The economy of Zimbabwe has been undergoing hyperinflation since February 2007, according to Cagan's definition of hyperinflation. During the height of inflation from 2008 to 2009, it was difficult to measure Zimbabwe's hyperinflation because the government of Zimbabwe stopped filing official inflation statistics. However, Zimbabwe's peak month of inflation is estimated at 790.6 billion percent month-on-month, 89.7 sextillion () percent year-on-year in mid-November 2008. At that time, a $100 trillion banknote could not pay for a simple bus fare.
In April 2009, Zimbabwe stopped printing its currency, and currencies from other countries were used. In mid-2015, Zimbabwe announced plans to completely switch to the United States dollar by the end of that year.
In June 2019, the Zimbabwean government announced the reintroduction of the Real Time Gross Settlement dollar (RTGS), to be known simply as the "Zimbabwe dollar", and that all foreign currency was no longer legal tender. By mid-July 2019, inflation had increased to 175%, sparking concerns that the country was entering another period of hyperinflation. In March 2020, with inflation above 500% annually, a new task force was created to assess the currency problems. By July 2020, annual inflation was estimated to be 737%.
Historical context
On 18 April 1980, the Republic of Zimbabwe was born from the former Republic of Rhodesia. The Rhodesian dollar was replaced by the Zimbabwean dollar at par value. When Zimbabwe gained its independence from the United Kingdom, the newly introduced Zimbabwean dollar was initially more valuable than the United States dollar at the official exchange rate. However, that did not reflect reality because, in terms of purchasing power on the open and black markets, it was less valuable, due primarily to the higher inflation in Zimbabwe. In its early years, Zimbabwe experienced strong growth and development. Wheat production for non-drought years was proportionally higher than previously, and the tobacco industry was thriving. Economic indicators for the country were strong.
From 1991 to 1996, the Zimbabwean ZANU–PF President Robert Mugabe embarked on an Economic Structural Adjustment Programme (ESAP) that had serious negative effects on Zimbabwe's economy. In the late 1990s, the government instituted land reforms in the name of anti-colonialism intended to evict white landowners and place their holdings in the hands of black farmers. However, many of the new farmers had no experience or training in agriculture. Many farms simply fell into disrepair or were given to Mugabe loyalists. From 1999 to 2009, the country experienced a sharp drop in food production and in all other sectors. The banking sector also collapsed, with farmers unable to obtain loans for capital development. Food output fell 45%, and manufacturing output fell by 29% in 2005, 26% in 2006 and 28% in 2007. Unemployment rose to 80%. Life expectancy dropped. Much of the nation's middle class fled the country en masse taking much of the nation's capital. The Reserve Bank of Zimbabwe blamed the hyperinflation on economic sanctions imposed by the United States of America, the IMF, and the European Union.Illegal Sanctions to Blame for Economic Challenges – Mutasa The Herald (Harare) These sanctions affected the government of Zimbabwe,S. 494 (107th): Zimbabwe Democracy and Economic Recovery Act of 2001 Sec. 4. Support for Democratic Transition and Economic Recovery. See Section 4C. asset freezes and visa denials targeted at 200 specific Zimbabweans closely tied to the Mugabe regime. There were also restrictions placed on trade with Zimbabwe, by both individual businesses and the US Treasury Department's Office of Foreign Assets Control.
A monetarist viewSee, for instance, Friedman, Milton. Inflation: Causes and Consequences. New York: Asia Publishing House: "Inflation is always and everywhere a monetary phenomenon." is that a general increase in the prices of things is less a commentary on the worth of those things than on the worth of the money. This has objective and subjective components: Objectively, that the money has no firm basis to give it a value. Subjectively, that the people holding the money lack confidence in its ability to retain its value.
Crucial to both components is discipline over the creation of additional money. However, the Mugabe government was printing money to finance military involvement in the Democratic Republic of the Congo and, in 2000, in the Second Congo War, including higher salaries for army and government officials. Zimbabwe was under-reporting its war spending to the International Monetary Fund by $22 million a month.
Another motive for excessive money creation has been self-dealing. Transparency International ranks Zimbabwe's government 157th of 177 in terms of institutionalised corruption. The resulting lack of confidence in government undermines confidence in the future and faith in the currency.
Economic missteps by government can create shortages and occupy people with workarounds rather than productivity. Though this harms the economy, it does not necessarily undermine the value of the currency, but may harm confidence in the future. Widespread poverty and violence, including government violence to stifle political opposition, also undermines confidence in the future. Land reform lowered agricultural output, especially in tobacco, which accounted for one-third of Zimbabwe's foreign-exchange earnings. Manufacturing and mining also declined. An objective reason was, again, that farms were put in the hands of inexperienced people; and subjectively, that the move undermined the security of property.
