|
|
Zimbabwe's introduction of high denomination notes is a sign of hyperinflation, and is currently exceeding 160,000 percent a year. One US dollar can buy 4 million Zimbabwe dollars as per unofficial street rate.
The official rates (as of 21/07/2008) are:
1 USD = 18,681,527,512.36 ZWD
1 INR = 437,177,748.86 ZWD
And 1 USD = 42.7204 INR
Source:XE.com
|
What is inflation?
Inflation is actually an increase in the supply of money. And, an increased supply of money actually causes prices to rise. Let us consider a scenario: What would happen if a country had twice as much money as it had today, and its production did not double. Let us assume that it is difficult for the country to double its production capacity and available resources suddenly. This would mean that the prices would almost double, if there was a lot of money with everybody to spend. Now, if the government intervened and told all businesses that they could not raise prices or cut production. This would simply lead to all businesses selling their goods either in black market or showing it as a shortage. And, if the government further increased the supply of money, while imposing price controls on the producers, the productivity will reduce drastically, as no one would want to work hard to produce something that would be sold for less than the costs incurred to produce them. This is a vicious cycle.
|
|
Zimbabwe, under Robert Mugabe's government, needs a lot of money to pay its armed forces to keep the regime in power. If the security forces are not paid, the country might face economic paralysis, and finally a complete collapse. When the country's main source of income from the export of commercial farming stopped, it reduced the inflow of foreign exchange into the country. But, the government spending continued, as it printed more and more money without any increase in productivity, leading to high inflation. As the Zimbabwean dollar value reduced against the US dollar, the prices of all essentials goods in the country increased enormously.
|
|
Zimbabwe has periodically suffered physical shortages of cash or banknotes in the last two years, as the number of notes in circulation has failed to keep up with the rapid rise in prices. Unable to pay for the ink and paper required to print standard bank notes, the government had introduced bearer cheques which served as notes. In August 2006, the government scrapped all the existing bank notes and bearer cheques and introduced a new Zimbabwe dollar (1 new Z$:1,000 old Z$). But the number of new dollars printed was low, due to printing problems. Cash shortages re-emerged causing the government to print notes of higher denominations.
|
|
The country started with million-dollar notes, then 5-million, 10-million, 25-million, 50-million. This year, it has been forced to print 100-million, 250-million and 500-million notes in rapid succession, all now practically worthless. The highest denomination is now 50 billion Zimbabwean dollars (worth a U.S. dollar on the street).
Source:EIU
|
|
The country suffers from a high macro-economic risk - over 80% of Zimbabweans are unemployed, almost every one of them is hungry and starved. There is a severe shortage of basic essentials - including staple corn, wheat and bread, sugar, milk, oil and gasoline. A single cigarette now costs 500,000 ZWD.
|
|
Latest reports indicate that Zimbabwe's economy is headed for a collapse, as the country is facing a severe cash crunch. The German government has ordered the firm Giesecke & Devrient to stop exporting paper for money printing to Zimbabwe. This means that Zimbabwe is about to run out of the paper to print money on, as Fidelity Printers & Refiners, the state-owned company that prints bank notes for the Robert Mugabe regime would stop its printing operation.
|
|
Unless UN Security Council and the African Union step in to save Zimbabwe, the country will be left with no money and no food as well.
|
|
(Note: Worldwide, the paper currency that we use is actually a bearer note, wherein the currency issuing authority (RBI in India, for instance) promises to pay the bearer a certain sum of money against the note printed as currency.)
The EIU rating of Zimbabwe is as follows:
|
Comments
Would you like to leave any comments or suggestions? Please click the "Sign Guestbook" link below.
|
|
