Hyperinflation in Zimbabwe wasn't all it appeared to be

September 22, 2009 4:58 AM

First Zimbabwe formally abandoned their currency, then received assistance from The IMF, and now now we're seeing inflation in that nation easing to an acceptable rate of 0.04% per month. So it's fair to ask, is hyperinflation in Zimbabwe is a thing of the past?

There are five criteria seen in every documented case of hyperinflation; specifically

• The population keeps most wealth in non financial assets
• Any financial wealth is held in non local currency, and prices are quoted in that currency
• Sales on credit explicitly price in expected inflation
• Wages and interest rates are explicitly linked to inflation
• Inflation of over 100% during a three year period is documented

So what was really behind Zimbabwe's remarkable - and devastating - hyperinflation?

No, it wasn't imprudent monetary policy, nor was it unwise fiscal policy, it was something more base and easily understood.

Hyperinflation in Zimbabwe was mostly caused by corruption, government officials and insiders enriching themselves at the cost of others.

But amid all this good news, Zimbabwe's ruling elite don't like losing power, and there are genuine fears a return to the "bad old days" is just a matter of time.

posted by Mutant (19 comments total)

I once saw a hundred trillion dollar Zimbabwean note on ebay. I put up $5 for the novelty value. I think it went for $10.
posted by Salvor Hardin at 5:24 AM on September 22

But amid all this good news, Zimbabwe's ruling elite don't like losing power, and there are genuine fears a return to the "bad old days" is just a matter of time.

Well, Zimbabwe's government structure has changed. Mugabe has been forced into a power sharing agreement with the dissident Tsvangirai, who probably would have won the election if it had been fairly counted.
posted by delmoi at 5:29 AM on September 22

I once saw a hundred trillion dollar Zimbabwean note on ebay. I put up $5 for the novelty value. I think it went for $10.

Was the seller Mugabe himself or does he get his henchmen to do his ebay sales for him?
posted by Pollomacho at 5:35 AM on September 22 [1 favorite]

The corruption with official exchange rates leading to inflation is not something that is obvious.

The 'oh they just printed money' it's obvious answer is what seems obvious but actually reading the links provides an interesting view of the way in which it actually occurs.
posted by sien at 5:42 AM on September 22 [1 favorite]

With all their old currency around, at least the Zimbabweans have enough toilet paper.

Interesting links. Thanks Mutant.
posted by applemeat at 5:43 AM on September 22

Assuming one approaches the RBZ and accesses $US 1000 at the official rate of 1: 30,000.It means you pay the RBZ Z$ 30 million. The you walk across the city to fourth street to take the US$ 1,000 to Road Port and you meet one of the RBZ’s runners who offers you 1: 4,000,000.So for each US$ you get 4 million Z$.

So basically the RBZ runner has unlimited access to Z$ (because of corruption / connection and so on).

Looks like a Ponzi scheme which will only work as long as more people change the 1000 US$ in Z$. I guess there will be some people now which changed their US$ and are proudly owner of boxes of Z$ (which are worth nothing) - the "sucker" which got in late.

I would actually converted the 4 billions to anything else like land / cars / homes but I guess the guys running the scheme did exactly this. In fact draining out the dollars from the other "players".

What a mess of a place.
posted by elcapitano at 5:44 AM on September 22

More on the corruption that drove Zimbabwe's hyperinflation, basically describing the money pump insiders had access to. To excerpt:

"Zimbabwe’s fixed and unsound foreign exchange rate policy aids corruption and in turn feeds the hyperinflation. A simple example will clarify the point. Assuming one approaches the RBZ and accesses US$1000 at the official rate of US$1: Z$30,000, it means you pay the RBZ Z$30 million. Then you walk across the city to Fourth Street or take the US$1,000 to Road Port and you meet one of the RBZ’s runners who offers you a rate of US$1: Z$4,000,000.

So, for your RBZ-sourced US$1,000 you get a whooping Z$4 billion. Magic! So within one morning, Z$30 million becomes Z$4 billion. Since this is a sweeter than honey, at around 2PM you rush back your suitcases of bearer (or is it burial?) cheques to the RBZ and buy more forex. This time around, you are loaded with Z$4 billion, which can buy you a massive US$133,000. And by now, from a mere millionaire in the morning, you are now in a respectable neighbourhood with Z$533 billion (US$133, 000 times Z$ 4,000,000)."

A true indication of exchange rates is very, very difficult to come by if you're not actually in Zim, but just to give you an idea of the disparity

"The official exchange rate is 285,000 Zimbabwe dollars to one US dollar. On the parallel market, one US dollar fetches 1.6 million ZWD."

When I was working down in Africa it was common knowledge on the ground corruption in that nation was almost totally out of control, and driving most of the hyperinflation.

Great news if they've finally got it under control. I met a lot of very capable Zimbabweans, who were totally frustrated by their plight. Lots were working in Nigeria (where I spent several years), sending whatever financial aid they could back home.

Its curious, but lots of folks point to Zimbabwe as an example of hyperinflation, but totally ignore cases closer to home - e.g., Soviet Georgia - that are bona fide textbook examples of imprudent monetary or fiscal policies.

Salvor Hardin -- The eBay auctions were previously discussed. Don't think you'd get much more than novelty value, ever, as the ruling elite printed so much damn money to enrich themselves.

delmoi -- "Well, Zimbabwe's government structure has changed. Mugabe has been forced into a power sharing agreement with the dissident Tsvangirai, who probably would have won the election if it had been fairly counted."

