Witnessing the Aftermath of Hyperinflation: Zimbabwe

in life •  3 years ago 

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Hyperinflation is a scary word. Particularly if you live in a country where the stars seem to be aligning and the perfect storm is forming to create out of control inflation that has the power to completely decimate the value of your country’s currency. It’s happened before, as many as over 50 times, in countries spanning from Europe to South America to Africa.

I’ve always been intrigued by this epic failure of monetary policy.

How does it happen? How can you stop it? Who is most affected by it? And what is life like after the mayhem?

I recently spent some time in Harare, Zimbabwe. Prior to my visit I must admit that I had not done much research regarding why exactly hyperinflation hit, or how the citizens felt about adopting the U.S. Dollar only less than a year before my visit.

One morning I visited one of the big markets where I purchased a couple one trillion dollar notes. The woman selling them to me made the comment “Yes, we were all trillionaires here”, with a deeply sarcastic tone. What good is it to have trillions of dollars of worthless currency?

I remember my guide telling me about his experiences of going to the bank to withdraw so many bills that he needed bags to carry them, only to find out that later that day those same bills had drastically decreased in value.

A lack of faith in a currency can spell disaster for its future. That’s the type of self-fulfilling prophecy that no one wants.

Unfortunately for Zimbabwe’s citizens their country was in the perfect position to experience hyperinflation. In my opinion it seems to have started in the 1990’s when the land reforms began. Prior to these reforms Zimbabwe was a massively successful exporter of wheat and tobacco, yet once these farms where placed in the hands of less qualified farmers, the yields began to decline. So much so in fact, that Zimbabwe eventually transformed into an importing rather than exporting country.

Then there was the involvement of Zimbabwe with the Great African War. Wartime is often associated with high inflation, particularly to the country who loses. But this can be seen in Zimbabwe when the government began spending/borrowing massively to fund its involvement with the conflict in the now Democratic Republic of the Congo. As if spending seemingly unlimited amounts of money on a foreign war isn’t bad enough for an economy, Zimbabwe was also failing quite severely at properly reporting the specific amounts of money being spent to the IMF. This of course did nothing but guarantee the need to ruthlessly print more and more money to cover its debt.

After years of the vicious cycle of printing more money only to see the value decrease so you must print more money, eventually they were forced to adopt a foreign currency. This had already been the case in the black market, where USDs, Euros and the South African Rand were more widely accepted. But the government seemed to finally come to terms with what they’d done to destroy their own currency and allowed for more stable currencies to step in and take the place of their own.

I’m not attempting to put words in the mouths of those who lived through that time of hyperinflation, yet I can only imagine a sense of relief to know that their government finally lifted the ban of foreign currencies so that they might be able to focus more clearly on how to reconstruct the system that had failed them.

I had $1 bills in my wallet that I literally didn't want to touch. They'd been so heavy circulated that it was now a limp, filthy excuse of a dollar. You see, small bills like the $1 are used much more than say the $20, and I don't even know who would use a $50 in Zimbabwe unless you're an outsider. Yet when I had to use the ATM in the Harare airport to pay for my visa, the machine gave me a crisp, brand new $50 that was in such a condition that I'd never seen before. I must admit I was surprised to be getting that good of a quality bill from an ATM in Africa. Yet when I saw the state of the numerous $1s I realized why. Although they'd adopted USDs, it doesn't mean that their economy had instantly improved. A $1 was far more valuable to them then to me, and for them to lay down $20s like many Americans do would be an epic dream come true for most of the people of Zimbabwe.

I have yet to discover if a country can ever get back to how it was prior to the hyperinflation event. Is the only solution to adopt a more stable yet foreign currency? Why not just stick with a gold standard? At what point does a piece of paper go from something of value to that of just a scrap piece of paper that you now use to decorate your walls?

In all of the research I’ve done since that visit I can’t help but see the undeniably obvious hypocrisy that is hyperinflation; the causes of and the solution to of which are all closely tied to the irresponsible spending of governments. If you just google a bit and look into solutions for- what I’ve learned are called the classic causes of hyperinflation, you’ll find that the solutions almost always involve drastic reforms of government spending and to allow for private companies to do the jobs previously done by the government.

I’d love to get some feedback on this topic, I know I’ve still got a lot to learn about economics and hyperinflation, but I wanted to write about this topic because it’s always interested me. I’m not sure why, maybe because it has the power to completely change a country for the worst and I want to be able to read the warning signs.

If you’ve read this post and you vehemently disagree, please leave a comment and let’s discuss!

