It seems that the Zimbabwean central bank is fighting the inflation in Zimbabwe by lopping 10 zeroes off the end of its currency, making 10,000,000,000 Z$ into 1 Z$. Sadly, as mentioned by the Guardian, a new Z$ is not enough to buy a loaf of bread...
Will this ploy to control inflation work? Of course not. This simply makes it easier for people to read the amounts of money they are spending and receiving, and even that, only for a few months, till hyperinflation makes the value of the new Z$ high enough for the CB to lop off more zeroes from it.
The way to really curtail hyperinflation is to stop printing currency to pay the military. While printing currency allows Mugabe to pay his soldiers in the short-term, this printed money ultimately goes to the open market, where, due to the steady, unrelenting inflow of Zimbabwe dollars in circulation, the Zimbabwe dollar steadily loses its value. The solution for Zimbabwe then really is that simple: stop printing paper money so fast that it drives your economy into hyperinflation. Unfortunately, because Mugabe is currently running a somewhat unpopular regime, that is unlikely to happen for quite a while, which means that we will hear about the Zimbabwe central bank re-revaluating Zimbabwe dollars fairly soon.
[via Guardian]
2008-07-31
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it definitely seems like taking off the zeroes hides the problem rather than fixing it, but i feel like reversing inflation isn't quite as much of a quick fix as you're suggesting. are you saying rather than paying the military in physical cash they "deposit money" in their bank accounts or something?
ReplyDeleteI completely agree with you; fighting hyperinflation is very hard. Many academicians' careers have been made fighting hyperinflation (Jeffrey Sachs). However, when I said stop printing money to pay the military, I did not mean deposit money directly into their bank accounts instead; I meant the government should stop making up new money entirely. Anyhow, it is slightly unclear what it means for the government to deposit money into soldiers' bank accounts if the government does not intend to uphold those deposits in case the soldiers decide to spend the newly deposited money.
ReplyDeleteRegardless, I agree with you; I feel the government of Zimbabwe should reduce the standing military (or their pay, although I imagine both actions will have the same effect) so that they can pay them without expanding the currency in circulation. However, that is unlikely to happen, given the current political situation in Zimbabwe.