FOREIGN TRADE UNIVERSITY

FACULTY OF BANKING AND FINANCE

HYPERINFLATION OF ZIMBABWE AND THE

LESSON FOR ZIMBABWE

Group : 5

Class : TCHE414(GD1-HK-2021).1
Lecturer: : Assoc. Prof. Dr. Mai Thu Hien

Hanoi, September 2021

 GROUP MEMBER

No Group member Student ID

1 Phạm Việt Anh 1914450004

2 Bùi Diệu Hằng 1914450012

3 Phạm Thúy Hiền 1914450014

4 Phạm Vũ Thục Linh 1914450022

5 Nguyễn Thị Hải Yến 1914450066

TABLE OF CONTENTS
ABSTRACT ................................................................................................. 1
CHAPTER 1. INTRODUCTION .............................................................. 3
1.1. Scope and objective .......................................................................... 3
1.2. Research method .............................................................................. 3
1.3. Research structure ........................................................................... 3
CHAPTER 2. THEORETICAL BACKGROUND .................................. 4
2.1. Definition of hyperinflation ............................................................. 4
2.2. Measurement of hyperinflation ...................................................... 4
Consumer Price Index (CPI).................................................... 4
Product Price Index (PPI) ........................................................ 5
2.3. Causes of hyperinflation .................................................................. 7
Higher Money Supply ............................................................... 7
Demand-pull Inflation .............................................................. 7
Market Loses Confidence ......................................................... 8
Warlike Situation ...................................................................... 8
2.4. Impact of hyperinflation .................................................................. 8
Currency Value Depreciates .................................................... 8
Investment in Gold, Real Estate, Commodities Increases .... 9
Foreign Investors Back Out ..................................................... 9
Shortage of Basic Food Supplies .............................................. 9
Disrupts the Banking and Financial Institutions ................... 9
Exports are Cheaper; Imports are Costlier............................ 9
Unemployment Increases and Government’s Revenue Fall10
CHAPTER 3. HYPERINFLATION IN ZIMBABWE .......................... 11
3.1. General background of Zimbabwe............................................... 11
 History and geography ........................................................... 11
Government and Politics ........................................................ 12
Economy ................................................................................... 12
3.2. Development of hyperinflation in Zimbabwe .............................. 14
3.3. Causes of hyperinflation in Zimbabwe ........................................ 18
Land reform program ............................................................ 18
War funding ............................................................................. 19
Economic Mismanagement .................................................... 19
3.4. Consequences of hyperinflation in Zimbabwe ............................ 20
CHAPTER 4. RECOMMENDATION FOR ZIMBABWE .................. 24
4.1. Recommendation for Zimbabwe .................................................. 24
Contractionary monetary policy ........................................... 24
Cut down on public investment and frequent expenditure,
control investment of domestic enterprises, and reduce the budget
deficit .................................................................................................. 25
Concentrate on developing agriculture, industry ................ 26
Balance supply and demand curve ........................................ 26
Promote market management and implement the State Law
............................................................................................................. 27
Policies to enhance social security ......................................... 28
4.2. Evaluate hyperinflation in the world in recent years ................. 28
 ABSTRACT
Hyperinflation, defined as inflation of over 50 per cent month-over-
month, in Zimbabwe began in 2007. However, the economy has been
plagued with annual inflation of over 20 percent since the early 1990s. Once
regarded as the breadbasket of Africa, Zimbabwe’s political mismanagement
has destroyed its own economic well being. Were the government and central
bank so ignorant as to lead the economy down this path?
Along with the diversified and rich development of the economy, the
causes of inflation have also become more and more complicated. The global
economic crisis in 2008 is a typical example, it has affected most economies
in the world very badly. Against this backdrop, with a weak domestic
economy and mounting public debt, Zimbabwe has become the first country
in the 21st century to suffer from hyperinflation. Zimbabwe's economic
decline began in 1999, when the country was suffering from a severe drought
that severely affected the country's agriculture.
The analysis and study of the problem of hyperinflation in Zimbabwe
in this paper does not limit at understanding the signs, causes, developments,
and consequences of hyperinflation in Zimbabwe as in previous studies, but
It also clearly identifies the vulnerability that hyperinflation has caused to
the Zimbabwean economy, thereby pointing out the solutions that Zimbabwe
has taken to overcome the consequences after the period of hyperinflation.
Besides, we also see the similarities between Zimbabwe and Vietnam, from
which we can apply the lessons of Zimbabwe to make recommendations on
voting for Vietnam's inflation.
On the basis of the above analysis, we have selected the topic
"Hyperinflation in Zimbabwe and lessons learned for Vietnam" to assess the
trend of impact of hyperinflation in Zimbabwe, as a basis for proposing
solutions. appropriate measures for Vietnam.

1
 By the method of conceptualizing and analysing data of hyperinflation
in Zimbabwe, although we have tried our best, but in the process of
evaluating and synthesizing inevitable shortcomings, we hope to receive
your comments and reviews to make our essays better.

2
 CHAPTER 1. INTRODUCTION

1.1. Scope and objective

Object: Our essay uses data from Zimbabwe to investigate money
demand under hyperinflation using an autoregressive distributed-lag model
for the period 2000-2008. The results produce plausible convergence rates
and long-run elasticities, indicating that real money balances are cointegrated
with the inflation rate signifying an equilibrium relationship between the two
series.
Research Scale:
Space Scale: The scope of our research is Zimbabwe's
hyperinflation through analyzing the concepts, causes and solutions of
hyperinflation in this country. From there, we offer lessons for
Vietnam and related countries.
Time Scale: For the period June 2000 to July 2008..
1.2. Research method
To complete the above research analysis, the topic uses the following
research methods:
• Research on the base of available sources such as books, newspapers,
internet,… to make the right judgment on impacts of hyperinflation.
• Collect and synthesize data from different sources.
1.3. Research structure
The report content consists of 4 chapters:
• Chapter 1: Introduction
• Chapter 2: Theoretical background
• Chapter 3: Hyperinflation in Zimbabwe
• Chapter 4: Solution and recommendations
This report was finished with the help of our lecturer:
Assoc.Pro.PhD.Mai Thu Hien from the subject International Finance and
the research of the whole group through scientific articles and
economic research agencies in the world. Since the group may still have
many shortcomings, we are looking forward to receiving the guidance and
comments of the instructors.

