Zimbabwe Inflation: The End of the Story

by on October 30, 2009 at 10:40 am in Economics, Education | Permalink

As we went to press with Modern Principles: Macro we kept having to add zeroes to Zimbabwe's peak hyperinflation rate and move it up the table of world leaders.  In our final revision, Zimbabwe's inflation rate had hit 79,600,000,000% per month putting Zimbabwe in second place.  We wondered whether in our  second edition Zimbabwe would overtake the all time hyperinflater, Hungary (1945-1946) at 41,900,000,000,000,000% per month, but it was not to be.  As it turned out, we went to press just as the hyperinflation peaked and Zimbabwe's currency ceased to exist as a medium of exchange.  Steve Hanke at Cato has the end of the story

Ashes are all that is left of the Zimbabwe dollar – a remnant of
paper money. During Zimbabwe’s hyperinflation, foreign currencies
replaced the Zimbabwe dollar in a rapid and spontaneous manner. This
“dollarization” process was legalized in late January 2009. Even though
the Zimbabwe paper money remnant circulates alongside foreign
currencies, its real value is tiny, its use is limited, and its value
against the U.S. dollar is cut in half every two days.

Zimbabwe failed to break Hungary’s 1946 world record for
hyperinflation. That said, Zimbabwe did race past Yugoslavia in October
2008. In consequence, Zimbabwe can now lay claim to second place in the
world hyperinflation record books.

Final Postscript: In 2009, Zimbabwe's central banker, Gideon Gono, was awarded the Ig Nobel prize, not, as expected, in economics but in mathematics for, in the prize committee's words, "giving people a simple, everyday way to cope with a wide range of numbers – from very small to very big – by having his bank print bank notes with denominations ranging from one cent ($.01) to one hundred trillion dollars ($100,000,000,000,000)."

MattF October 30, 2009 at 10:50 am

I understand the allure of huge annual inflation percentages– they’re comic and dreadful at the same time. However, in real life, what one actually needs to know is the half-life. The half-life cited above of two days is pretty impressive, since it corresponds to an annual factor of… 2-to-the-minus-(365/2)-th power.

babar October 30, 2009 at 11:15 am

we ended up having to increase some database field sizes because of the ZWD/USD exchange rate at one point. it’s possible that this sort of thing increased GDP in the rest of the world.

Marty Aavik October 30, 2009 at 1:55 pm

As far as the motivations of Gideon Gono, I’ll speculate that he had direct financial connections to the printer of the currency. So while the need to span 17 orders of magnitude in currency is questionable (to say the least) the motivations are (possibly) more understandable.

Captain Button October 31, 2009 at 7:13 pm

But are there more Zimbabwe dollars in circulation than there are particles in the known universe? Supposedly this was true of the pengo. In college the estimate for particles was 10^80, but a short web search shows people now claiming between 10^72 and 10^87.

Vasu V November 2, 2009 at 11:34 pm

Babar – would you like us to break some windows while we’re at it? :)

mangan January 10, 2010 at 12:01 am

I would venture a guess a large portion of the public must have reverted back to bartering or precious metals or something by now. Seems more efficient than trying to account for inflation.

Anonymous August 12, 2010 at 10:02 pm

I also thought of measuring hyperinflation by half-life of the currency’s value. A half-life of 3 days is like Iodine-131, a radioisotope. A half-life of barely a day is impressive for a currency. You can imagine a bar with a digital price board with the numbers ever-rising as you drink. It’s enough to drive you to drink… but pay with US$ or rand.

Pari foot November 17, 2010 at 3:23 am

Agree with you.

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