How to Correctly Understand Zimbabwe’s Hyperinflation

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Executive Summary

  • Private banking interests habitually oversimplify Zimbabwe’s hyperinflation as the Zimbabwe government printing too much money.

Introduction

The following describes the inflation situation that occurred and is occurring again in Zimbabwe.

“However, Zimbabwe’s peak month of inflation is estimated at 79.6 billion percent month-on-month, 89.7 sextillion percent year-on-year in mid-November 2008. In April 2009, Zimbabwe stopped printing its currency, with currencies from other countries being used.[2] In mid-2015, Zimbabwe announced plans to have completely switched to the United States dollar by the end of that year. In June 2019, the Zimbabwean government announced the reintroduction of the RTGS dollar, now to be known simply as the “Zimbabwe dollar”, and that all foreign currency was no longer legal tender. 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. On three occasions, the Reserve Bank of Zimbabwe redenominated its currency.” – Wikipedia

“The inflation and subsequent hyperinflation in Zimbabwe were offshoots of more specific problems transpiring in its economy. Zimbabwean economists Arnold M. Chidhakwa and Gibson Chigumira noted that the country had a vibrant and diversified manufacturing industry in the early 1980s and it was likely to become one of the newly industrialized economies together with South Africa in the late 1980s. However, underinvestment and counterproductive interventionist policies negated economic growth that resulted further into an economic crisis. With the worsening economic condition, Zimbabwe experienced a wave of emigration to neighboring countries, thus resulting in the decline of the labor force beginning in 2003. About 6 percent of the entire population emigrated in 2005 and this increased by 9.9 percent emigrated in 2010.” – Wikipedia

Source: Wikipedia

https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe

Most of the explanations around inflation in Zimbabwe often state that Zimbabwe printed too much money. This is not an adequate explanation, as the following video explains.

A major promoter of this decline of productive capacity was land reform (land given to non-farmers politically connected to Mugabe) that undermined Zimbabwe’s primary industry, agriculture. Furthermore, several banks collapsed, which meant more declining demand. Declining demand meant that there was more money than there was demand. This is a perfect condition for inflation.

How Mugabe Ruined Zimbabwe’s Economy

Zimbabwe essentially collapsed as an economy, and the country had a famine. With any hyperinflation event, private banking interest-funded media and economists push the story into a cut-and-dried issue of the government printing too much money. However, in both Weimar Germany and Zimbabwe, there was a great decline in productive capacity (with Germany, this was an economy wrecked after WWI). Private banking interests are not interested in explaining this side of the story.