3
 CHAPTER 2. THEORETICAL BACKGROUND
2.1. Definition of hyperinflation
Hyperinflation is a term to describe rapid, excessive, and out-of-
control general price increases in an economy. While inflation is a measure
of the pace of rising prices for goods and services, hyperinflation is rapidly
rising inflation, typically measuring more than 50% per month.
2.2. Measurement of hyperinflation
As we mentioned above, hyperinflation is one type of inflation. While
inflation is a measure of the pace of rising prices for goods and services,
hyperinflation is rapidly rising inflation, typically measuring more than 50%
per month. Therefore, the measurement of hyperinflation depends on the
measurement of inflation. There are 2 ways to calculate inflation: Consumer
Price Index (CPI) and Product Price Index (PPI)
Consumer Price Index (CPI)
Consumer Price Index or CPI is an internationally comparable
measure of inflation which measures changes in price from the purchasers’
perspective. It is a measure of price changes in consumer goods and services
such as food, clothing, gasoline and automobiles but excludes housing costs
and mortgage interest payments. It reflects changes in the prices of a market
basket of goods and services purchased by consumers (individuals and
households). CPI helps in the measurement of cost of living of urban
consumers.
As defined by the U.S. Bureau of labor statistics, “CPI is a measure of
the average change over time in the prices paid by urban consumers for a
market basket of consumer goods and services.”
We have the formula:
𝐂𝐨𝐬𝐭 𝐨𝐟 𝐌𝐚𝐫𝐤𝐞𝐭 𝐁𝐚𝐬𝐤𝐞𝐭 (𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫)
CPI of year = x 100%
𝐂𝐨𝐬𝐭 𝐨𝐟 𝐌𝐚𝐫𝐤𝐞𝐭 𝐁𝐚𝐬𝐤𝐞𝐭 (𝐢𝐧 𝐛𝐚𝐬𝐞 𝐲𝐞𝐚𝐫)
𝑪𝑷𝟐 −𝑪𝑷𝟏
Inflation is year 2 = x 100%
𝑪𝑷𝟏

4
 Where,
CPI1 = CPI in previous year
CPI2 = CPI in current year
Calculation of CPI and inflation requires data on prices of goods and
services on a large scale. But, for the simple understanding, let us consider a
simple economy in which consumer goods include bread and egg.
A stepwise calculation on CPI and inflation is explained below:
• Step 1: Determination of basket of goods and services
• Step 2: Determination of prices
• Step 3: Computation of cost of basket of goods in each year
• Step 4: Selection of base year (year 2005 in this case) and computation
of CPI
• Step 5: Computation of inflation rate using CPI
Product Price Index (PPI)
Product Price Index (PPI), also referred to as Wholesale Price Index
(WPI), measures the average price changes of goods and services over time
at wholesale level. In other words, PPI measures price change from the
viewpoint of domestic producers.
PPI or WPI is an index of prices paid by retailers for the products that
they would resale to the final consumers. It monitors the price changes made
by manufacturers and wholesalers before the products reach the final
consumers.
• GDP Deflator
GDP deflator measures the changes in the overall prices of newly
produced goods and services that are ready for consumption. It is an
important economic metric that helps to determine the rate of inflation by
converting output measured at current market prices into constant base year
prices.

5
 In other words, GDP deflator measures the relationship between
nominal GDP (total output measured at current prices) and real GDP (total
output measured at constant base year prices). It measures the current level
of prices relative to the level of prices in the base year.
Since the GDP deflator is not based on a fixed market basket of
products, it takes into account the change in consumption patterns of
consumers as a result of newly manufactured products and services.
The GDP deflator is simply nominal GDP in a year divided by real
GDP in that year, multiplied by 100.
We have the formula:
𝑵𝒐𝒎𝒊𝒏𝒂𝒍 (𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒑𝒓𝒊𝒄𝒆) 𝑮𝑫𝑷
GDP deflator = x 100
𝐘𝐞𝐚𝐫 (𝐁𝐚𝐬𝐞 𝐲𝐞𝐚𝐫 𝐩𝐫𝐢𝐜𝐞) 𝐆𝐃𝐏
𝑮𝑫𝑷 𝒅𝒆𝒇𝒍𝒂𝒕𝒐𝒓 𝒊𝒏 𝒚𝒆𝒂𝒓 𝟐 − 𝑮𝑫𝑷 𝒅𝒆𝒇𝒍𝒂𝒕𝒐𝒓 𝒊𝒏 𝒚𝒆𝒂𝒓 𝟏
Rate of inflation = x 100
𝑮𝑫𝑷 𝒅𝒆𝒇𝒍𝒂𝒕𝒐𝒓 𝒊𝒏 𝒚𝒆𝒂𝒓 𝟏

A stepwise calculation on GDP deflator is explained below:

• Step 1: Determination of basket of goods and services
• Step 2: Determination of prices
• Step 3: Computation of Nominal GDP
• Step 4: Computation of Real GDP
• Step 5: Computation of the GDP Deflator
After computation of various price indices, rate of inflation is
calculated using the following formula:

𝑷𝒕 −𝑷𝒕−𝟏
Inflation =
𝑷𝒕−𝟏

Where,
Pt = Price index in current (t) period
Pt-1 = Price index of previous (t – 1) period

