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Zimbabwe Descends into Hyperinflation Again

by Thomas Ressler

Once a given economy has been subjected to the nightmare of hyperinflation, one would think everyone who survived would have learned their lesson. But if you made that assumption about Zimbabwe, you’d be wrong.

Johns Hopkins University economics professor Steve Hanke and Erik Bostrom, a research assistant at JHU, spelled out the gory details in a white paper in the October issue of Studies in Applied Economics, as follows. “In 2008, Zimbabwe suffered the second-most severe episode of hyperinflation in recorded history. Zimbabwe’s annual inflation rate peaked in November 2008, reaching 89.7 sextillion percent.” What does that mean for the average layperson? “Prices were doubling every 24.7 hours.”

Today, Zimbabwe is once again experiencing hyperinflation, at a current rate of a mere 313 percent. Where it ends up is anyone’s guess. The first time around, as inflation accelerated, residents dumped their Zimbabwe dollars “like hot potatoes for US dollars,” Hanke and Bostrom said, spontaneously and unofficially dollarizing the economy.

And when prices doubled every day in November 2008, Zimbabweans simply refused to use their nation’s currency. This compelled the government to adopt a system based on foreign currencies. “The US dollar became the coin of the realm,” the academics continued. After all government accounts became denominated in US dollars in early 2009 and a new national unity government was installed, the economy bounced back and international trust began to recover.

However, the stability was short lived. When President Robert Mugabe’s party regained control in 2013, “government spending and public debt surged, resulting in economic instability,” Hanke and Bostrom noted. To finance its deficits, the government created a New Zim dollar. However, the money supply “exploded in Zimbabwe, and so has the inflation rate,” they added. “Zimbabwe is now experiencing hyperinflation for the second time in less than 10 years.”

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