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Penny Collector Member
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 Posted - 02/11/2009 : 18:53:25
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The (Zimbabwean) Dollar - The Point of No Return
by John Lee, CFA
Portfolio Manager, Mau Capital
February 10, 2009
Last week, Zimbabwe slashed 12 zeros from its currency as hyperinflation continued to erode its value, the country's central bank announced in late January.
The government instituted price cuts to arrest inflation. As time went by, it became apparent the forced price cuts cause bare shelves in shops and many businesses closing .
"Even in the face of current economic and political challenges confronting the economy, the Zimbabwe dollar ought to and must remain the nation's currency, so as to safeguard our national identity and sovereignty... Our national currency is a fundamental economic pillar of our sovereignty," said Gideon Gono, governor of the Reserve Bank of Zimbabwe .
Gono has sent in the police to arrest businessmen for failing to reduce their prices. On one occasion, he personally visited shop owners in Harare to demand they lower prices. Despite these efforts, inflation in Zimbabwe remains the world's highest.
"Accordingly, therefore, this monetary policy statement unveils yet another necessary program of revaluing our local currency, through the removal of 12 zeros with immediate effect."
The move means that 1 trillion in Zimbabwe dollars now will be equivalent to one Zimbabwe dollar.
Gono has printed enormous quantities of money against the advice of economists, but with full support from Robert Mugabe. As predicted by the textbook quantity theory of money, this practice has devalued the Zimbabwean dollar and caused hyperinflation.
On 16 February 2006, Gideon Gono, announced that the government had printed ZW$20.5 trillion in order to buy foreign currency to pay off IMF arrears. In early May 2006, Zimbabwe 's government announced that they would produce another ZW$60 trillion. The additional currency was required to finance the recent 300% salary increase for soldiers and policemen and 200% increase for other civil servants. The money was not budgeted for the current fiscal year, and the government did not say where it would come from. On 29 May, Reserve Bank officials told IRIN that plans to print about ZW$60 trillion (about US$592.9 million at official rates) were briefly delayed after the government failed to secure foreign currency to buy ink and special paper for printing money.
...............(Special paper for the Zim Dollar, Why Bother? No one in their right mind is going to bother counterfeiting it.)
In late August 2006, 3 zeros were chopped off the old currency to form the new dollar. I t was reported that about ZW$10 trillion old dollars (22% of the money supply) had not been exchanged for revalued dollars.
On 27 June 2007, it was announced that central bank governor Gideon Gono had been ordered by President Robert Mugabe to print an additional ZWD$1 trillion to cater for civil servants' and soldiers' salaries that were hiked by 600% and 900% respectively.
On 28 July 2007, it was reported that Mugabe has said that Zimbabwe will go on printing money if there is not enough for underfunded municipal projects .
On 3 September 2007, it was reported that that the black market in Zimbabwe is once again booming despite price controls.
People who previously were employed for a paltry US$11 (ZW$2 Million) a month are now able to turn as much as US$166 (ZW$30 Million) just through black market trading.
On 24 November 2007, it was reported that money supply was now $58 trillion revalued Zimbabwean dollars (ZWD) ($41 million US at parallel rates). However, Zimbabwe banks could only account for $1 to $2 trillion of those dollars, meaning that members of the public were holding $56 to $57 trillion in cash.
On 4 January 2008, it was reported that money supply had been increased by $33 trillion (to $100 trillion) revalued Zimbabwean dollars (ZWD) .
On 21 January 2008, it was reported, by Gideon Gono, that the money supply had been increased to ZW$170 trillion since the middle of December. Further, Gono expected it to reach $800 trillion by 28 January 2008.
On 1 March 2008, it was reported that documents obtained by The Sunday Times show the Munich company Giesecke & Devrient (G&D) was receiving more than €500,000 (£382,000) a week for delivering bank notes at the astonishing rate of Z$170 trillion a week.
"The regime is surviving by printing money," said Martin Rupiya, professor of war and security studies at the University of Zimbabwe . "At this stage there is no other way."
On July 1, 2008, Giesecke & Devrient decided they would no longer print bank notes for Zimbabwe , bowing to pressure from the German government.
In the Guardian , on 18 July 2008, a report on Zimbabwe 's inflation, said that an egg costs ZW$50 billion (GBP 0.17, USD 0.32). It also showed a monthly war pension currently is ZW$109 billion (GBP 0.37, USD 0.74), shops can only cash cheques if the customer writes double the amount, because the cost will go up by the time the cheque has cleared, and people can only withdraw a maximum of ZW$100 billion from cashpoints .
On 24 July 2008, the Reserve Bank of Zimbabwe announced that "appropriate measures are being put in place to address the current setbacks being faced on the currency front, as well as on financial and accounting systems." It promised that in "the next few days" it would institute changes to the minimum cash withdrawal limits and IT systems' constraints. Currently, the government limits cash withdrawals to ZW$100 billion per day, which is less than the cost of a loaf of bread. IT systems cannot handle such large numbers; the automated teller machines for one major bank give a "data overflow error" and freeze customers attempt to withdraw money with so many zeros. That same day, the Institute of Commercial Management reported that ZW$1.2 trillion is worth the same as one British pound.
From January to December 2008, the money supply growth rose from 81,143 percent to 658 billion percent.
Critics have noted that most of Gono's monetary policy statements in the past have had biblical references. Notably, he usually ends in policy statements to the Parliament of Zimbabwe thus: "In the Lord's hands, I commit this Monetary Policy Framework for our economic turnaround."
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.....an egg costs ZW$50 billion (GBP 0.17, USD 0.32).
figure 32 copper pennies or 6 nickels and 2 copper pennies would buy that one egg, since copper alloyed coins have a store of real value while paper money does not, or just buy a chicken and go into the egg business for yourself (copper or silver as payment only.)
......People who previously were employed for a paltry US$11 (ZW$2 Million) a month are now able to turn as much as US$166 (ZW$30 Million) just through black market trading.
Financial problems force people to do what they must to survive, but the damage done to the population's psyche will be felt for decades.
Even if Zimbabwe establishes a currency that isn't so inflation prone, the citizenry will look upon it and its government with suspicion and contempt. Citizens that are forced to buy and sell on the black market for years are the same citizens that will ignore government rules and regulations (and taxes.) Governing such a nation is going ot be extremely difficult in the years ahead, a detail that was overlooked by the governmental planners of Zimbabwe.
To put it another way, when the population finds the only way to survive and prosper is to do the wrong thing, why would they ever want to do the right thing ever again?
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I change with the times-
but like silver coins found in your change
I stay the same.
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The United States of America started out as the new Republic of Rome.
Will The United States of America end up as the New Imperial Rome? |
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Zim$ point of no return
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