6
2.3. Causes of hyperinflation
Below is the list of non-exhaustive causes of Hyperinflation:
Higher Money Supply
Inflation works on the basic mechanism of demand and supply. When
the supply of money increases, the amount of disposable money with citizens
of the country also increases. As a result, citizens tend to spend more money
and also ask for more goods and services. In this situation, the supply of
goods and services is constant, but demand increases. However, since the
production capacity remains the same, the prices of goods and services tend
to rise. And this leads to inflation.
In the case of Hyperinflation, the country’s government increases the money
supply in the system by printing more money. Along with printing more
money, if the government has not taken enough steps to increase the Gross
Domestic Product (GDP) of the country, this can lead to Hyperinflation.
Consecutive economic growth steps should also support the increase in the
money supply.
When manufacturers realize a high disposable income with consumers and
not enough economic growth supported by the government, additional
capacities are not there. They start charging very high prices. Since there is
more money in circulation, high disposable income with the citizens, they
start overspending and splurging it more. Thus, this vicious circle of
continuous price rises daily, ultimately leading to a Hyperinflation state.
Thus an increase in the money supply without increasing GDP is one of the
major causes of Hyperinflation.
Demand-pull Inflation
Hyperinflation can occur because of demand-pull inflation where
there is a sudden increase in demand with Constant (same) supply leading to
price rise. High demand can be attributed to increasing exports, increasing

7
both government & citizen’s spending, etc. Such High demands can cause
shortages and ultimately lead to Hyperinflation.
Market Loses Confidence
The third cause is that the citizens start losing confidence in the
currency. They either shift to a barter system or some international currency.
This is one of the biggest failures for the country’s government, where the
domestic currency’s authenticity is questioned.
Warlike Situation
War and government collapses are the two main causes of
hyperinflation. War creates more hyperinflation situations than government
collapses based on sheer numbers. In the 20th and 21st century, Germany,
Hungary, Argentina, and Zimbabwe all had major inflation crises because of
war. Germany had WWI, Hungary had WWII, Argentina had the Falklands
War, and Zimbabwe had the Congo War. These wars were major events in
these centuries and many people fled their respective countries to escape
from the violence. A decrease in citizens owning money in a given country
is a usual predecessor to hyperinflation. War is the superior cause of inflation
because of its notoriety as the cause of some of the top hyperinflation
episodes of the 20th and 21st centuries.
2.4. Impact of hyperinflation
Currency Value Depreciates
In the state of Hyperinflation, the currency depreciates at a record low
in the FOREX market. All the negative triggers in the economy and the
financial market make the public quite uncertain and scared about the
domestic currency’s real value. In other words, all sorts of confidence and
belief break loose for the value and stability of the domestic currency. In
such a situation, Citizens of the country try to invest in more stable assets or
financial security and may divert their investments out of the country.

8
 Investment in Gold, Real Estate, Commodities Increases
As the citizens don’t have confidence in the domestic currency, they
try to put their money in more solid assets or financial securities. In a
Hyperinflation situation, gold or say, bullion becomes the most trusted and
liquid asset. Thus the demand for gold increases in this situation. Real-estate
and Commodities are also more stable than currency. As a result, citizens
start investing more in such areas.
Foreign Investors Back Out
Generally, it takes at least one year or so to get out of the spiral of
Hyperinflation. Thus foreign investors are the first ones to take out their
investment and back off. Unless they are not reimbursed with an extra
interest rate that would balance the depreciating currency, they don’t prefer
staying.
Shortage of Basic Food Supplies
As Hyperinflation expands its roots in the country, the citizens of the
country start pilling and stocking of basic food supplies. This stocking up
even creates more shortage leading to price rise. So the spiral price rises and
a vicious circle sets in.
Disrupts the Banking and Financial Institutions
As Hyperinflation depreciates the local currency, the value of loans,
and advances made by the banks almost loses its value. The value of loans
and advances was much higher than its current market value. The deposits
also decrease as citizens stop investing. As a result, these banks and financial
institutions lose cash and at times turn bankrupt.
Exports are Cheaper; Imports are Costlier
In this situation, the most beneficiary companies are exporting
companies. As the currency has depreciated a lot, the exports become

9
cheaper for the importing countries, so the volume goes up. These exporting
companies still can play with their prices, thereby increasing their profits. In
contrast to this, the imports of the country become more costly. Domestic
companies halt their imports due to depreciated domestic currency. The high
cost of production would have already played their havoc on the current
demand.
Unemployment Increases and Government’s Revenue Fall
At times, Hyperinflation causes domestic unemployment to increase
to a record high. With the downturn in the business and GDP growth, the
government resources also start reducing and may get squeezed a lot. Thus
during this time, tax revenues fall for the government, making it cashless.

10
 CHAPTER 3. HYPERINFLATION IN ZIMBABWE
Far from unique, Zimbabwe is just the most recent nation to suffer from
hyperinflation. It is joining an infamous club of governments whose policies
have fallen into a familiar trap. Hyperinflation in Zimbabwe was a period of
currency instability in Zimbabwe that began in February 2007 and reached
the peak from 2008 to 2009. It was difficult to measure Zimbabwe's
hyperinflation because the government of Zimbabwe stopped filing official
inflation statistics.
3.1. General background of Zimbabwe
History and geography
Zimbabwe is located in the southern region of the African continent
and is bounded to the north by Zambia, to the east by Mozambique, to the
south by South Africa and to the west by Botswana and the Caprivi Strip of
Namibia. At 390,757 square kilometers (150,871 square miles), Zimbabwe
is about the size of California, with a population the United Nations
estimated at 12.7 million in 2011. Its capital is Harare. The nation’s name is
derived from historical structures called “Great Zimbabwe” (houses of
stone), the largest stone sculptures in Africa after the pyramids of Egypt.
The country was settled by the British in 1890, when Cecil Rhodes, a
businessman who made his fortune mining diamonds in South Africa,
pushed northward in search of more bounty. Rhodes successfully persuaded
the British to grant a royal charter to his British South Africa Co., which he
used to promote the colonization of the region.
The country was renamed Southern Rhodesia in 1895 in his honor. It
became a self-governing British colony in October 1923, following a 1922
referendum. Zimbabwe was a British colony and gained independence in
1980.