Yeh, I really hope the nation doesn't regress. Seems like they're on a clear path away from the corruption and downright evil that made the lives of anyone not "connected" a living hell.
posted by Mutant at 5:44 AM on September 22 [1 favorite]

The official exchange rate of Burma is 6.51 Kyat to one USD - which is more or less what it was when I was there. On the "parallel market", it's about 200 times that rate.
posted by gman at 5:54 AM on September 22

[few comments removed - "respectful discussion" remember?]
posted by jessamyn at 6:06 AM on September 22

I don't even understand how you can measure the rate of inflation in a currency which no-one is using. Or is the quoted figure meant to represent some sort of US dollar inflation rate within Zimbabwe?

Either way, to say you have to take the figure 'with a pinch of salt' is surely an astronomically large understatement. You have to take inflation indices with a very large pinch of salt anywhere; they rest on unavoidably arbitrary selections and simplifications. Even in a sophisticated, stable economy, it's really nonsense to claim you can measure inflation to two decimal places.
posted by Phanx at 6:45 AM on September 22

I once saw a hundred trillion dollar Zimbabwean note on ebay.

A friend of mine who has just returned from a couple of years living there mentioned that even well before the currency switchover, it was possible to pick up a trillion dollars worth of groceries in your hatchback. He mentioned also enjoying the mafia don feel of dining out, where people at the table would just throw piles of money into the middle of the table, forming a raggedy pyramid of cash.
posted by ricochet biscuit at 7:05 AM on September 22

Excellent post, Mutant. Yeah, I've thought of getting one of those umpteen trillion $Z bills, but then I remember certain scenes from Snow Crash, and it's not quite as funny.
posted by Halloween Jack at 7:11 AM on September 22

Yeah, I pretty much ignore the actual numeric inflation rate and mentally assign a name for an inflation range based on how it feels to me at the grocery store, gas station, etc.: Negative, Low, Moderate, High, and Oh Shit. It feels like Low now. I remember High a few decades ago. I haven't ever experienced Oh Shit before and I hope I never do.
posted by jamstigator at 7:12 AM on September 22

I looked through the links but could not find an answer to this question (maybe I missed it): what guarantees did the IMF receive in return for providing this help to Zimbabwe?
posted by rokusan at 7:20 AM on September 22

I vaguely remember reading a pro-Mugabe Zimbabwe blog by a Marxist, but I couldn't find it with a quick Google. It was mostly notable because I don't think I've ever heard any other defenses of Mugabe from outside of the Zimbabwean government. Is there anyone else out there giving that a shot?
posted by Copronymus at 7:57 AM on September 22

inflation in that nation easing to an acceptable rate of 0.04% per month

There is an extra zero in there. The rate is 0.4% per month.
posted by ssg at 8:20 AM on September 22

I'll fess up. I bought a hundred trillion Zibabwean dollar bill, but after the currency was suspended from use. I paid $3.75 to a US-based seller for the bill and shipping. It was surreal, holding professionally made currency with that face value, especially after being there in person.

I was also able to visit a number of years ago, after first going to South Africa. As a family of white tourists from the US, bartering for tourist items initially felt a bit odd, but I got used to it in South Africa. But in Zimbabwe, the prices for similar items were drastically less, and one young boy wanted to trade my sister her river sandals for a carved wooden item he had. Instead of vendor stalls in market places, filled with carved and beaded items, Zimbabwe was a scene of many people, each trying to sell one item, along the busier tourist-frequented streets. Our guide there offered his services to get a better exchange rate, because there was a thriving black market for currency, where you could get many times the exchange rate as officially offered at the bank. Visiting South Africa, we were clearly not in wholly familiar territory, but it felt like home by comparison to Zimbabwe. I really hope their economy stabilizes, for the sake of the people trying to make a living.
posted by filthy light thief at 8:25 AM on September 22

I'm sure it has cultural or historical meaning for Zimbabweans, but the pile of rocks on the hundred trillion note seems strangely appropriate.
posted by the cydonian at 6:58 AM on September 23

More details on how hyperinflation - not to mention everyday life - is returning to normal once the mechanisms of corruption driving inflation in Zimbabwe were removed.

"This time last year we were still dealing in Zimbabwe dollars - worthless paper in denominations of billions and trillions which had expiry dates. We were queuing outside banks for days at a time to be allowed to withdraw miniscule amounts of our own money. Amounts that weren't enough to even buy a bar of soap or a cup of tea. This dreadful time is also now a thing of the past and the banks are deserted places because most people don't have enough money to save and don't trust the banks who so recently treated their customers and their life savings with such casual contempt.

The reality of life in Zimbabwe this October 2009 is that the basics are back: food, fuel and bank notes."

The challenge now will be to insure insiders no longer have access to the money pump i.e., can obtain foreign currency at preferential rates from the Central Bank of Zimbabwe's as the links upthread documented.

From everything I've read the Central Bankers actually had the foundations of sound monetary and fiscal policies in place, but when corrupt insiders can loot the nations hard currency reserves at will, hyperinflation is a foregone conclusion.

This has been a very unique case of hyperinflation, at least in these times. While there are documented cases of hyperinflation driven by insider corruption, most occurred centuries ago.
posted by Mutant at 2:10 AM on September 27