Zimbabwe Grappling with Hyperinflation
Essay Preview: Zimbabwe Grappling with Hyperinflation
Report this essay
What happened in Zimbabwe and who are the winners and losers of hyperinflation?
What are the causes of hyperinflation in Zimbabwe?
Ans 1 & 2:
There are various reasons of Zimbabwes hyperinflation. It started with the government trying to redistribute land which supposedly was unequally distributed. But this process slowed down over the time. The WBS program led to commercial farmers being forced to buy land. This process was at its peak during 2000s. The government started unofficial farm invasions. This led to political and economic turmoil which deprived the country of foreign investors. Zimbabwe was already reeling under high poverty rate, with the foreign investors withdrawal the poverty issue deepened. The government had deficit of 18% in 2000 compared to 10% in 1999. The central bank of Zimbabwe also worsened matters by tweaking the fiscal policies. Although done with good intent, the strategy failed. To manage debt, Zimbabwe started printing excessive amount of currency. Food output capacity and manufacturing output fell, unemployment rose to magnum value.
Winners: Borrowers, Holders of Hard Assets (real assets)
Losers: People on fixed income, Salaried people who have income raise less than rate of inflation, people holding liquid assets (rate of return was less than rate of inflation).
Causes of Hyperinflation:
The main cause was the enormous and fast increase in the supply of money. The government was printing money to pay off its debt which in turn led to hyperinflation.
Output of Consumer Goods and Services had low growth
Imbalance in Supply and Demand
Loss incredibility of Zimbabwean currency (monetary assets, liquid assets, etc.)
Monetary Authority of Zimbabwe was borrowing money irresponsibly
Inability to convert local currency to gold or internationally recognized hard currency
What can/should policymakers do to fight hyperinflation in Zimbabwe?
To fight hyperinflation Zimbabwe tried slashing prices to gain control of money supply. They allowed use of other currencies for trades and transaction which introduced USD in picture.
Manipulate gold prices, stop printing currency irresponsibly
Attract FDI
Increase production of goods and services (by increasing production capacity)
Increase food output capacity
Increase