11
 Government and Politics
Zimbabwe’s first constitution, which was written in London during
September–December 1979 and which took effect at independence on April
18, 1980, secured majority rule for Zimbabweans. In 2009 the constitution
was amended to provide for the creation of a coalition government via the
terms of the 2008 Global Political Agreement (GPA), which attempted to
end a political crisis in Zimbabwe.
Under the 2013 constitution, Zimbabwe is a unitary republic. The head
of state and government is the president, who is elected to a five-year term;
the president can serve no more than two terms. The president is assisted by
two vice presidents. The parliament consists of the National Assembly and
the Senate.
For administrative purposes, Zimbabwe is divided into eight
provinces and two cities.
Zimbabwe’s population on the whole is quite young, with more than
one-third under age 15 and about one-third between the ages of 15 and 29.
About one-third of the total population lives in urban centres, particularly in
either
Zimbabwe is a member of 44 major international organizations(ONU,
IMF, G15, G17, WTO,...) and plays an important role in struggling to protect
the rights of developing countries during the globalization period.
Economy
Zimbabwe's economy depends heavily on its mining and agriculture
sectors. Following a decade of contraction from 1998 to 2008, the economy
recorded real growth of more than 10% per year in the period 2010 - 2013,
before falling below 3% in the period 2014 - 2017, due to poor harvests, low
diamond revenues, and decreased investment. Lower mineral prices,
infrastructure and regulatory deficiencies, a poor investment climate, a large

12
public and external debt burden, and extremely high government wage
expenses impede the country’s economic performance.
Since independence, Zimbabwe's primary goal has been redressing the
socio-economic imbalances and restructuring the economy while
maintaining growth and avoiding alienating its white population, whose
skills are of vital importance to its economy. Unlike many countries in post-
independent sub-Saharan Africa, Zimbabwe did not tread the nationalization
path, rather choosing to purchase shares in various enterprises.
Zimbabwe has a relatively diversified economy with good
infrastructure , strong manufacturing and agricultural sectors, a vigorous
financial services sector, and extensive mining. Agriculture, which in 1997
contributed 28 percent of gross domestic product (GDP), is the mainstay of
the economy and a major determining factor in its growth. It is diversified
and well-developed in terms of food production, cash crops , and livestock.
Its growth, however, has been erratic since independence in 1980. Periods of
rapid economic growth have been interrupted by agricultural slumps caused
largely by drought in 1992, when about 80 percent of the maize crop and an
estimated 1.7 million cattle were lost, and another drought in 1995.
Zimbabwe produces a wide variety of manufactured goods for both
local and export markets. Manufacturing is centered in the 2 major urban
centers, Harare and Bulawayo. Developed within a protectionist policy , the
sector enjoyed certain tariff barriers in the period from 1965 to 1979. It faced
stiff competition, mostly from South Africa, after 1990 when the barriers
were progressively removed.
One of the most pressing issues affecting the Zimbabwean economy
concerns land redistribution. Due to costs and delays in sourcing financing,
Zimbabwe has been behind schedule in the redistribution of land to landless
rural families as promised in the war of liberation. This culminated in the
1999-2000 land crisis in the runup to the 2000 elections, when war veterans

13
began occupying white-owned farms. This precipitated a crisis in the
farming sector that is yet to be resolved.
3.2. Development of hyperinflation in Zimbabwe
In general, hyperinflation in Zimbabwe refers to a period of
hyperinflation in Zimbabwe from 2007 to 2009, culminating in 2009.
Hyperinflation begins when the monthly inflation rate exceeds 50%.
Zimbabwe entered an era of hyperinflation in March 2007. Inflation only
ended when the African nation abandoned its currency in 2009. Zimbabwe's
inflation crisis has been one of inflation to date. After the hyperinflationary
crisis in Hungary in 1946, the second-worst inflation in history, with prices
doubling every 15.6 hours.
To be more specific, we did research from the historical background to
the years of hyperinflation to better understand this hyperinflation.
At independence in 1980, the Zimbabwe dollar became the common
currency. Initially, the paper notes were in denominations of Z$2, 5, 10 and
20, and coins in denominations of 1, 5, 10, 20, 50 cents and Z$1. As larger
bills were needed to pay for menial amounts, the Reserve Bank of Zimbabwe
planned to print and circulate denominations of up to Z$10, 20, 50, and 100
trillion. Announcements of new denominations were increasingly frequent;
the Z$200,000,000 bill was announced just days after printing the
Z$100,000,000 bills.
The government did not attempt to fight inflation with fiscal and
monetary policy. By 2003, there were growing shortages. In 2006, before
hyperinflation reached its peak, the bank announced it would print larger
bills to buy foreign currencies. The Reserve Bank published a Z$21 trillion
bill to pay off debts owed to the International Monetary Fund.

Date Rate Date Rate Date Rate Date Rate Date Rate

14
 1980 7% 1986 15% 1992 40% 1998 48% 2004 133%

1981 14% 1987 10% 1993 20% 1999 57% 2005 586%

1982 15% 1988 7% 1994 25% 2000 55% 2006 1,281%

1983 19% 1989 14% 1995 28% 2001 112% 2007 6.62 x
105%

1984 10% 1990 17% 1996 16% 2002 199% July 2.315 x
2008 109%

1985 10% 1991 48% 1997 20% 2003 599% mid- 7.96 x
Nov 1010%
2008

Zimbabwe inflation rates since independence (official up to July 2008,

estimates thereafter)
Source: Reserve Bank of Zimbabwe

Throughout hyperinflation, the inflation rate fluctuated wildly.

