The Case of Zimbabwe’s Inflation: Part II

This is the second part of the two part series on Zimbabwe’s current situation with inflation. One thing that I did not point out last time was that this seems to be happening to a developing economy every decade or so. Argentina is the famous case. More from The Economist:

“Zimbabweans spend their local dollars as fast as possible or change them into hard currency on the black market. A parallel system is thriving in back offices and parking lots. Ronald was a civil servant but became a money dealer about a year ago to feed his family. He now makes about $100 a month, whereas his former colleagues earn the equivalent of less than $2 a month, enough to buy two loaves of bread.”

As economists have predicted when there is hyperinflation most people move to a different currency; one that doesn’t cost so much to upkeep. There is also entrepreneurship here too. Ronald has figured out that he can make more money dealing money than he can working. This of course is not good but not Ronald’s fault. It would be much better if the government didn’t hyper inflate and then Ronald could do a more productive job.

Here is how they are substituting a new currency:

“With a strict daily limit (currently less than $1.40) on bank withdrawals, people shun banks as much as possible and are returning to a cash economy. Petrol and rents are now charged mainly in American dollars or South African rand, but since some landlords have been taken to court, rents are increasingly often paid for in groceries. People buying overpriced cooking oil or sugar on the black market, since those items have long vanished from shops due to official price controls, are charged more if they pay in local dollars. Petrol coupons have become a virtual currency.”

This of course is crippling the banking market and savings market. There is no incentive for them to save due to the currency being worthless everyday. Price controls are usually a classic sub-regulation to inflation. I have never understood this. It is the governments fault that the inflation is high, but they blame someone else and try to use price controls, instead of stopping the printing of money.

This will probably not be the last hyperinflation that we will ever see, but the more we educate the more it hopefully will not happen. Even though, in some cases dictators do not have an incentive to stop inflation. They can pay for many things with their printed money. They do have a chance of revolt but that doesn’t seem to be stopping them.

~PCCapitalist

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Published in: on September 12, 2008 at 12:21 am  Comments (1)  
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