Citizen, companies, and government officials face a bigger issue with the new implemented quasi-currency. Government policy makers have returned to a local currency without increasing production, leaving citizens and business’ in economic hyperinflation state. Will Zimbabwe return to the 79.6 billion percent inflation rate from 2008?

Since the late 1990s, Zimbabwe has had to fight ongoing inflation and even hyperinflation during this time period. Today, Zimbabwe has begun to enter yet another crisis of hyperinflation. Hyperinflation, is a term that describes a very high percentage and a fast acceleration of inflation over a given month or year. This action causes the local currency to diminish as goods and services skyrocket. According to a recent report by Bloomberg in July stated that yearly inflation in Zimbabwe “surged to 175.66 percent in June from 97.9% in May”. As of today this yearly inflation rate has risen well above 300 percent.

Source: Globe and Mail – A citizen does a quick calculation on her phone before buying groceries

History of Zimbabwe Hyperinflation

In 2008, Zimbabwe had the second highest hyperinflation ever recorded. This total amounted to about 79.6 billion percent. Overall, this would force some of the daily goods and services to double in price every day. Due to the series of land reforms the Zimbabwe government conducted in the 1990s meant a great deal of government spending. With production not meeting targets in farming and manufacturing the central bank lending service began to collapse. Due to the collapse the Zimbabwe government started to print excess money to fund the war in Congo. In addition, the increased rate of printing money began to put the government in more debt and even decrease the value in bonds. Thus, making it difficult to dispose future debt.

2008 Inflation Graph by EconomicsHelp

Another Case of Hyperinflation on the Way?

At the begin of 2019 Zimbabwe re-introduced the return of a national currency after it had used the U.S dollar and South African Rand during the period of recovery after 2008. Therefore, Zimbabwe has introduced, “a quasi-currency known as bond notes, which can’t be traded outside the country, and their electronic equivalent, the RTGS$, will be termed the Zimbabwe dollar”. The quasi-currency was implemented from the government as a source to protection and a hope to sustain a relative value during the long-run. However, Prosper Chitambara, senior economist at the labor and economic research institute noted, “with the reintroduction of the local currency, this will put pressure as there is no production. You don’t introduce more currency when there is no production because that on its own causes inflation. We are now in hyperinflation technically”. Therefore, the new quasi-currency has re-opened the disastrous hyperinflation.

Source: Bloomberg – Recent Inflation Increase

Effect of Citizens

The citizens of Zimbabwe are beginning to struggle. Most of the consumer goods (food, clothing, housing products, and health care) have risen by more than 200 percent in June and are starting add another 40 percent per month. According to the New York Post, citizen Isaiah Macheku is terrified every time he needs to make a purchase. “Before […] 2017, Macheku could afford all his family’s basics on his salary, which equals about $24. Now the same amount can hardly buy 8.8 pounds of beef”. To make things worse, many citizens have been seen in stores with calculators and notebooks. Since the items price on the shelf can fluctuate before reaching the cashier. Citizens have had to calculate a family budget every day.

Future Outlook

The future of Zimbabwe’s hyperinflation does not look promising. Many government officials are refusing to acknowledge the real issues of the new currency. Some, including Finance Minister Mthuli Ncube said in June, he believes the inflation rate will go down to less than 10% by the end of the year. This mark is clearly out of reach with August’s inflation rate hitting a high of 300%. The IMF (International Monetary Fund) mentioned, “Weakening confidence, policy uncertainty and a continuation of foreign currency market distortions are exerting pressure on the exchange rate, while a severe drought and foreign debt hampering Zimbabwe’s access to external funding have impacted the economy hard”. In conclusion, with the lack of government acknowledge it will be interesting to see if Zimbabwe can find a solution before things get out of hand for citizens and business’. A good reminder why a regulated money supply and economic production matter in a country.