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I live in Argentina, we have 48 years and at least 35 years I live with inflation now is the worst time of my life, to give an idea to buy a dollar I have to spend 18 Argentine pesos, as a child the Valia Dolara 1 Argentine peso, now inflation, unemployment, insecurity and corruption of government coexists the first time in my life 48 years after being unemployed for the web that there suete work on it. very good his post congratulations

I can understand why Zim has hyperinflation, but the Argentine economy is a mystery to me. I have regarded Argentina as a country with a fair level of western economy. I have also read that by the end of the 18 hundreds Argentina was one of the strong economies in the world. What happened that changed this status?

It's as if America wants their dollar to be used by the world. Vietnam, Cambodia, now Zimbabwe uses American dollar. Zimbabe should be a play ground for cryptocoiners.

I checked out localbitcoin.com and found one lone seller in Africa. He was pricing his 1 bitcoin at $900+. I agree, I think the people there would benefit greatly from using cryptocurrencies. They already use a system called M-Pesa to transfer money in micro-payments, it's connected to the cell phone companies and are billed using their cell phone accounts.

Huh? One person selling a Bitcoin in the whole of Africa?

I was searching for the Zambia area and the only option that came up was one in Zimbabwe for that price.

Ok that makes more sense :)

  ·  3 years ago (edited)

Why not just stick with a gold standard?

Why not just stick with the Bitcoin standard?
I bet everyone has a cellphone and a trickling internet?

Have you ever visited Africa?
People do neither know about Bitcoin nor do they have internet access in the villages.
Many people have cellphones now. In the cities.
Rural Africa is another world. They may have HF-radio in some places. Thats how some farmers work in Namibia. 6hrs drive to the next village or town. And no, not on highways.
And talking trust - ask people on the street in any given 1st world country about Bitcoins.
Some may have heard about it. Its some Darknet-thing for buying drugs and weapons, isnt it?

Gold has a long history for being traded and trusted.
Bitcoin doesnt yet.

In my experience with Zimbabwe and in Zambia many slums have internet access and nearly everyone has a cell phone, which is why M-Pesa is a popular option for them to use for making payments. Everyone who I talked to was extremely receptive and interested in learning more about Bitcoin and other cryptocurrencies. I can't help but think it's an untapped market which absolutely has the opportunity to change their lives.

I am aware that the cities have net coverage and people have cell phones there.
There sure is a great potential for Bitcoin there.
Correct me if I am wrong, but rural Africa is a different story.
Which means that using Bitcoins as a national standard is out of the questions. It may help in international money transfers, once a culture of exchange posts are established. And these exchanges will take fees, so they need to compete to become cheaper than Western union (international) or M-Pesa (national / regional). Which means it is a bit of a hen-egg-problem.
Because in the end, everybody wants cash on the table.
Loose your cell phone and mess up the passphrase, there goes your fortune.
It may take people a while to trust this new thing.
Few people do in the 1st world by now, so progress may take a while.
What is needed is some major company sparking it off.

Yes you're right about rural Africa. They rarely even have electricity and running water let alone wifi. Also those who are living in rural Africa are most likely farmers who take great pride in what they produce and rely heavily on the yields. They can also be stubborn to realize change. I met a young man who built a school for the youth of a small village. Yet the families there were against it at first because they viewed education as pointless, that their children will just take over the farms when they pass on so they'd be wasting their time in school.

Absolutely it will take lots of time and a big company willing to invest in that market. They might be apprehensive but yet again in my experience with speaking with a few locals from cities they were all quite open to the concept. I bet once they see how it can work it'll help solidify the success there.

Farmers and fishermen need to be stubborn to survive.
Spend some time with them sharing their work and you can not help but respect this as a virtue.
Plus the last thing, people with a low self-esteem can cope with are some know-it-all-kids, who then dissappear to the city with some more or less good job.
Understandable. In a way. And tragic.

The problem is no major company can currently invest in Zim. I work for a retail group with the most stores in Africa. We had one in Zim, but the Zim government forced down so many laws that it became impossible to trade. For a long time, we just kept the store open that the population got something to buy, but it became more and more difficult. When they reach the stage where the government started to nationalise all non-local businesses, we had to close the store and move out of the country.

Thanks for the feedback, @krabgat.
Zimbabwe succeeded in surpassing some of the worst post-Rhodesian scenarios.

To gain our freedom, we should rely on Bitcoin, gold and silver. Not one, but all three together.

I liked this post. I don't know much about the topic, but I appreciated your fresh take as a traveler. upvoted and followed. look forward to future posts.

Rhodesia was a very successful country. It was known as the bread basket of Africa. During the Great African War for independence Rhodesia economy stayed healthy. Independence happen and the first 20 year everything went well. Then current government decided that for some reason white people in his country may not be there - like the Jews under Nazi's. The government started to take the white farms and give it to blacks. The new farmers did not farm- only looted it. Because the Zim economy was driven by agriculture, it did not take long for economic down turn. This lead to money printing and the current hyperinflation.
Apologies for cryptic explanation. Sent from mobile phone.

Didn't the involvement of Zimbabwe in the Second Congo War play a large part in the government needing to print more money also?