On three occasions, the Reserve Bank of Zimbabwe redenominated its
currency.
Firstly, in August 2006, the Reserve Bank recalled notes in exchange
for new notes with three zeros slashed from the currency, which means a
newly revalued Zimbabwean dollar was equivalent to the previous $1,000.
The exchange rate has dropped from the old 24 Zimbabwean dollars on the
U.S. dollars (USD) in 1998 to the previous 250,000 dollars (or 250 new
Zimbabwe dollars) per U.S. dollar at the official exchange rate, and an
estimated 120,000,000 old dollars (or 120,000 new Zimbabwe dollars) per 1
U.S. dollar on the black market, which is evaluated in June 2007.

15
 On July 13 2007, the Zimbabwean government said that it had
temporarily stopped publishing (official) inflation figures, a move that
observers said was meant to draw attention away from "runaway inflation
which has come to symbolize the country's unprecedented economic
meltdown".
Secondly, in July 2008, the governor of the Reserve Bank of
Zimbabwe, Gideon Gono, announced a new Zimbabwean dollar, this time
with 10 zeros removed. The Z$10 billion ("the third Zimbabwe dollar")
would be redenominated to be Z$1. According to the Central Statistics
Office, inflation has increased from an annual rate of 32 per cent in 1998 to
an annual rate of price growth of 11.2 million per cent in June 2008. The
worst of inflation occurred in 2008, leading to the abandonment of the
currency. The peak month of hyperinflation occurred in mid-November 2008
with a rate estimated at 79,600,000,000% per month, with the year-over-year
inflation rate reaching an astounding 89.7 sextillion per cent. This resulted
in US$1 becoming equivalent to Z$2,621,984,228. Prominent locals had to
purchase used appliances from neighboring Botswana, South Africa and
Zambia.
In January 2009, Zimbabwe introduced a $100 trillion banknote. On
January 29, to deal with the country's inflation, Acting Finance Minister
Patrick Chinamasa announced that Zimbabweans would use other, more
stable currencies (e.g. Sterling, Euro, South African Rand and U.S. Dollar)
in exchange, in addition to the Zimbabwean dollar.
The third redenomination, producing the "fourth Zimbabwe dollar,"
occurred in February 2009 and dropped 12 more zeros from the currency. It
was thus worth 10 trillion original dollars. Denominations of the new
currency are the Z$1, 5, 10, 20, 50, 100 and 500 notes. The fourth-generation
coins circulated alongside the third-generation ones, which remained in use
until June 30, 2009.

16
 However, loss of confidence quickly leads to the abandonment of the
Zimbabwean dollar in favor of foreign currencies, primarily the U.S. dollar
and the South African rand. Since February 2009, the new Government of
Zimbabwe has established a multi-currency trading system in which the U.S.
dollar is the most commonly used. The 2009 national budget allocation, 2010
budget estimates all use U.S. dollars as the currency. With the dollarization
of the entire economy, the Government of Zimbabwe has tied its economy
to the monetary policy of the U.S.
Inflation in Zimbabwe has stabilized after the government allowed
payments in U.S. dollars, but the economy fell into another challenging
situation when it lacked U.S. dollars to pay. This has made many people here
consider Bitcoin as an alternative means of payment.

Zimbabwe’s Inflation rate from 1986 to 2016 (compared to the

previous year)
Source: statista.com

17
3.3. Causes of hyperinflation in Zimbabwe
Zimbabwe, in the early 1980s, experienced significant economic
development. However, in the 1990s, the event that set off this decade-long
crisis was a mismanaged policy by President Robert Mugabe.
Land reform program
One of the prime minister's first policy actions (later president)
Mugabe was to redistribute land.
Initially, in Zimbabwe, the white minority, constituting 5 % of the
population, owned 80% of the lands, while the majority of native Africans
were left to scrape a living on the remaining, mostly un-arable, overcrowded
common lands. Throughout the colonial history of Zimbabwe, and through
the '80s and '90s, Zimbabwe has experienced large-scale agricultural exports
and relative economic success.
However, the Government of President Robert Mugabe worked to
shift ownership. Most of the farmlands were taken over by local people and
other government officials who had little knowledge about agriculture and
related activities. This event also means white merchants - the country's
primary economic source was expropriated by the Government, chased away
in land reform, followed by American and Western funding.
In the early 2000s, about 4,000 white plantation owners had their land
confiscated. The move from this to the mismanagement and decentralization
of the farming sector has led to overall economic chaos. Because of the land
reform policy, the fiscal mismanagement, an infrastructure for sound
financial management that was never created, has led to food shortages, an
unsustainable fiscal deficit, hyperinflation, and a highly overvalued official
exchange rate. This African nation's agricultural output plummeted two
years later, leading to the worst famine in 60 years.
After the 2005 land reform, under the guidance of central bank
governor Gideon Gono, negotiations began so those white ranchers could

18
return. They only have about 400 to 500 people still in the country, but most
of the land confiscated is no longer arable. In January 2007, the government
even let some white ranchers sign long-term leases. However, the
government again reversed this process and began requiring all remaining
white ranchers to leave the country or face imprisonment.
War funding
In the late 1990s, Mugabe authorized Zimbabwean troops to fight in
the Second Congo War.
In September 1998, even as economic conditions continued to worsen,
the President sent 11,000 troops to the Democratic Republic of the Congo
(DRC) to back the discredited leader, Laurent Kabila. Its involvement in the
war drained much of its monetary reserves in the wake of the 21st century.
The Mugabe government was printing more money to help to finance the
war. Zimbabwe was under-reporting its war spending to the International
Monetary Fund by perhaps $22 million a month.
Economic Mismanagement
One of the significant drivers of inflation has been fiscal
mismanagement over the past 10 years.
According to IMF reports, the budget deficit, including grants, stood
at 10.0 percent of the estimated GDP in 2006. This figure is over triple the
figure of 3.0 percent of GDP achieved in 1998. In the 2008 budget
announced on 29 November 2007, the forecast budget deficit was
approximately 11 per cent of the expected GDP of Z$16 quadrillion.
According to IMF estimates, government expenditure had reached 53.5
percent of GDP in 2006 – more than double the expected value of 24.7 per
cent.

