Ironically, even these insane inflation numbers were seen as low by economists. There is constant criticism that Harare was hiding the true inflation numbers. Economist Stephen Hanke, an expert on computing actual inflation levels of such regimes, put Zimbabwe’s annual inflation in 2008 at 7.96X1010 per cent with prices doubling every 24 hours. Hanke ranked Zimbabwe’s hyperinflation as the second worst in history.
Two steps, little success
How do governments fight hyperinflation?
First, they ignore the problem and keep introducing currencies of higher denominations. Zimbabwe introduced a 100 trillion Zimbabwe dollar note becoming the largest denomination currency ever introduced anywhere in the world.
Second, they introduce a redenominated currency (new or old) without the zeroes, convert the existing balances into a new currency, and over time inflation is controlled. For instance, Germany introduced the Rentenmark in 1923 to end its hyperinflation. Another parallel approach is to adopt a stable global currency which also does the same work.
Harare did both: it redenominated the existing currency and allowed multiple foreign currencies. In the period from 2006 to 2009, the central bank did three rounds of redenomination but none worked. The government allowed multiple foreign currencies to circulate, such as the South African Rand, the Botswana Pula, and the US Dollar. Eventually, the US Dollar became the principal currency.
Episode 58
Just introducing a redenominated currency or a global currency system is not enough. The government must follow it with reforms of managing growth by actual reforms and not printing money. Unfortunately, Harare refused to learn the lessons despite the huge economic tragedy.
Inflation came down from 2010 to 2016, but started to rise after 2017. With rising dollarisation, Harare was keen to have its currency. In 2019, the government introduced a new Zimbabwean Dollar (ZWL$). With no reforms accompanying this move, it led to hyperinflation in 2019 and 2020.
Hanke in a new research paper noted that Zimbabwe hyperinflated again becoming the 58th hyperinflation episode in history.
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