No. Not really. The big reason was that they destroyed their economy and have not build it up again. Zim is the only country so far to experience this level of inflation without being involved in a war.

I don't know much about this myself, either... But from a, strictly layman, point of view.., it seems government and government spending seem to cause this hyber-inflation, almost in an effort, to usher in their own (crony capitalism) private companies, so that they can all profit off the stock. But, I could be completely wrong....

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Now here's a scary thought, could the same thing happen to the US dollar?

It's not a matter of IF, but when. For what I've been studying for that last few years, unfortunately we are closer to the dollar colapse then one could ever imagine.

So, a new war (yep, a real bloody fucking war), is on its way to "solve" the dollar issue.

Prepare yourself. Buy Bitcoin, gold and silver.

Very unlikely. I've gone over this here:

https://steemit.com/hyperinflation/@alexgr/hyperinflation-dollar-collapse-and-precious-metals (long read - sort of like a small ebook)

...and here: https://steemit.com/hyperinflation/@alexgr/if-the-government-is-printing-trillions-why-is-there-no-hyperinflation (much smaller read but captures some of the elements)

An additional reason on why the dollar is more unlikely to collapse (it's used to maintain a debt-slavery scheme... if the dollar collapses, the debt-slaves are free): https://steemit.com/dollar/@alexgr/the-usd-is-like-a-fence-that-keeps-debt-slaves-inside-a-labor-camp

It would take a very long time. If the world community abandons US dollar as the defacto trade currency for say oil and various other commodities then this could happen. I do think that it would take a very long time.

Thats already happened actually. The USD is no longer the global trade currency nor the petrol dollar anymore!
The end is on the horizon, and this HAS BEEN happening for a VERY LONG time.

It can happen to any fiat currency, but you need to understand the Zim history to understand why they experience this hyperinflation. These guys looted their economy and to promote political correction they destroyed the only economic driver they had - agriculture - by taking farms away from productive farmers and give it to those who have no interest in farming. The worse thing is that the Zim government does not see it as a problem. After the west stopping giving money, the Chinese government started to bankroll them. Other African nations also don't see it as a crisis. In the African Union Mugabe is seen as one of the great leaders of the continent.
Heiditravel's mentioned the Congo war as a reason, but that was not a war like we have seen in the other parts of the world. Those were little battles between fighting factions in a country. Namibia also sent some troops to this war, but they don't have hyperinflation. As a matter of fact, Namibia is a desert and Zim a tropical paradise. If one of these two should have hyperinflation, it should be Namibia.

Thanks for this first hand report.
Venezuela is currently going the same way.
Many airlines have stopped flying Caracas, as bills were often not paid due to an absurd exchange rate system. People have to apply with the government for tickets calculated in bolivares fuertes ("strong" bolivares!) on the basis of the official exchange rate.
Which means that some of them can fly to Europe and back for less than 100 US$ - calculated using the exchange rate on the black market. Others can not, it depends on whom you know in the system.

As the state is almost surely headed for a complete crash, everybody in the system grabs what they can. The Chinese and Iranian investors are laughing their heads (and other body parts) off.
Big time for them.
The public health system - once one of the best in Latin America paid by petrodollars - has partially collapsed, food is getting scarce, many people starve.
But as many of the "capitalist" farms of this immensely beautiful and fertile country have been closed down, they have to import everything from food to toilet paper.
Hyperinflation has causes.
Communism and corruption are two of the worst.
No need to discuss further measures when a nation falls on either of them.

...the basis of the official exchange rate

Governments Love this artificial exchange rate and are often times the highest bidders of foreign currency in the "blackmarket".

Great post(haven't read it complete though) and you look beautiful in the black and white photo @heiditravels

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  ·  3 years ago (edited)

It is true you can get this kind of money in that country. I got one of those thing at home too. It is blue and it is value 1 million Dollars. Unfortunately, it is worthless: just a piece of paper! That is what QE unlimited is doing (little by little) in Europe and USA too.

Eye opening. Reading time series chart doesn't do it justice. Countries that suffer from severe inflationary spirals (i.e. hyperinflation) typically have a central bank that lacks credibility or coordinated monetization of the debt between the government's ministry of finance and the central bank. I'm curious as to the people's view of their government in Zimbabwe.

Also, if the domestic currency has little value, what alternative currencies do households and businesses adopt there? Are gold or Bitcoin seen as an economic haven or store of value as we have seen in Venezuela?

They trade other currencies on the black markets when their own is going out of control. I think bitcoin is still slow to be adopted in Africa, despite the fact that the need and interest is certainly there. I don't think they deal with gold there, probably is far more likely to trade things like goods and services and the barter system than deal with gold in the day-to-day.

If you want to know more about money, I suggest Money&Society MOOC but you should prefer to stay ignorant and happy !