So, what's so interesting for me to share in this article about the economic of Zimbabwe? For a period, I have planned to discuss Zimbabwe issue to the public, for us to understand their perspective, our perspective, economic perspective and globalization perspective and how can we interpret from this essay.
Back in 2009, I was in Lumut, Malaysia. Living there is pretty bored even though me and my friend rented a villa next to the sea. Due to the boringness plus the heat that produced by the sea breeze, I've recalled back to the time when I was in Ethiopia in 2007. I was there accompany my late girlfriend to study the water treatment, water supply and Geo-politic in Ethiopia, during my stays at Dire Dawa, I've learned that most African tend to be living in a laid-back attitude. For them, time for them is best to be enjoy slowly and took everything one after another. At first we had many difficulties to work in there because our schedule is pretty tight, but we can't force the local to follow our way of work because they will not adapt it easily. What I've learned from my visit to Ethiopia is much more than the economic perspective, but I've learn the sociological aspects.
So what's there for me to link my experience from Ethiopia to Zimbabwe? As what I've mentioned earlier, African are the most laid-back type, and I don't mean laid-back culture is unproductive. Every culture has its own style and methodology on dealing every task, and what's for us to concern right?
But when it come to budget deficit, monetary policy or banking structure. This whole phenomena aren't supposed to happen, this kind of attitude should be eliminate. A strict regulation are mandatory to unsure a nation wealth is fully distributed. Administrating a country is not easy as administrating SME enterprises. A president or prime minister are the CEO of the nation, they are the decision maker, policy maker and key player to the nation growth. That's the weight of responsibility which the title carry.
Robert Mugabe not my favorite type of President. The recent hyperinflation that struck Zimbabwe represented his incapability to run the nation. Hyperinflation in Zimbabwe began in the early 2000s, shortly after Zimbabwe's confiscation of white own farmland. It is estimated on 2008, Zimbabwe's annual inflation rate at 89.7 sextrilion, annual inflation was estimated at 6.5 quindecillion novemdecillion percent, the equivalent of
6 quinquatrigintillion 500 quattuortrigintillion percent, or 65 followed by 107 zeros – one googol 65 million. That's how severe the inflation is.
So how does this inflation happen?
Shortly after the confiscation of white-owned farmland, and land reform policy, it has causes a drastic consequences on Zimbabwe economy. The main objective of land reforms is to distributes the nation land to the local from the white colonial, and this so-called nationalist approaches has failed drastically.
Zimbabwe is the first country in the 21st century to hyperinflate. In February 2007, Zimbabwe’s inflation rate topped 50% per month, the minimum rate required to qualify as a hyperinflation (50% per month is equal to a 12,875% per year). Since then, inflation has soared.
The last official inflation data were released for July and are hopelessly outdated. The Reserve Bank of Zimbabwe has been even less forthcoming with money supply data: the most recent money supply figures are ancient history—January 2008.
Absent current official money supply and inflation data, it is difficult to quantify the depth and breadth of the still-growing crisis in Zimbabwe. To overcome this problem, Cato Senior Fellow Steve Hanke has developed the Hanke Hyperinflation Index for Zimbabwe (HHIZ). This new metric is derived from market-based price data and is presented in the accompanying table for the January 2007 to present period. As of 14 November 2008, Zimbabwe’s annual inflation rate was 89.7 Sextillion (1021) percent.
By
Professor Steve H. Hanke, The Johns Hopkins University and Senior Fellow The Cato Institute.
On 14-Nov-08, the inflation rate is 79,600,000,000.00%, inflation index is 853,000,000,000,000,000,000,000.00 and annual inflation rate is 89,700,000,000,000,000,000,000%.
Do you see the figure? Don't know how to pronounce it? Forget it, you will never see this kind of numbers anymore.
As we are all understand, inflation means the rise in the general level of price of goods and services in an economy over a period of time and hyperinflation means inflation that is very high or "out of control", a condition in which prices increase rapidly as a currency loses its value.
In 1956, Phillipe Cagan wrote The Monetary Dynamics of Hyperinflation, generally regarded as the first serious study of hyperinflation and its effects. In it, he defined hyperinflation as a monthly inflation rate of at least 50%. International Accounting Standard requires a presentation currency. International Accounting Standard (IAS 21) provides for translations of foreign currencies into the presentation currency. IAS 29 establishes special accounting rules for use in hyperinflationary environments, and lists four factors which can trigger application of these rules:
- The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power
- The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that foreign currency.
- Interest rates, wages and prices are linked to a price index and the cumulative inflation rate over three years approaches, or exceeds, 100%.
On this post, I did not decide to blame anyone, but hope that we understand why this sad hyperinflation happened so that in the future, we would never see this kind of scary data.
Let's look at the person who help Zimbabwe economy to become much more worst. He is Gideon Gono. He is the current Governor of the Reserve Bank Of Zimbabwe who acted as Central Bank for the country.
The policy that will always be remembered by most economist in the world is on his decision to print Zimbabwe currency in a large quantity.
Several reports that I've read is criticizing his policies and the impact that followed after he implementing his policies. The impact has causes a great problems in Zimbabwe finance, such problems are:
- cash shortages
- fuel and food scarcity, shortages in agriculture.
- businessmen have been arrested by the police and army under Gono's orders.
- some Zimbabweans have become fugitives or have languished in prison, notably Mutumwa Mawere, James Makamba, July Moyo, Philip Chiyangwa and David Batau.
- the highest inflation in the world and unemployment and the collapse of the health, education and agriculture sectors.
The formula of Quantity Theory of Money is simple:
For those who not really understand how the economy works might think the same solution as Mr. Gono did, because the common understanding is that the more money circulate on the market, the more secure it will be, but by printing enormous amount of money, it has caused a devaluation on the currency itself.
Let's remember the basic theory of economy here, where there's a demand, there's a supply, it applicable to every activity that we practice on everyday life. So when there's no demand for the products or services, but there's a lot of money haven't been spent, then there will be an immediate hike of price for the goods or services that available money can buy. When this scenario happened, inflation took place and when it goes out of hand, hyperinflation is the monarch in the financial system.
Not only by printing the money, Mr. Gono also demonetized old bank note and introducing new currency while the hyperinflation is at peak, the new currency represent a new high value where 1 Zimbabwe Dollar is equivalence to 1000 New Zimbabwe Dollar. For the period of 2 years, Gideon Gono has introduced many types of denomination ranging from 100, 100 000, 200 000, 500 000, 750 000 to 200 million and 50 billion Zimbabwe Dollar. From the time of currency revaluation to the beginning of June 2008 the money supply in the country has increased from $45 billion to more than $900 quadrillion, or a 20,000,000 fold increase!
Mr. Gono is a very 'religious man' when he once quoted "In the Lord's hands, I commit this Monetary Policy Framework for our economic turnaround." And he put god to a position where 'he' too will be participating in Zimbabwe monetary policy.
So, from Robert Mugabe and Gideon Gono, they are the type of laid back person. Where in Zimbabwe, a bread would cost hundreds of million, this kind of people enjoy the luxury money could buy.
So to Zimbabwe.. what is the next challenge to you? How fast can you recover? Why must Gono still be your Governor?
Think! let's think! Think again for the Zimbabwe motto which are Unity, Freedom and Work..
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