Government instability and civic unrest were evident in other areas. Zimbabwean troops, trained by North Korean soldiers, conducted a massacre in the 1980s in the southern provinces of Matabeleland and Midlands, though Mugabe's government cites guerrilla attacks on civilian and state targets. Conflicts between the Ndebele people and Mugabe's government have led to many clashes. There was also unrest between black people and white people, in which the land reform was a factor. One aspect of this reform sought to discriminate against white people specifically and many were forced by the regime to sign over their businesses to the black majority.
The Reserve Bank of Zimbabwe responded to the dwindling value of the dollar by repeatedly arranging the printing of further banknotes, often at great expense from overseas suppliers. On 1 March 2008, it was reported that documents obtained by The Sunday Times showed that the Munich company Giesecke & Devrient (G&D) was receiving more than €500,000 (£381,562) a week for delivering bank notes equivalent to Z$170 trillion a week. By late 2008, inflation had risen so high that ATMs for one major bank gave a "data overflow error" and stopped customers' attempt to withdraw money with so many zeros.
Self-perpetuation
Also in Zimbabwe, neither the issuance of banknotes of higher denominations nor proclamation of new currency regimes led holders of the currency to expect that the new money would be more stable than the old. Remedies announced by the government never included a believable basis for monetary stability. Thus, one reason the currency continued to lose value, causing hyperinflation, is that so many people expected it to.
Inflation rate
+ Zimbabwean inflation rates since independence (up to July 2008, estimates thereafter) Date Rate Date Rate Date Rate Date Rate Date Rate1980 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 % (662,000%)1984 10%1990 17%1996 16%2002 199%July 2008 % (2,315,000,000%)1985 10%1991 48%1997 20%2003 599%mid-Nov 2008 % (79,600,000,000%)
Over the course of the five-year span of hyperinflation, the inflation rate fluctuated greatly. At one point, the US Ambassador to Zimbabwe predicted that it would reach 1.5 million percent. In June 2008, the annual rate of price growth was 11.2 million percent. The worst of the 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 percent. This resulted in becoming equivalent to Z$2,621,984,228.Zimbabwe inflation hits new high BBC News, 9 October 2009
On 13 July 2007, the Zimbabwean government said that it had temporarily stopped publishing inflation figures, a move that observers said was meant to draw attention away from "runaway inflation which has come to symbolise the country's unprecedented economic meltdown". In 2008, the inflation rate accelerated dramatically, from a rate in January of over 100,000% to an estimated rate of over 1,000,000% by May, and nearly 250,000,000% in July. As predicted by the quantity theory of money, this hyperinflation was linked to the Reserve Bank of Zimbabwe increasing the money supply.
Old Mutual Implied rate
As hyperinflation accelerated, the value of the Zimbabwean dollar declined rapidly against other currencies, yet official exchange rates published by the Reserve Bank of Zimbabwe were infrequently updated; this made it impossible to tell from an official source how much the Zimbabwe dollar was really worth against other currencies on a particular day, which in turn disrupted international business transactions involving Zimbabwe dollars. Staff from WM/Reuters devised an indirect means of measurement that was termed the Old Mutual Implied Rate (OMIR). This took the daily price of Old Mutual shares traded in the London and Harare stock markets and used it to derive a national daily exchange rate between the Zimbabwe dollar and the pound. Shares had much looser capital controls than the Zimbabwean banking system, so they were used as a vehicle for moving capital between currencies by buying stock in either London or Harare and then selling in the other location.
The Old Mutual Implied rate was a widely adopted benchmark rate for unofficial currency exchange until intervention by the Reserve Bank of Zimbabwe in May 2008 prohibited the transfer out of the country of shares in Old Mutual, ABC and Kingdom Meikles Africa, thereby blocking their fungibility.
Adaptations
Use of foreign currencies
In 2007, the government declared inflation illegal. Anyone who raised the prices for goods and services was subject to arrest. This amounted to a price freeze, which is usually ineffective in halting inflation. Officials arrested numerous corporate executives for changing their prices.
In December 2008, the Reserve Bank of Zimbabwe licensed around 1,000 shops to deal in foreign currency.Zimbabwe economy virtually foreign exchange-based: media Yahoo News, 1 January 2009Zimbabwe: Econet Subscribers Caught Unawares allAfrica.com, 3 January 2009 Citizens had increasingly been using foreign currency in daily exchanges, as local shops stated the prices of few goods in Zimbabwe dollars, because they needed foreign currency to import foreign goods. Many businesses and street vendors continued to do so without getting the license.
In January 2009, acting Finance Minister Patrick Chinamasa lifted the restriction to use only Zimbabwean dollars. This acknowledged what many were already doing. Citizens were allowed to use the US dollar, the euro, and the South African rand. However, teachers and civil servants were still being paid in Zimbabwean dollars. Even though their salaries were in the trillions per month, this amounted to around US$1, or half the daily bus fare. The government also used a restriction on bank withdrawals to try to limit the amount of money that was in circulation. It limited cash withdrawals to $Z500,000, around .Hyperinflation forces Zimbabwe to print $200 million notes. (6 December 2008). CNN. Retrieved 6 December 2008.