Opinion / Columnist
Zim$100 000 000 000 000 000 000 000 000
31 Oct 2013 at 15:58hrs | Views
The figure above is the last official currency in, real terms, that was issued as legal tender by the Reserve Bank of Zimbabwe if you add back the 13 zeros that had been slashed off the last Zim$100 trillion (10 to the power 14) currency issued on 16 January 2009 prior to the de jure introduction of the multicurrency system in Zimbabwe.
I have received a number of questions from people across the spectrum as to what caused the "death" of the Zim$. Another question that has been asked by numerous people of different ideological stripes and political persuasions, has been the following: what would be wrong with the introduction of the Zim$ to function alongside the prevailing multicurrencies within Zimbabwe?.
To answer these two straight forward questions, firstly let us focus on the first question. What killed the Zim$? The simple and straight forward answer is that the Zim$ was destroyed by hyperinflation. The corollary question of course is how? The Milton Friedman dictum immediately answers this question, i.e. "inflation is always and everywhere a monetary phenomenon", caused by excessive money supply, i.e. excessive printing of money. The age-old adage asserts that the devil is in the detail so let us forensically search for this devil who is hiding in the detail. What happened? Who printed the excessive money? Which in turned caused hyperinflation, resulting in the negatively adverse feedback loop of the worst kind in the financial history of mankind?
In 1980, the bank notes that were in circulation in Zimbabwe were Z$2 to Z$20. The Zim$1 was equivalent to US$1.54. Annual inflation was about 5 per cent. Between 1994 and 2006, new notes ranging from Zim$50 to Zim$100 000 were issued for the first. In January 2008, the Z$1 million to Z$10 million notes were introduced and in near-perfect correlation, inflation (which later mutated into hyperinflation) ballooned to 100 000 per cent. From May 2008 to January 2009, notes ranging from Z$100 million to Z$100 trillion (plus 13 zeros, the figure at the heading of this article) were issued, and hyperinflation went beyond 500 billion per cent (most analysts estimated it at trillions).
The above mathematically laden paragraph seeks to explain in simple terms what caused the death of the Zim$. The Zim$ was simply killed by the Reserve Bank of Zimbabwe's printing press. Every excess dollar printed caused a corresponding increase in inflation. That is all economics 101. There was one, and only one, cause of the death of the Zim$, and that is the excessive printing of the Zim$ by the RBZ.
Some may argue and cite political instability, political strife, land invasions, DRC intervention, war veterans, and sanctions etc etc. But how come these factors are still there but today Zimbabwe has the lowest inflation rate in the world at 1.28 per cent. Violence is still there, Zim has just intervened in the Renamo war in Mozambique, sanctions are still there, land invasions are still there, companies are forced to hand over 51 per cent etc etc. Something else is now missing: i.e. the Reserve Bank of Zimbabwe cannot print money any more. That is the answer. As Bill Clinton once remarked, "it's the economy, stupid".
The second question relates to the re-introduction of the Zim$ to function pari passu or alongside the multicurrency system. This one is a no-brainer. The moment the Reserve Bank of Zimbabwe is given authority to start printing money again, oh my God. The aforementioned process will repeat itself. Government will start paying civil servants in Zim$ citing sovereignty and some ridiculous jingoistic nationalism arguing that it cannot pay its workers using capitalist countries currencies (shame, shame, shame ). Contracts for government work will be paid in Zim$ and the RBZ will be smiling all the way to its printing presses (which are currently waning and waxing).
The catch will be that it would be very (if not impossible) to convert the Zim$ into the other multicurrencies. Shops will refuse to accept the Zim$, and, the foreign currency will begin to be scarce. And more fear will set in. Fears of an eventual fully fledged legislation forcing companies to accept the rapidly eroding Zim$. Capital flight, externalization, panic, shortages, liquidity crunch, all this resulting in renewed misery and political and social strife for the people of Zimbabwe. Hyperinflation in Zim$ terms will be back by popular demand. At the stroke of a pen, some overzealous government official can then outlaw the whole multicurrency system and all those with US$, Pound Sterling, and Rand deposits in Zimbabwean banks will be told via a government gazette that they will get their money in Zim$. There you have it.