Moreover, to overcome poverty and public debt, Mugabe ordered

Zimbabwe’s Reserve Bank (which is state-owned) and the Governor to print

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more currency to import necessities (on an ongoing basis over the years since
2000) with the amounts of currency that can grow the money supply at a rate
well over Zimbabwe’s inflation rate.
The overall result of these severely mismanaged causes was a food
crisis, and a battering for the economy as foreign exchange earnings slumped
- both from farming and tourism, amid violence surrounding the land reform
program. Also, the mismanagement led to severe inflation. According to the
Financial Times, inflation in Zimbabwe peaked in 2008, when prices
doubled in 24 hours, and currency inflation reached 7.9 billion per cent.
Unemployment rose to record highs, public services stalled, and Zimbabwe's
economy shrank 18% in 2008.
3.4. Consequences of hyperinflation in Zimbabwe
The global economic crisis in 2008 hit most of the world's economies,
coupled with a weak domestic economy and amassed public debt, making
Zimbabwe the first country in the world. The 21st century suffers from
hyperinflation.
In just a short time, hyperinflation has turned this South African country
into one of the poorest countries on the continent despite being once
considered the most promising country in Africa with its economic potential
and rich resources. It can be said that the economy of Zimbabwe has
completely collapsed, leading to the use of Bitcoin virtual currency as a
reluctant means of payment.
Here we researched the specific consequences of Zimbabwe's
hyperinflation.
• The currency (Zimbabwe dollar) was heavily depreciated, and this
caused severe economic problems.
• Economic and political uncertainty surrounding national elections.
• The effect of currency undervaluation is such that they had to print
money with denominations in trillions. In 2008, the annual inflation

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 rate was 11.2 million percentage points, practically costing more to
print the money than the money is worth.
• Population Displacement: Hundreds of thousands of people were
uprooted at the height of the crisis, either fleeing to neighbouring
countries or displaced within Zimbabwe.
• Severe food crisis: Millions of Zimbabweans had experienced a
massive scarcity of food, and most of them were surviving on just one
meal a day, and the droughts of the mid-2000s worsened this.
• Life expectancy dropped: The life expectancy of people declined, and
it has one of the lowest life expectancies in the world, and a large
proportion of the people depended upon food aid.
• This country's health, education systems and other industries have
collapsed along with the increasing shortages of essential goods. The
GDP growth rate of 2008 was -12.6 per cent, more than doubling from
the year before. Per Capita GDP remains one of the lowest, at U.S.
$200, and an unemployment rate of 80 per cent.
• There is no room to invest in infrastructure or financial institutions.
Zimbabwe has over 5 billion dollars in external debt and imports over
2 billion dollars of commodities while only having a little over 6
million dollars in actual revenue.
• 1 U.S. Dollar was worth 30,000 Zimbabwe Dollars in 2008.
3.5 Solutions of Zimbabwe
A solution effectively adopted by Zimbabwe was to adopt some
foreign currency as official currency. It is less important which currency is
adopted than that the government standardizes on a single currency to
facilitate commerce. The use of the Zimbabwean dollar as an official
currency was effectively abandoned in April 2009. The government scrapped
this currency, leaving U.S. dollars and South African rand as the main notes

21
and coins in circulation; the U.S. dollar had the most credibility and was the
most widely traded within Zimbabwe.
The elimination of Zimbabwe's local currency implicitly solved the
chronic problem of lack of confidence in the Zimbabwean dollar and
compelled people to use the foreign currency of their choice, which helped
end hyperinflation as it cut off the government's ability to print money to pay
debts. At the same time, it eroded manufacturer's competitiveness by making
it cheaper to import everything from food to clothing rather than produce
them in a country suffering from a lack of cash, power shortages and high
costs. With Zimbabwe adopting the U.S. dollar and currencies such as the
South African rand as legal tender, authorities cannot boost the money
supply in the economy. However, it still has certain limitations, such as there
is no absolute guarantee for the stability of the banking system, the banking
system depends on the US economic policy and thereby is not able to react
to the shocks of the financial system, and in the short term, they cannot
ensure national competitiveness.
Zimbabwe could have joined the nearby nations of Lesotho, Namibia,
South Africa, and Eswatini, which constitute the Common Monetary Area,
or "Rand Zone" by formally deciding to use the rand to promote trade and
stability.
In 2014, the Reserve Bank of Zimbabwe unveiled "convertible" coins
in denominations of US$0.01 through US$0.50. The Bank said that 80% of
Zimbabweans use the U.S. dollar, and said the local lack of coins induces
retailers to round prices up to the next higher dollar. The coins extend the
use of the dollar as a de facto currency, and indeed the National Bank
repeatedly assured that it does not intend to bring back a national currency.
As of May 2016, the liquidity of the USD had rapidly decreased and John
Mangudya, the governor of the Reserve Bank of Zimbabwe, said Zimbabwe
would print a new bond note, which he said would be at par with the

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American dollar. This was to be done within the following two months.
Some citizens disputed this, saying the 2008 error was now returning and
they would not accept the bond notes.

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 CHAPTER 4. RECOMMENDATION FOR ZIMBABWE
4.1. Recommendation for Zimbabwe
Contractionary monetary policy

Inflation comes from many causes, but the main cause mainly comes
from money. The level of money supply in circulation has dramatically
increased for many years, which is one of the important causes of inflation.
In order to control inflation, it is necessary to implement the following
contractionary monetary policies:

• Withdraw money from financial institutions directly, such as the State

Bank's compulsory bond issue to commercial banks, which these
banks must purchase.
• Control lending and credit of all kinds, especially consumer loans.
Even cut credit because it is done in cash and therefore also reduces
the amount of cash in circulation.
• Reduce the budget: many non-urgent, essential projects are lost.
postpone or even cancel. Cut all expenses that can be cut from the
budget such as purchasing public equipment, reducing payroll, cutting
or paying social welfare benefits, because those things increase the
amount of money circulating.
• Many solutions prevent the increase in prices of goods and services in
order to reduce inflation. It should be emphasized that while firmly
contractionary monetary policy, it is necessary to ensure the liquidity
of the economy and the operation of banks and credit institutions,
creating favorable conditions for commodity production and export
development.

