (such as not to print copious amounts of money whenever you see fit) his methods of reducing inflation over the past few years have included:

  • Taking zeros off of the notes – which would then find their way back on after a few months of ridiculously high inflation.
  • Making it ‘illegal’ to raise prices – a mug of coffee costs you $1 to produce today and so you sell it for $2. With the current rate of inflation, it would cost you about $5 to produce in a month, but you would still only be allowed to sell it at $2. See the (lack of) logic?
  • Freezing wages – similar to the last point: if your salary was fixed at $100 a month but your food bill increased from $50 one month to $250 the next, you’d die very soon (which is what has unfortunately happened too often in Zimbabwe).

You’d think from this that the Bank’s aim was to destroy the country, but here’s what it actually is (as taken directly from the RBZ’s website):

Our Vision

To become the financial cornerstone around which Zimbabwe’s economic fortunes and developmental aspirations are anchored.

Our Mission

The pursuit of the Bank’s vision will express itself through leadership in the formulation, implementation and monitoring of policies and action plans for fighting inflation, stabilisation of the internal and external value of Zimbabwe’s currency and of the financial system in a manner that gives pride of achievement to Zimbabweans across the board.

I’m fairly sure they haven’t bothered to read this in the last decade.

Of course, this is not just one person’s fault. Robert Mugabe’s corrupt regime has endorsed all of these policies. It is also sad that something so serious and important to an economy – the monetary system – has been reduced to a laughing stock by a small group of destructive people. The crux of the issue is that people are struggling to survive as a result of all of this.

Morgan Tsvangirai may be able to aid change in the long-run, but they need help from foreign bodies. Yet, the reaction from most unilateral organisations (such as the International Monetary Fund, or IMF) has been to freeze Zimbabwe out – banning trade, removing aid and enforcing sanctions. Ignoring the fact that the country exists is like refusing to feed a child and leave it to die because it is not your own. Zimbabwe needs help and they need it now. I want to know why on earth nobody is doing anything about it.

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