I have sought to write this article in very basic terms so that people can understand the gravity of what the re-introduction of the Zim$ implies to their families.
I have received a number of questions from people across the spectrum as to what caused the "death" of the Zim$. Another question that has been asked by numerous people of different ideological stripes and political persuasions, has been the following: what would be wrong with the introduction of the Zim$ to function alongside the prevailing multicurrencies within Zimbabwe?.
To answer these two straight forward questions, firstly let us focus on the first question. What killed the Zim$? The simple and straight forward answer is that the Zim$ was destroyed by hyperinflation. The corollary question of course is how? The Milton Friedman dictum immediately answers this question, i.e. "inflation is always and everywhere a monetary phenomenon", caused by excessive money supply, i.e. excessive printing of money. The age-old adage asserts that the devil is in the detail so let us forensically search for this devil who is hiding in the detail. What happened? Who printed the excessive money? Which in turned caused hyperinflation, resulting in the negatively adverse feedback loop of the worst kind in the financial history of mankind?
In 1980, the bank notes that were in circulation in Zimbabwe were Z$2 to Z$20. The Zim$1 was equivalent to US$1.54. Annual inflation was about 5 per cent. Between 1994 and 2006, new notes ranging from Zim$50 to Zim$100 000 were issued for the first. In January 2008, the Z$1 million to Z$10 million notes were introduced and in near-perfect correlation, inflation (which later mutated into hyperinflation) ballooned to 100 000 per cent. From May 2008 to January 2009, notes ranging from Z$100 million to Z$100 trillion (plus 13 zeros, the figure at the heading of this article) were issued, and hyperinflation went beyond 500 billion per cent (most analysts estimated it at trillions).
The above mathematically laden paragraph seeks to explain in simple terms what caused the death of the Zim$. The Zim$ was simply killed by the Reserve Bank of Zimbabwe's printing press. Every excess dollar printed caused a corresponding increase in inflation. That is all economics 101. There was one, and only one, cause of the death of the Zim$, and that is the excessive printing of the Zim$ by the RBZ.
Some may argue and cite political instability, political strife, land invasions, DRC intervention, war veterans, and sanctions etc etc. But how come these factors are still there but today Zimbabwe has the lowest inflation rate in the world at 1.28 per cent. Violence is still there, Zim has just intervened in the Renamo war in Mozambique, sanctions are still there, land invasions are still there, companies are forced to hand over 51 per cent etc etc. Something else is now missing: i.e. the Reserve Bank of Zimbabwe cannot print money any more. That is the answer. As Bill Clinton once remarked, "it's the economy, stupid".
The second question relates to the re-introduction of the Zim$ to function pari passu or alongside the multicurrency system. This one is a no-brainer. The moment the Reserve Bank of Zimbabwe is given authority to start printing money again, oh my God. The aforementioned process will repeat itself. Government will start paying civil servants in Zim$ citing sovereignty and some ridiculous jingoistic nationalism arguing that it cannot pay its workers using capitalist countries currencies (shame, shame, shame ). Contracts for government work will be paid in Zim$ and the RBZ will be smiling all the way to its printing presses (which are currently waning and waxing).
The catch will be that it would be very (if not impossible) to convert the Zim$ into the other multicurrencies. Shops will refuse to accept the Zim$, and, the foreign currency will begin to be scarce. And more fear will set in. Fears of an eventual fully fledged legislation forcing companies to accept the rapidly eroding Zim$. Capital flight, externalization, panic, shortages, liquidity crunch, all this resulting in renewed misery and political and social strife for the people of Zimbabwe. Hyperinflation in Zim$ terms will be back by popular demand. At the stroke of a pen, some overzealous government official can then outlaw the whole multicurrency system and all those with US$, Pound Sterling, and Rand deposits in Zimbabwean banks will be told via a government gazette that they will get their money in Zim$. There you have it.
I have sought to write this article in very basic terms so that people can understand the gravity of what the re-introduction of the Zim$ implies to their families.
Source - Colls Ndlovu
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