Professional Documents
Culture Documents
Adeel T. Umer
28 May 2010
Hyperinflation in Zimbabwe
Inflation is defined as a general rise in prices of goods and services produced within the
boundary of the country over a fixed time period. The rise in prices leads to a fall in the purchasing
power of money i.e. the same amount for money can now be used to buy a lesser amount of goods
and services. Similarly, hyperinflation is defined as a situation in which the price level rises very fast,
causing severe damage to a country's economy and particularly to its currency. In other words,
hyperinflation is when the rate of inflation is so high that it has to be calculated monthly, weekly or
even daily, because the prices rise at a huge pace. Hyperinflation usually precedes a long drawn out
inflation period, paired with an increase in the supply of money in the economy. This report will
discuss hyperinflation in Zimbabwe, mainly the reasons and causes of hyperinflation and the ways to
combat it.
Hyperinflation was never recorded before the use of paper currency as money, instead
metals such as gold were used which never lost their value. The first recorded instance of
hyperinflation was during the French revolution, when the rise in monthly price level was estimated
to be greater than double. The 20th century has shown the world nearly 30 examples of
hyperinflation destroying the economy, a scenario commonly witnessed after the two World Wars.
The deadliest monthly inflation rate was witnessed by Hungary, when halfway through the year
1946; prices took a little more than half a day to double (see Table 1). Other countries namely
Yugoslavia, Germany, Greece and China respectively join Hungary in the list of top five countries in
terms of the highest monthly inflation rates in the 20th century (see Table 1). Similarly, the 21st century
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has been unfortunate enough to witness its first hyperinflation recorded in Zimbabwe, during the 21
month period starting from March 2007 till November 2008, leading to an extinction of the
Zimbabwean Dollar.
Table 1
Highest Monthly Inflation Rates in History
Equivalent Time required
Month with highest Highest monthly
Country daily inflation for prices to
inflation rate inflation rate
rate double
Hungary July 1946 1.30 x 1016% 195% 15.6 hours
Mid-November 2008
Zimbabwe 79,600,000,000% 98.0% 24.7 hours
(latest measurable)
Yugoslavia January 1994 313,000,000% 64.6% 1.4 days
Germany October 1923 29,500% 20.9% 3.7 days
Greece November 1944 11,300% 17.1% 4.5 days
China May 1949 4,210% 13.4% 5.6 days
Source: Prof. Steve H. Hanke, February 5, 2009.
The commonly blamed reason for hyperinflation in Zimbabwe is the instability of the
government, since the poorly held Presidential elections. The Zimbabwean government however,
points the blame on the corruption in the business environment and illegal sanctions imposed by
Britain and other countries Other reasons for hyperinflation in Zimbabwe include poor performance
over the last decade by all economic sectors, worsening poverty levels and high unemployment.
Shortages of food and other necessities due to decreased output from farming and manufacturing
have also sparked up the inflation level, as the economy has been forced to rely on imports to feed
the country.
The first sign of hyperinflation in Zimbabwe began in March 2007 when the monthly
inflation rate soured to more than 50% (see Table 2). The inflation rate then began a roller coaster
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ride by doubling up the next month before falling back to 50% and rising up again. It was in the
summer of 2007 when the economy seemed to have some control over inflation which declined to
Table 2
Zimbabwe’s Hyperinflation
Month over Month
Date Year-over-Year Inflation Rate (%)
Inflation Rate (%)
The following data is from Table 2 above. The real troubles began in the last quarter of the same
year as the inflation rate rose sharply to nearly three times as much and it stayed there till almost the
end of the year. The worst part however, was after 5 months in 2008 when the inflation rate rose
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steeply to more than 400%, and then doubled up the next month. In July of the same year, the
inflation broke the 1,000% mark to reach 2,600% and in August it crossed the 10,000% mark after
reaching 12,400% per month. It then further zoomed of out of control October ’08 bby going more
than 600 million percent per month, before it touched an all time high of 79 billion percent by mid
November’08.
8.97 sextillion
21
20 3.84 quintillion
19 471 billion
18 9.69 billion
17 231,150,889
16 11,268,759
15 2,233,713
14 650,599
M 13
417,823
o
12 164,900
n Graph 1
11 100,580
t
10 66,212
(21 months starting from Mar '07 to Nov'08)
h
9 26,471 Year Over Year Inflation Rate (%)
s
8 14,841
7 7,982
6 6,593
5 7,635
4 7,251
3 4,530
2 3,714
1 2,200
The following data is from Table 2 and Graph 1 above. The annual inflation rate for Zimbabwe
Inflation Rate in Saudi Arabia during the year 2007 stood at 4.1% and in 2008 at 9.9%, with the
latter also being regarded as a high inflation level. The further the months progressed, the higher the
inflation rate in Zimbabwe climbed in direct proportion to the monthly inflation rate. The inflation
rate over passed the 10,000% mark in Oct’07 and at the start of the new year it had already sped
over 100,000%. It took, however, 5 months for the rate to cross the 200,000% mark, but only 2
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As already mentioned the worst consequence of hyperinflation was the total fall in the value
of Zimbabwean Dollar
lar (Z$), so much so that the people were forced to use a Z$50billion note to
buy two loafs of bread or three newspapers. As a result, the government revalued the Zimbabwean
currency in August 2008 by removing 10 zeros, so that Z$10billion became Z$1. This strategy, as
image on right).
ing consequences of
Other devastating
High inflation was also indirectly responsible for a massive cholera outbreak as medication was hard
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to find and too expensive to be affordable. The constant rise in prices meant that the salaries were
never enough to live with and the people were also forced into an income crisis, on top of
everything else.
license the use of foreign currency because everyone from the street venders to branded shops now
refused to accept Zimbabwean Dollar in exchange for their merchandise. The currencies now being
The picture on the left shows a restaurant bill being paid in Zimbabwe Dollars and the
picture on the right shows the value of 100billion Zimbabwe Dollars being equal to three eggs.
As they say, “If you want to be a billionaire, just spend a week in Zimbabwe.”