QE, Zimbabwe, And The Surreptitious 30% Haircut Every Decade
SEPTEMBER 13, 2012
Dizzying QE gobbledygook is upon us once again. It would restart its big 480-volt money printer, in addition to the desktop machine it had been using recently, the Fed said, in order “to help ensure that inflation, over time, is at the rate most consistent with its dual mandate,” namely “maximum employment and price stability.” Thus, more inflation magically creates more jobs, and “price stability” requires more inflation in order to become more … stable maybe?
The Dallas Fed shed some light on this conundrum. Inflation hounded the Zimbabwean dollar ever since its creation in 1980, when it was worth US$ 1.54. By 1997, when I was in Zimbabwe, the Zim dollar had plummeted to about 10 cents. I’d been traveling solo through Africa by whatever “public transportation” was available. There were days on dirt roads with washed out bridges or no bridges, dry river beds, expressways, rickety railroads, or the sand of the Sahara—and some remaining landmines. By comparison, Zimbabwe was still in decent shape. [That life-changing journey through 24 countries in Africa is subject of a forthcoming book, the third in the series. The first one, Big Like: Cascade into an Odyssey—a “funny-as-hell nonfiction book about wanderlust and traveling abroad,” a reader tweeted—is available now at Amazon.]
But inflation steepened. In 2006, the Reserve Bank of Zimbabwe created the new (second) Zimbabwean dollar by chopping off three zeros. It still wasn’t hyperinflation. Just plain inflation. In March 2007, the Z$ 500,000-note was issued, signaling the official arrival of hyperinflation (more than 50% inflation per month). By 2008, the Zim dollar had become useless for transactions. To keep the country from total collapse, authorities finally allowed transactions to be made in dollars.