Zimbabwe Hyperinflation: A Little History

Okay, we’re picking up where we left off last time (well, kind of anyway). Believe me, these posts will probably ramble a bit, but it’s all for your good in the end (LOL). Just to give a little background on Zimbabwe in particular, the word “Zimbabwe” itself actually means “Houses of Stone”, as Zimbabwe is home to the largest stone structures in the continent of Africa, outside of the pyramids of Egypt. Britain, as we all know, was the bee’s knees in terms of imperialism back in the 19th century, and they settled in Africa as well in order to do what they do best–siphon natural resources for fun and profit. Cecil Rhodes, a prominent English businessman who officially balled out of control due to his diamond mining interests in South Africa, edged north in order to stake out more territory, eventually obtaining a royal charter for his going concern, the British South Africa Company. In 1895, the country was renamed Southern Rhodesia in his honor. After a series of skirmishes with African nationalists, Britain made some political moves to navigate this sketchy relationship, eventually forming three separate colonies–Northern Rhodesia, Southern Rhodesia, and Nyasaland.

Zimbabwe, former bread basket of Africa.

Zimbabwe, former bread basket of Africa.

For almost a full century, blacks and whites fought over the issues of land and political control during the colonial period. Later on, an influential leader named Robert Mugabe would emerge as head of the Zimbabwe African National Union (ZANU); he eventually became a key figure in winning Zimbabwe’s independence from the Crown in 1980. Just 15 years before this momentous event, the white minority government of Southern Rhodesia under the hand of Ian Smith declared independence from the United Kingdom in 1965, finally adopting the moniker of Rhodesia in 1970. Obviously this didn’t last very long, as a handful of well-trained African guerrilla soldiers under ZANU and ZAPU (Zimbabwe African Peoples Union) started peeling caps and kicking butt, eventually wrestling the land of Zimbabwe from the clutches of London and winning Zimbabwe’s independence on April 18, 1980. Mugabe was elected prime minister at that time, and has been in power ever since. Sheesh.

I really didn’t even get to the point yet about Zimbabwe’s currency collapse, but we’ll get there…don’t you worry; we’ll get there.

Zimbabwe and the Ravages of Hyperinflation

Zimbabwe was known at one time as “Africa’s bread basket”, but unfortunately it was reduced to a state of abject poverty within only a few short years. The collapse of Zimbabwe’s economy is a case study in how a relatively self-sufficient nation can fall victim to runaway inflation and extreme wealth erosion.

Economist Phillip Cagan identified hyperinflation as beginning when monthly inflation rates begin to exceed 50 percent. Once the ravages of hyperinflation have taken their toll, it is officially declared “over” when rates decline below 50 percent, and then remain below 50 percent for at least a year. In Zimbabwe, this 50 percent threshold was crossed in March of 2007, and lasted until 2009, when the country finally abandoned its currency. Hyperinflation is typically caused by rapid increases in a country’s money supply due to fiscal deficits arising from war, regime changes, and the like.

A Zimbabwe 100 Trillion Dollar Banknote. Whew.

A Zimbabwe 100 Trillion Dollar Banknote. Whew.

In the 20th century alone, hyperinflation occurred 28 separate times, with the majority of the episodes brought on by war and the fall of Communism. Zimbabwe has the unpleasant distinction of being the world’s 30th occurrence, and the second occurrence of hyperinflation on the continent of Africa. It has been said before that hyperinflation is a “disease of money”, and that disease can ravage any economy in which large budget deficits are financed with more money printing. More on this in a coming post.