What's up? Inflation->516 quintillion per cent; $100 trillion note

Since my last post on Zimbabwe hyperinflation crisis, a lot has changed. Unfortunately, the change has been for worse.

In July 2008:

• Inflation rate was 2.2 million per cent a year
• Highest denomination of currency was Z$100 billion note

Later, Zimbabwean central bank slashed 10 zeros from the currency notes on Aug 1, 2008. So, Z$100 billion note became Z$10.

In our presentation, we had reported that zeros were coming back. So, where does it stand now?

In Dec 2008:

• Inflation rate was 516 quintillion per cent (that is 516 followed by 18 zeros)!!!
• Highest denomination of currency was Z$100 trillion note (Remember this is after removing 10 zeros!)

Zimbabwe is set to create a world record.

• Cato Institute has calculated the figures based on exchange rate movements and market data, putting Zimbabwe's annual inflation rate at 516 quintillion per cent - 516 followed by 18 zeros - overtaking Yugoslavia in 1994 and putting it behind only Hungary in 1946. Prof Steve Hanke said: "... if they keep going at this pace, they have a shot at it within a month or maybe a month-and-a-half at the outside."
• In post Second World War Hungary monthly inflation reached 12,950,000,000,000,000 per cent, with prices doubling every 15.6 hours - Zimbabwean prices are currently doubling every 1.3 days.
• Zimbabweans must spend money as soon as they get it before it loses its value. But goods are in desperately short supply. Supermarkets are accepting only US dollars and South African rands, leaving those without access to foreign currency in dire straits.

Where and when will it stop?

A note of 100 BILLION DOLLAR! And Inflation of 12.5 million percent. It's Zimbabwe 4 U!

What would be reaction if I give you a currency note of 100 billion dollar?

And what if I say it's not enough to buy even one loaf of bread? (as of today, July 27, 2008)

Before you even think for a moment that I must be kidding, let me assure you that it's fact of life in Zimbabwe today!

• Central Bank of Zimbabwe released a new 100 billion dollar bank note last week.



• Official figure of inflation in Zimbabwe as of now is 2.2 million percent a year, but the same is estimated by independent analysts to be closer to 12.5 million percent. (Source -Associated Press)



• It also has become virtually impossible to get access to cash as the country's economic collapse worsens.



• The Zimbabwean Govt is reported to have run out of paper to print money

Inflation in India had just reached 12% and there was big hue and cry. Now, think of Zimbabwe!!!

So, what's the reason behind the crisis that lead to world's highest inflation rate?

Here is a good article that analyzes the situation very bluntly.

• "First, it is important to recognise that probably just less than a third of Zimbabwe's population is out of the country, and a sizeable percentage of these Diasporans is domiciled in hard-currency "Western" countries such as Britain, Canada, the US and Australia.



• The Diasporans, as self-serving as ever, have facilitated the sucking out of large amounts of cash from the mainstream economy, and placed it within their own mini-economy within Zimbabwe, from which they and their associates at home only benefit. How does this happen?



• We Diasporans send money home through some criminals running "money transfer" agencies. These people are criminals, in the sense that they are committing a crime called money laundering.



• We deposit pounds and other forms of hard currency into these criminals' bank accounts, and they deposit Zimbabwean dollars into our relatives' accounts back home. This money escapes the legal, official routes and finds its way straight into Zimbabwean banks as Zimdollars, exchanged using the parallel market rate, which is even higher in the Diaspora than in Zimbabwe.



• Thus, there is an extremely high demand for cash that cannot be accounted for, in any way by the Reserve Bank as it represents the illegal transactions carried out abroad and within Zimbabwe via the Zimbabwean-based money exchangers and the naive banks.



• It is not surprising, therefore, that miracle money in turn creates a very high demand for goods and services in the country, which has the inevitable effect of pushing up prices, and that is what inflation is all about!



• The very high demand for cash necessitates the printing of cash on the part of the Reserve Bank, which maintains and nurtures the environment of very high inflation figures."
  

Just a couple of days back, Reserve Bank of Zimbabwe Governor Gideon Gono has announced that "Zimbabwe Central Bank Plans Measures to Address Cash Shortage".

Lets hope for the best and keep an eye on this crisis. How about selecting this as topic for our presentation in 'International Micro & Macro Economics'?