This paper discusses what brought about hyperinflation in Zimbabwe and defends the argument that hyperinflation in Zimbabwe could only be solved by replacement of the Reserve Bank of Zimbabwe with another monetary regime. …
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Two major events precipitated inflation in Zimbabwe and that is, involvement in Congo civil war in 1998 and the land expropriation of 2000. The Zimbabwe government entered into war on the side of Zaire’s dictator Laurent Kabila without having budgeted for the war, without any reserves for the war or any arrangements to raise the funds. The land expropriation program of 2000 saw the government forceful take 4,500 farms from white settlers and give it to war veterans and politicians (Coomer and Gstraunthaler 312). This led to reduction in foreign investment from 400 million US dollars in 1998 to a mere 30 million in 2007. The productivity of the land was also reduced by half between 2000 and 2007. This government policies also led to imposition of sanctions by the IMF, US, UK and EU.
The government in order to win public confidence provided initiatives such as purchase of farm inputs for the farmers who had been given land. The farmers also used the land as securities for securing loans. This unforeseen expenditure compounded with the four year expenditure in Congo war led the Reserve bank of Zimbabwe to adopt inflationary policies such as printing more money and employing more staff. This led to devaluation of the Zimbabwean dollar and the central bank responded by printing more money and even increasing the face value. This is the origin of hyperinflation in Zimbabwe. By March 2007 the inflation rate in Zimbabwe was 2,200% while by October 2008 it rose to 3,840,000,000,000,000,000%! (Noko 347).
Hyperinflation led to lose of value of the Zimbabwe dollar. Wealth was lost within months as millionaires were no longer wealthy. The prices of commodities went up leading the government to regulate the same.
(Federal Reserve Bank of Dallas 11). This led producers to opt for other markets which led to an acute shortage of various products. The industries were dissolved, unemployment was at the highest level, poverty escalated and some citizens fled to other countries. The next section gives methods through which this hyperinflation could be solved. Solutions to Zimbabwe’s Hyperinflation Hyperinflation was brought about by the practices of Reserve Bank of Zimbabwe. Replacing the Reserve Bank of Zimbabwe is a sure way of ending hyperinflation (Hanke1 23). Some countries such as Angola have contained their high inflation rates without replacing their central bank through change of policy. The question is why could this be implemented in Zimbabwe? This could not be adopted in Zimbabwe because from historical perspective policy change has never checked inflation in Zimbabwe. Moreover, all over the world hyperinflation has been linked to the issue of currency by the central bank or the concerned country’s treasury. Central banks can easily end inflation as they fuel them. One of the sure ways is to stop the printing of currency. This solution reduces money in circulation and contains hyperinflation, but it is a long process because it takes time for the central bank to regain its lost credibility. During this time interest rates on loans normally escalate and it is very difficult to get a long term loan because there is less money in circula
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An example of a country that has fitted that criterion in the past is Bolivia and this happened in year 1985. Hyperinflation is fundamentally a quick, severe inflation levels that result to a main devaluation of an economy’s currency. This has happened to Brazil, Argentina and Bolivia in the past as Swanson says in his book.
Repossession of land from White settlers crippled the manufacturing industry and cut on foreign currency inflow, further worsening the situation. More currency was printed for circulation which caused the loss in value of the dollar. The temporary dollarization in February 2009 does not provide a sustainable solution and thus this brief seeks to explore possible solutions that would permanently contain inflation in Zimbabwe, analysing the possible pros and cons, borrowing information from various sources including books, newspapers and journals, the brief gives four possible solutions targeting the policymakers including the government and the economists.
The basic enquiry is, therefore, into the factors that are responsible for the occurrence of hyperinflation, and map out the strategies to counter their destructive role on the economy. Hence, this essay begins by defining hyperinflation in section 2, and proceeds to present the economic theories behind causes of hyperinflation in section 3.
Hyperinflation is an inflationary circle, which increases in a cumulative way and always moves far from the equilibrium.
There is sufficient debate regarding the actual causes of hyperinflation. However, a somewhat
“The Monetary Dynamics of Hyperinflation” authored by Cangan in 1956 is regarded as one of the earliest serious studies on hyperinflation and its impact. In this study, he denoted hyper inflation as the minimum 50% monthly inflation rate (Cangan, “The Monetary
The study would further provide an-in-depth understanding regarding the feasibility of indiginsation policy for the growth and development of an economy in the current turbulent economic environment.
There are five fundamental features that make