In previous posts I have mentioned many examples for the Hyperflation. But now we live example in the form of Zimbabwe. In our country, according to today’s numbers released by CSO inflation is 12.14 as compared to previous week’s 12.10. Where as in Zimbabwe it is 11.2 million per cent! Yes, 11.2 million per cent, the highest in the world's history!
Why Zimbabwe is in this situation?
Zimbabwe is in the throes of an unparalleled economic crisis because of over a decade of economic recession, extreme food and fuel shortage, an unemployment rate of over 80 per cent, and lack of political will to do anything about it.
The other reasons also are the government's ban on relief efforts by foreign NGOs, a debilitating drought, and the scourge of the AIDS epidemic.
War, mismanagement and excuses
The war in the Congo that Zimbabwe was involved in for over 5 years since 1998 too bled its coffers dry, as hundreds of millions of dollars fled from the economy.
When did the problem begin?
Soon after the dogs of war were let loose and Zimbabwe took to arms in the war in the Congo in 1998, production levels, investment, education, peace, prosperity, growth everything began to be hit hard.
And then in 2001 came President Robert Mugabe's new orders. The Zimbabwean ruler, just a year after he took charge, and began to seize commercial farms owned by whites. This has caused huge shortages of foodstuffs and commodities in the southern African nation.
So how are Zimbabweans surviving?
Barely, you can just about buy a loaf of bread for Z$1,000. And if you want a few bananas, you need to pay a bagful of cash.
The economy faces collapse with consumers resorting to barter as inflation and a slump in the Zimbabwe dollar erodes the value of cash.
Cash-strapped people are resorting to bartering fuel coupons for goods, such as household appliances and furniture. Some retailers prefer payment in coupons instead of local currency because of the rapid devaluation of the Zimbabwe dollar, report Zimbabwean newspapers.
What does this unprecedented level of inflation, or hyperinflation, mean?
Hyperinflation refers to a condition where prices of commodities rise to extreme levels quickly and the value of the nation's currency declines alarmingly. It is primarily a state of affairs where inflation runs amok and is totally out of control.
With the nation's inflation rate the highest in the world, the Zimbabwean government continues to print ever larger denomination notes to keep up.
What causes hyperinflation?
The collapse of Zimbabwe's economy and the government's response of printing more money to pay its debts have led to the highest inflation in the world. The Zimbabwwe dollar is currently trading on the black market at $30 million Zimbabwean for US $1.
Among the major causes of hyperinflation is a huge rise in money supply, decline in a flood of the nation's market with money unbridled increase in the money supply or the devaluation of the local currency caused by economic depression, calamity, political or social cataclysms, or war. This, in effect, hits the productivity of a nation leading to a sharp decline in availability of goods and services. It also leads to widespread unemployment.
A tsunami of unparalleled proportions
Even attempts to print more and higher-denomination currency notes does not quell the inflationary tsunami as the pace of rise of inflation is much faster and even the newly minted currency notes quickly lose their value.
Hyperinflation leads to hoarding, flight of capital, even exodus of people, a complete halt to new investment, production and jobs.
Inflation in Zimbabwe
In Zimbabwe, inflation was at 625 per cent in early 2004. In March 2007, it jumped to 1,700 per cent. By June 2007, inflation had shot up to 11,000 per cent. In July 2008, inflation skyrocketed to 2.2 million per cent. And now in September 2008, inflation has reached uncharted area at 11.2 million per cent!
A $10 trillion note!
The Zimbabwean central bank cut 10 zeroes off its currency last month, revaluing the $10 trillion note to $100 Zimbabwe dollars, in a bid to ease widespread cash shortages as the country battles the world's highest inflation rate.
Zimbabwe's currency is trading around Zimbabwe $350 -- $35 trillion in the old value -- against the US dollar.
But this new Z$1000 note can only buy a loaf of bread.
Source…
Rediff
