Solving the hyper-inflation problem in Zimbabwe
September 16, 2008 7:45 PM   Subscribe

What some possible solutions for the humongous inflation affecting Zimbabwe's economy?
posted by dcrocha to Work & Money (14 answers total) 1 user marked this as a favorite
Best answer: I don't have any solutions, but I can direct you to someone who might:

Easily Distracted - the blog of Timothy Burke, a professor of history at Swarthmore. His main field of specialty is modern African history, and I know he regularly posts blog entries on Zimbabwe.
posted by Axle at 7:57 PM on September 16, 2008

Stop printing so much money?
posted by dcjd at 8:01 PM on September 16, 2008 [1 favorite]

In cases of extreme inflation such as this, governments tend to get pretty creative. Sometimes they'll just discount notes in circulation and knock a few zeroes off the next batch. Kind of a wimpy version of real currency devaluation. Other times, they'll throw the old system out entirely and peg their money's value to a more stable currency (the dollar, the euro, the yen).

The most creative I've ever heard of, though, was in Afghanistan, where inflation was so high they started printing currency on newspaper-quality stock. The stuff degraded so quickly it was almost unspendable after a couple weeks in circulation. Storekeepers would not accept grungy bills, meaning a 100% de facto tax was levied on the last person to hold the bill. That's the downside. The upside is that this genius system actually helped keep inflation in check by controlling the number of bills in circulation.
posted by The White Hat at 8:08 PM on September 16, 2008

Weimar Germany introduced a new (temporary) currency based on hard assets - land mortgaged off and such.

Bolivia (in the 1980s) dramatically raised the domestic price of gas, which meant less Bolivians bought it, which meant more of Bolivia's oil was available for sale in foreign markets, which brought an influx of non-Bolivian currency to the country.

Japan (after WWII) started exporting stuff on a large scale, which again brought foreign cash in.

I am not an economist. I am probably grossly oversimplifying.
posted by Flunkie at 8:20 PM on September 16, 2008 [1 favorite]

Brazil is sort of a textbook case of eliminating hyperinflation. I think in the case of Zimbabwe, specifically, they need to do everything in their power to get the agricultural sector working and exporting again.
posted by dhartung at 8:36 PM on September 16, 2008

I don't know whether this is being proposed as part of the solution or merely as a means to ease the pain but at least one economist seems to think that free banking is a good idea.
posted by stuart_s at 10:38 PM on September 16, 2008

Best answer: Hyperinflation is like a fever, a symptom of something else. Fevers can be brought down somewhat with drugs, but the underlying cause remains and the real way to cope with a fever is by treating the real disease.

There's no drug that directly treats hyperinflation. The only way to get it under control is to fix what's wrong that's causing it. As Dan mentions, that means getting the economy working again, but of course when the currency is wastepaper that's more difficult.

A lot of nations in this kind of situation have de facto switched to using the currency of some other nation either temporarily or, in a few cases, permanently. (The official currency of Ecuador is the US Dollar, for example.) In some cases it happens without government approval, or the government eventually recognizes a fait accompli.

That can serve as a stability bridge until the economic problems are straightened out, after which it may be possible for the government to issue a new currency of its own.

The problem in Zimbabwe is 30 years of corrupt and incompetent misrule by Mugabe, which has destroyed nearly everything that made Rhodesia prosperous. (I'm not saying that minority rule was a good thing, of course, but there's no doubt that the whites did a better job of running the economy than Mugabe and his thugs have.)

My own unsupported feeling is that the situation is untreatable until after Mugabe dies, because that appears to be the only thing that will get him out of power. It will be damned difficult even after that.

He's 83, but seems to be in good health, so it could be anything from a week to 15 years before he's out of the way.
posted by Class Goat at 10:41 PM on September 16, 2008 [1 favorite]

Mugabe is going into a power-sharing agreement because a lot of aid is promised if he does. I imagine the big donors have a cunning plan.

And some government officials have been paid in US dollars for some time back -- which probably explains part of the problem, but indicates one possible solution.
posted by Idcoytco at 5:44 AM on September 17, 2008

Minister Mumbengegwi? Didn't we talk about how fishing for macroeconomic policy on Mefi got us into this mess to begin with?
posted by Dr.James.Orin.Incandenza at 9:24 AM on September 17, 2008

Regime change.
posted by Nelson at 10:09 AM on September 17, 2008

It remains to be seen just how well that power-sharing agreement works. I'm pessimistic; I expect it to fall apart, and I expect eventually the country will collapse into civil war.

As to "regime change" it won't happen unless South Africa does it. The Continental Europeans aren't capable of doing it, the Brits are unwilling, and we're busy (and unwilling). The only country capable of doing it, that might eventually become willing to do so, is South Africa -- and even that is very, very unlikely.

It's not entirely unprecedented. Vietnam invaded Cambodia to depose the Khmer Rouge, and Tanzania invaded Uganda to depose Idi Amin. If the situation in Zimbabwe continues to deteriorate, and if the refugee problem gets worse (which seems likely), it might be enough to convince Mbeki that Mugabe's friendship is a luxury he can no longer afford.

But if that happens at all, it won't be soon.
posted by Class Goat at 12:41 PM on September 17, 2008

By the way, one possible outcome for Zimbabwe is what happened to Somalia: chaos and anarchy, with individual areas run by local tribal chiefs (aka "warlords") and no one in overall charge.
posted by Class Goat at 9:51 PM on September 17, 2008

I hope we are being unduly pessimistic. Unlike many other African countries, Zimbabwe has recent experience of good stable government, it has the natural resources to fend for itself, and it has friends standing by with aid on offer to get themselves straightened out.
posted by Idcoytco at 6:12 AM on September 18, 2008

Response by poster: For the record, I'm the OP and I'm from Brazil. We did have some high inflation in the 80's, but nothing compared to what happens in Zimbabwe. Brazilian economy survived somewhat easily (at least for middle and upper classes) because it was heavily indexed. So, for people with access to the banking system, inflation did not bother much, as even checking accounts were paid interest each month.

I remember inflation being 1% a day at the most critical point; nothing like 50% an hour as it is in Zimbabwe.
posted by dcrocha at 6:29 AM on September 18, 2008

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