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Hyperinflation In Zimbabwe
100,000,000,000,000
Hyperinflation defined
• Begins when monthly inflation rates exceed 50
percent
• Ends when rate falls under 50 percent where it
must stay for a year – Philip Cagan (1956)
• Zimbabwe entered hyperinflation period in
March 2007; ended in 2009
• Zimbabwe marked 30th such episode in history
Overview
• Introduction to Zimbabwe
• Before and during hyperinflation
• Zimbabwe’s inflation nightmare
• Effects of hyperinflation
• Stopping spiraling inflation
• Life after hyperinflation
Facts about Zimbabwe
• Located in Southern Africa
• Bordered by Zambia, Mozambique,
S. Africa, & Botswana
• 150,871 square miles
• About the size of California
• 2011 population – 12.7 million
• Colonized by the British
• Gained independence in 1980
• Robert Mugabe – 1st prime minister
• Mugabe government still in power
• Agricultural economy
• Main cash crop is tobacco
• First country to experience
hyperinflation in the 21st century
Before Hyperinflation
1980
Annual inflation at 5.4 percent
Largest currency denomination –
Z$20
Z$ used in 95 percent of
transactions
1US$ exchanged for Z$0.65
Real GDP expanded 14.6 percent
Real GDP per capita at US$ 232
Unemployment rate at 10.8
percent in 1982
Before and During Hyperinflation
1980
2008—2009
Annual inflation at 5.4 percent
Inflation at 231 million percent
Largest currency denomination –
Z$20
Z$ used in 95 percent of
transactions
Largest Z$ denomination – Z$100
trillion
US$, S.A rand used in almost all
transactions
1US$ exchanged for Z$0.65
Real GDP expanded 14.6 percent
1US$ officially traded for
Z$4million in 2008
Real GDP contracted by 17
percent
Real GDP per capita at US$ 232
Real GDP per capita at US$ 136
Unemployment rate at 10.8
percent in 1982
Unemployment rate at 94 percent
After Hyperinflation
2010—2011
Z$ no longer in circulation
US$ used in all transactions
Annual inflation averaged 3 percent
Real GDP expanded 9 percent
Real GDP per capita increased 6 percent
Inflation soars amid
hyperinflationary period
Percent,
month/month
500
450
400
350
300
250
200
150
100
50
0
-50
March 2007, inflation
exceeds 50 percent
1980
1985
1990
1995
2000
2005
2010
Real GDP contracts during
most of the past decade
Percent, year/year
20
15
10
5
0
-5
-10
-15
-20
1980
1985
1990
1995
2000
2005
2010
Zimbabwe’s tobacco production declines
Billions of tons
300
250
200
150
64% drop
100
50
0
1980
1985
1990
1995
2000
2005
2010
Population and labor force decline
Millions
13
Millions
5.5
12
5.0
Labor force
Population
11
4.5
10
4.0
9
3.5
8
3.0
7
2.5
6
2.0
1980
1984
1988
1992
1996
2000
2004
2008
Zimbabwe central bank government
debt holdings increase sharply
Millions of Z$,
log scale
10000000
1000000
100000
10000
1000
100
10
1
1980
1984
1988
1992
1996
2000
2004
2008
Zimbabwe dollar depreciates sharply
during hyperinflation era
Z$/US$, log scale
1E+18
1E+16
1E+14
1E+12
1E+10
100000000
1000000
10000
100
1
0.01
0.0001
1980
1984
1988
1992
1996
2000
2004
2008
Economic decline wipes out
53 years of income growth
GDP per capita
at PPP (2005 US$)
300
250
200
150
1954 GDP per capita level (US$151)
100
50
0
1950
1960
1970
1980
1990
2000
2010
Effects of hyperInflation
“…a loaf of bread now costs what 12
new cars did a decade ago, and a
small pack of locally produced coffee
beans costs just short of 1 billion
Zimbabwe dollars. A decade ago, that
sum would have bought 60 new cars.”
–Economic Times, June 13, 2008
“Inflation is always and
everywhere a monetary
phenomenon”
—Milton Friedman
Inflation and money supply
move
in
tandem
Money Supply Growth,
year/year
1.0E+20
CPI Inflation
1.0E+18
Inflation,
year/year
1000000
100000
1.0E+16
1.0E+14
10000
1.0E+12
1000
1.0E+10
1.0E+08
100
1.0E+06
Money Supply
1.0E+04
10
1.0E+02
1.0E+00
1994
1
1996
1998
2000
2002
2004
2006
2008
Stopping spiraling inflation
• Inflation expectations play a crucial role
• Government finance must be credible
• Adoption of an independent central bank
• Alteration of fiscal regime
• Exchange rate stabilization
• Adoption of a more credible currency
Post-hyperInflation Zimbabwe
• Encouraging signs of recovery
•Inflation down to single digits
•2010 GDP expanded 9 percent
•GDP per capita expanded 6
percent in 2010
Inflation down since dollarization
Percent, year/year
8
6
May 2012 = 4%
4
2
0
Jan-10
-2
-4
-6
Jul-10
Jan-11
Jul-11
Jan-12
Recovery expected to continue
Real GDP growth
Percent, year/year
15
International Monetary Fund
Forecasts
10
5
0
-5
-10
-15
-20
2001
2003
2005
2007
2009
2011
2013
2015
2017
• Challenges remain
•Rebuild public finances & trust
•Institute policies to control
government spending
•Reduce poverty
•Promote economic growth
Trust takes time to
rebuild
Summary
• Zimbabwe – First country to experience
hyperinflation in 21st century
• Excess money supply not backed by economic
growth leads to loss of confidence in currency
• Hyperinflation produces adverse impacts
• Z$100 trillion – largest denomination in the
history of money
• Zimbabwe’s case – a reminder of what happens
when inflation and fiscal balances go unchecked
100,000,000,000,000
Thank you!