Zimbabwe

Hyper inflation a hyper reality  

    Zimbabwe's official inflation rate has surged to 231,000,000% as the opposition appealed to South Africa's former president, Thabo Mbeki, to rescue the historic power-sharing deal he brokered last month. Many families and children have been devastated by this recent economic downturn and many families have been left broken and children orphaned. Below you will be able to donate money towards the education and re-integration of the orphaned children of the next generation who will work towards helping Zimbabwe recover in the future.  

CURRENT PROBLEM

In order for Zimbabwe to recover from the effects of hyper inflation, their government must resort to and implement three basic economic tactics including the use of foreign currency, black markets, and redenomination.

FOREIGN CURRENCIES

       In 2007, the government stated that inflation was illegal. Anyone who raised the prices for goods and services was subject to arrest. This amounted to a price freeze, which is usually ineffective in stoping inflation. many arrests were made against big companies operating since 2007. To begin, In December of 2008, the Central Bank of Zimbabwe authorized just over 900 shops and businesses to deal in foreign currency which improved consumer buying power. Many citizens had, in greater numbers, been using foreign currency in thier day to day exchanges, as local shops stated fewer prices in Zimbabwe dollars because of the need for foreign currency to be able to import foreign goods. This is when businesses and street vendors continued to use foreign money without getting the license usually necessary for companies such as this. Eventually In January 2009, the current and acting Finance Minister Patrick Chinamasa lifted the restriction to use only Zimbabwean dollars. Citizens were allowed to use the US dollar, the euro, and the South African Rand although, all teachers and civil servants were still being paid in Zimbabwean dollars. Even though their salaries were in the TRILLIONS per month, this amounted to only around US$1, or half the daily bus fare. The government also used a restriction on bank withdrawals to try to limit the amount of money that was in circulation. It limited the cash withdrawals for citizens to $Z500,000, which was about $0.25 U.S dollars.

BLACK MARKET

secondly, Living with hyperinflation is a huge obstacle facing many Zimbabwean's . Prices in shops and restaurants were still in Zimbabwean dollars, but had to be adjusted several times a day. Any Zimbabwean dollars acquired needed to be exchanged for foreign currency on the parallel "black" or "underground" market immediately, or the holder would suffer a significant loss of value at different times during the day. For example, a boat tour charged riders in Zimbabwean dollars, but at different rates throughout the day. The late night commute was the highest-priced. He sometimes exchanged money three times a day, not in banks but in alley ways and secret shops. These secretive business places and ventures accounted for the making of a black market, an arena explicitly and especially outside of the law. Transactors could ignore and evade the price freezes and the need to use Zimbabwean dollars. Unfortunately, these black-market transactions are not enforceable under law; making these transactors able to be free to defy any other Zimbabwean law. The black market served the demand for daily goods such as cheese and butter, as grocery stores operating inside of the law could no longer sell items whose prices were strictly controlled, or charge customers more if they were paying in Zimbabwean dollars. At one point, a stick of butter was Z$450 million in the regular market, when butter was even available; apart from a trip to another country, the black market was the only option for almost all goods, and butter might cost Z$9 billion or possible even more if the trend of hyper inflation continues.

DENOMINATION

Originally, the paper notes of Zimbabwean money were Z$20, 10, 5, and 2, and the coins were Z$1, and 50, 20, 10, 5, and 1 cents. As larger bills were needed to pay for smaller, less significant amounts, the Central Bank of Zimbabwe planned to print and circulate denominations of up to Z$10, 20, 50, and 100 trillion all withing the next few years. Announcements of new denominations were increasingly frequent; the Z$200,000,000 bill was announced just days after the printing of the Z$100,000,000 bill.  The government did not attempt to fight inflation with fiscal and monetary policy, even though the money supply was growing at a much faster pace than it's economy. Changing the price of a note does not affect aggregate demand or supply. in 2006, before Zimbabwe's hyperinflation reached its peak, the bank announced it would print larger bills to buy foreign currencies. The Reserve Bank printed a Z$21 trillion bill to pay off debts owed to the International monetary fund, an essential part of the U.N organs. To no one's surprise, on three occasions, the Central Bank of Zimbabwe redenominated the currency. First, in August 2006, the Central Bank recalled notes in exchange for new notes with three zeros slashed from the currency, and In July 2008, the governor of the Reserve Bank of Zimbabwe, Gideon Gonoo, announced their would a new Zimbabwean dollar, this time with 10 zeros removed. The Z$10 billion would be redenominated to be Z$1. This move was not just to slow inflation but also to make computations much more manageable, and is a good short term to implement, but it is not a long term solution by any means. The third and biggest redenomination, producing the "fourth Zimbabwe dollar," occurred in February 2009, in which it dropped 12 more zeros from the currency. It was thus worth 10 trillion trillion original dollars.

SOLUTIONS

For the last five years Zimbabwe's inflation has continued to been a major economic problem with the current Zimbabwean government having implied promises to stop printing unlimited amounts of money because they were not credible. The government could declare some foreign currency to be the nation's official currency (Similar option facing Greece and it's possible option to return to the Drachma currency). To encourage trading, it was less important which of the many currencies of the world was  to be adopted than that the government standardise on a single currency. US dollar, euro, and South African rand were all possible candidates; the US dollar had the most credibility and was the most widely traded within Zimbabwe. Zimbabwe could have joined the nearby nations of Namibia, South Africa, and Swaziland, which is known as the Common monetary area, by formally deciding to use the rand to promote trade and suitability and a stable currency. 2009 was a crucial year in which the government abandoned printing Zimbabwean dollars at all. This wholeheartedly solved the persistent problem of lack of confidence in the Zimbabwean dollar, and made people want to use the foreign currency of their choice. UNfortunately, as of 2014, Zimbabwe still uses a combination of foreign currencies, mostly US dollars, and the economy  has still not recovered. It is unclear that these problems will be solved by 2030 and therefore new thinking needs to be put in place to completely solve the problems outlines. In contrast, the solutions outlined above, which include the use of foreign currency, black markets, and denomination are all actions being taken that does alleviate pressure put on zimbabwean citizens by hyper inflation.  Here is another opportunity to donate and give the next generation a fighting chance in solving Zimbabwe's inflation problem.

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