|
 In
2009 Zimbabwe announced that it will issue a new set of notes which will
include a 10 trillion, 20 trillion, 50 trillion and 100 trillion
denomination. One commentator stated that these notes will be introduced to
"keep pace with the hyperinflation that has caused many to abandon the
country's currency."
This makes about as much sense as a doctor saying he
will give his patient a larger dose of heroin to battle his addiction. The Reserve Bank
of Zimbabwe (RBZ) is not battling some mysterious external
force depreciating the Zimbabwe dollar. The currency is plummeting in value
because the central bank is increasingly issuing more of it. These trillion
dollar notes will only further exacerbate the situation.
The first Zimbabwean dollar (ZWD) was introduced in
1980 and replaced the Rhodesian dollar at par. At the time of its
introduction, the Zimbabwean dollar was worth more than the U.S. dollar, with
ZWD 1 = USD 1.47. However, the currency's value eroded rapidly over the
years. In October 2005, the head of the RBZ, Dr. Gideon Gono,
announced that "Zimbabwe will have a new currency next year." The
amount of currency in circulation went from 25 billion ZWD in January 2002 to
46,882 billion ZWD by July 2006. On August 1st 2006,
old Zimbabwe dollars were exchanged at the rate of 1 revalued
dollar for 1,000 old dollars.
The new $50
billion note was issued by Zimbabwe's central bank on June 2008.
After the Aug 2006 revaluation the currency in
circulation was 46.9 billion ZWD. Over the next 18 months, the RBZ increased
the currency in circulation over 15,000 times to 716,559 billion ZWD. As expected,
the ZWD continued falling in value.
Reserve bank governor Dr. Gideon Gono
announced on July 30th 2008 that the Zimbabwean dollar
would again be revalued. Effective August 1st
2008, 10 billion ZWD was worth one new Zimbabwe dollar.
Shopping
for groceries in Harare.
In Nov 2008, Dr. Gono
issued the following statement in a press release:
"...the
invisible forces of destruction have been unmasked, marking a turning point
chapter when the fraudulent and speculative winds are cast into the inferno
of extinction."
The reason for Zimbabwe's economic woes according to
the press release was that the Zimbabwe Stock Exchange (ZSE) had become the
"epicentre of economic destruction" by allowing stock brokers to
bid up stock values. In a statement clearly meant to serve as a deflection of
blame from the Zimbabwean government to the financial sector, Dr Gono provided the following:
"Where share
prices were rising at the ridiculously bloated rates, what that effectively
meant was that someone could work up with no penny at the bank, but end the
day a multitrillionnaire. The next morning, the
false wealth so created would show up as high demand for cash, and all this
being blamed on the Central Bank."
Zimbabweans, in an effort to preserve their wealth,
rushed into the ZSE which returned 300,000% in 2007. While that may seem good
on the surface, the reduction of value for the ZWD more than offset any
capital gains, with prices for goods and services increasing at an annualized
231 million percent according to official government estimates. The doors of
the ZSE have remained shut since closing for
Christmas in 2008.
History is littered with many failed currencies
that were completely destroyed or revalued by the
practice of over-issuance. Hyperinflation results in widespread poverty, high
unemployment, mass emigration and complete or near
collapse of the social order. The RBZ's monetary policy of funding government
expenditures by printing additional money presents this century's first
example of the inevitable consequences of hyperinflating
a nation's money supply. ShareThis
Notes
The Reserve Bank of Zimbabwe ceased releasing
any official money supply figures after February 2008.
Mike Hewitt
Editor
DollarDaze.org
Mike Hewitt is the
editor of www.DollarDaze.org, a website pertaining to
commentary on the instability of the global fiat monetary system and
investment strategies on mining companies.
Disclaimer: The opinions
expressed above are not intended to be taken as investment advice. It is to
be taken as opinion only and I encourage you to complete your own due
diligence when making an investment decision.
© 2007 DollarDaze
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