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 Cut down on public investment and frequent expenditure, control
investment of domestic enterprises, and reduce the budget deficit
The Government needs to specify the proportion of investment capital
and administrative costs that must be reduced and require ministries and
localities to identify inefficient construction that is not really necessary for
adjustment. suitable. This will be done resolutely right in the redistribution
and balance of capital. To identify and review investment projects that need
to be implemented:
• Promulgate criteria to evaluate economic efficiency for state
investment so that the level of economic efficiency for each project
must be specifically measured in the proposal, appraisal, decision, and
evaluation. investment inspection, supervision, and evaluation.
Investment projects with the highest efficiency will be selected, from
which investment will be allocated and used in a more concentrated
manner. Investment inspection and supervision will also be more
convenient and effective.
• Change the investment management decentralization mechanism.
Localities and ministries still have the right to actively develop and
propose investment projects, but investment projects should be
selected according to the principle of public bidding under the market
mechanism. Thereby, the investment projects with the highest
economic efficiency will be selected.
• Strengthen the authority and capacity of the agency in charge of state
investment management.
• Establish a global information system on public investment, and then
publish information about all public investment in general, and each
public investment project in particular, on that basis. Regarding this,
in my opinion, the following information should be made public:

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 o Information about the investment project, such as the project
name, objectives, scale, industry training, total capital, capital
allocation schedule, and execution schedule, timelines, and so
on…
o The institution or individual proposing the project, executing
the project, participating in the assessment, arguing for and
against the project, and the impact-on-society-and-economy
analysis report.
o The investor who is implementing the project, as well as the
reasons or justifications for selecting the investor.
o Total project progress, the discovery of new challenges,
discrepancies (if any) between the implementation progress and
the plan, reasons, individuals, and entities involved in mistakes
or deviations from the strategy.
Concentrate on developing agriculture, industry
At present, the potential growth of our country is still very large,
especially when Zimbabwe is an official member of the World Trade
Organization, foreign investment, and private investment have increased
sharply, the export market is expanding, therefore, production development
is the original solution, creating multi-faceted efficiency, both increasing
supply for domestic and export markets, contributing to curbing inflation,
reducing the trade deficit, and promoting growth. the economic effect,
without any side effects.
Balance supply and demand curve
Balancing the supply and demand for goods, especially that
fundamental for production and people's lives, is a crucial foundation for
avoiding suddenly soaring prices and preventing speculation.
The trade balance is a crucial macroeconomic indication. Many strategies
must be implemented by the government in order to promote exports:

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• Encourage businesses to export profitable products, and rigorously
govern the import and export of commodities from border crossings
to avoid fraud of origin.
• Organize activities to connect Zimbabwe's agricultural product
exporters with corporations seeking to purchase from China,
Germany, or Botswana through border gates, particularly for
commodities in which Zimbabwe has a competitive edge and China
has a high demand for it such as platinum, cotton, tobacco, gold, iron
alloys, textiles…..
• Implement Zimbabwe's international integration commitments, and
ensure that the integration is much more effective and sustainable in
order to achieve the maximum potential of Free Trade Agreements
(FTAs).
• Advancing the information exchange mechanism at all levels,
directing trade representative agencies in countries and territories to
grasp market information and relevant concerns.
• With reference to the largest exporters categories, the strategic
approach of comprehensive trade promotion renovation concentrates
on medium and long-term trade promotion plans. After that, they can
specialize in a product or a market until certain results can be
achieved.

Promote market management and implement the State Law

• Resolutely not to abuse market fluctuations to speculate and raise
prices, especially for essential goods for consumption and production
such as gasoline, iron and steel, cement, medicine, food, and drinks...
• Preventing cross-border illegal trade, particularly oil and gas and
mineral smuggling.

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 • Enterprises from all economic sectors must verify the selling prices at
their retail networks and retail agents on a regular basis.
Policies to enhance social security
In the face of massive costs that affect people's lives, the government
must advocate for the development of social security, particularly in
impoverished regions, poor households, natural disaster-affected areas, and
low-income employees.
4.2. Evaluate hyperinflation in the world in recent years
Hyperinflation occurs when inflation rates rise quickly and
uncontrollably. Hyperinflation is reached when an economy’s inflation rate
is at least fifty percent for a thirty day period. However, high inflation rates
consistent over a prolonged period of time also qualify as
hyperinflation. Here are three countries with hyperinflation in recent years.
• Yugoslavia ( 1994)
Another extreme case of hyperinflation with the Yugoslavian dinar
between 1993-1995. The steepest rate of inflation during this period was in
January 1994, when prices rose 313 million percent over the month, which
is equivalent to 64.6 percent per day, with prices doubling approximately
every 34 hours. During the entire period of inflation, it is estimated that
prices increased by 5 quadrillion percent.
Throughout the period, the government had an extremely difficult time
maintaining the social structure of the country after ineffective price controls
exacerbated the problems, government agencies were virtually unable to
operate and residents avoided paying bills on time since they would be
devalued so rapidly.
In the case of Yugoslavia, the drastic imbalance of supply and demand,
combined with a faltering government and unchecked printing of currency
were the root causes of the country’s massive inflation.

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 • Zimbabwe ( 2008)
Zimbabwe’s economy reached hyperinflation in March 2007, just passing
the 50 percent threshold. For the next year, the nation’s inflation was a
tumultuous series of highs and lows, eventually reaching a staggering 79.6
billion percent in November 2008.
The situation became so dire that shops in the country simply began
refusing the currency and the US dollar, as well as the South African rand
became the de facto medium of exchange. Inflation finally came to the end
with direct intervention by the Reserve Bank of Zimbabwe that re-priced the
currency, pegging it to the US dollar. The government also issued regulations
that shut down the country’s stock exchange.
Despite the nation’s inflation rate lowering back down to 59.4 percent as
of February 2019, Zimbabwe is still struggling to limit its cost of imports
and boost its revenue from exports.
In sum, the widespread contraction of the economy, severe shortages of
basic goods and serious lapses in government policy all contributed to
Zimbabwe's spiral into hyperinflation.
• Venezuela ( 2016 )
In the 1970s world energy crisis, Venezuela was a highly profitable oil
producer. After oil prices dropped once the energy crisis ended in the 1980s,
Venezuela’s chief export greatly declined in revenue and its economy began
to suffer. Despite the decline in exports, Venezuela still needed to spend
large sums of funding on the importation of basic goods for its people. This
led to inflation, as the country dug itself into deficit spending.
Now, inflation in Venezuela has reached monumental levels of
devastation. Venezuela has been in hyperinflation since November 2016,
when the inflation rate exceeded 50 percent. The International Monetary

29
Fund estimates that inflation in Venezuela will exceed ten million percent by
the end of 2019. Because of this economic crisis, poverty is widespread in
this country, reaching 87% in 2017.
• South Sudan ( 2016 )
South Sudan’s economy is also almost entirely oil-based. However, South
Sudan was quickly caught in a civil war from 2013 to 2018, soon after its
founding. Damage to oil fields and other resources due to warfare severely
affected the revenue of South Sudan’s exports. Inflation began as the struggle
for resources and funding inflicted this budding nation.
At its peak, inflated food prices reached about 513 percent in December
2016. By the end of December 2018, the inflation on food prices dropped to
51 percent but is still hyperinflammatory by definition.
According to the World Bank Organization, South Sudan’s overall
inflation rate was an estimated 130.9 percent by the end of 2018; by the end
of 2019, it is expected to drop to 49.3 percent, just under the hyperinflation
threshold. However, given the financial instability of the nation, South Sudan
will remain under close observation of the International Monetary Fund and
similar entities for the foreseeable future.
• Potential Solutions
Although the number of emerging and frontier markets currently
experiencing severe inflation problems is rather low, it is increasing, , adding
that the impact of COVID-19 has not worsened inflation in troubled currency
countries to any significant degree.
Zimbabwe, Sudan,.... are facing surging inflation, but none are
currently suffering hyperinflation.
Expectations for long-term inflation for emerging markets rose steeply
in the initial onset of the pandemic, particularly for more vulnerable
economies. But those expectations have since eased to record lows for many
emerging markets.

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 In a bid to stimulate their economies, many emerging market central
banks aggressively eased monetary policy in the wake of the pandemic,
moves made possible by their low inflation and huge quantitative easing by
developed market central banks.
Besides the numerous potential ways to address hyperinflation we
mentioned above, a common solution for this phenomenon is dollarization
— the abandonment of a failing domestic currency in favor of a stable
foreign currency.
Of the three countries in hyperinflation today, Zimbabwe did utilize
this method of dollarization; however, as of 2019, it abandoned dollarization,
triggering the start of nationwide economic problems yet again. Overall, for
these three countries in hyperinflation today, maintaining dollarization may
be their best chance in regaining economic stability.

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 CONCLUSION

A decade ago, Zimbabwe experienced hyperinflation, which was one

of the worst issues in human civilization. Zimbabwe's economy has grown
dramatically since the early 1980s. Zimbabwe, formerly regarded as Africa's
prosperous breadbasket, is suffering from drought, massive unemployment
(over 90%), shortages of essential goods, and a foreign exchange crisis.
Many local firms have been forced to migrate or close stores, and those that
remain are struggling with low productivity due to the scarcity of foreign
currency to buy raw materials or renovate machinery.
Within the scope of our research, we come to the conclusion that
inflation can be caused by a wide variety of factors, the most influential of
which is money. In Zimbabwe, the government constantly prints money to
satisfy its requirements, diminishing the value of the Zimbabwean dollar and
driving up import prices. The Zimbabwean people's inflation nightmare is
far from over. The fact that prices of goods have soared owing to a shortage
of raw resources is significant since there is a scarcity of foreign money. The
industrial sector has been severely hindered by the lack of raw materials.
Zimbabwe has spent a lot of money on imports of goods and food such as
fruits, vegetables, soybeans, wheat, and so on, as well as essentials such as
toothpaste and medicines. This demonstrates that the country does not
produce even basic products for domestic consumption. For many years, the
amount of money in circulation has risen rapidly, which is one of the major
drivers of inflation. In order to keep inflation under control, So, in order to
stabilize the inflationary scenario, Zimbabwe must cut imports while
increasing domestic production.
In a short time period, hyperinflation has scaled down this South
African country to one of the poorest on the continent, despite the fact that it
was previously regarded as the most promising country in Africa due to its

32
economic potential and abundant resources. 80% of workers fall into
unemployment. The education systems and other sectors in this country
have collapsed. Increasing shortages of essential goods, as well as economic
uncertainty in the run-up to government elections There, are many
impoverished "billionaires" in this nation. Zimbabwe's economy is believed
to have entirely collapsed, forcing the usage of virtual currency Bitcoin as a
reluctant means of payment.
From all the aforementioned points, it is recommended that Zimbabwe
should invest more in some effective strategies as follows: Implement
contractionary monetary policy, adjust investments in public and domestic
enterprises, balance supply and demand curve, promote market management,
the State Law and enhance social security.

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 REFERENCES
https://ladigi.vn/sieu-lam-phat-o-zimbabwe-la-gi-chi-tiet-ve-sieu-lam-
phat-o-zimbabwe-moi-nhat-2021

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