One might think that after 92 years, some wisdom may have leaked into the brain of Zimbabwean president Robert Mugabe. But no. As the world's oldest head of state, he has overseen the demise from a post-colonial success to a pariah state wrecked by hyperinflation. However, having apparently learned no lesson from his prior experiences, The Reserve Bank of Zimbabwe has decided to print a new national currency for the first time since 2009.
As Simon Black pointed out a month ago, some people just don’t learn.
After becoming the most famous case of hyperinflation in modern history roughly ten years ago, Zimbabwe is about to have another go at conjuring paper money out of thin air.
I’m sure this time will be different.
You know the story. Starting in the late 1990s, the Zimbabwe government’s policies under Robert Mugabe began to have some devastating effects.
He confiscated private property from established (mostly white) farmers and redistributed the land in very tiny tracts to his supporters, most of whom had no experience in farming.
Unsurprisingly, Zimbabwe’s once-booming agriculture exports collapsed almost overnight.
This destructive, authoritative control pervaded across nearly all industries, and by the early 2000s, the economy was in dire straits.
Unemployment and inflation skyrocketed.
In 2001 alone, retail prices doubled. But that was just the beginning.
Inflation rose so quickly that the government was having to constantly print new denominations of currency– thousand Zimbabwe dollar notes, then ten thousand Zim dollar notes… then million dollar notes… even trillion dollar notes.
By 2007, the hyperinflation was so bad that prices were doubling roughly every day.
My friends here in Zimbabwe tell me stories of going out for drinks at a bar; they’d drink a few beers for an hour or so, after which the bartender would inform them that the price of a beer had just increased by 50%.
People learned very quickly to spend money as soon as possible, and long lines formed at grocery stores as an entire nation desperately tried to turn their paper currency into something useful.
Even a simple loaf of bread became a store of value.
One friend told me how we would buy a loaf of bread in the morning with his spare change, and then sell it in the afternoon so that he would have enough money to pay the bus fare back home.
Some economists estimate that Zimbabwe’s hyperinflation peaked at more than 500 BILLION percent– an incomprehensible figure unless you’ve lived through it.
In 2009 it all ended. The government stopping printing money, and Zimbabwe became a ‘hard currency’ economy.
US dollars, euros, pounds, South African rand, and even Chinese renminbi have been circulating here ever since; merchants and consumers basically use whatever currency they can to engage in transactions.
Essentially there is no Zimbabwe dollar anymore.
But that hasn’t solved any of the country’s problems.
In the late 1990s, Zimbabwe’s GDP was roughly $30 billion. Today it’s just $13.5 billion, than $1,000 per capita.
Independent agencies estimate the unemployment rate here at over 80%, and the average worker makes just a few dollars per day.
It’s not hard to understand why. Taxes, fees, and absolutely insane regulations abound in Zimbabwe.
And even at age 92, Robert Mugabe still maintains dictatorial power and a tight (albeit arthritic) grip over the economy.
And so, as RT reports, The Reserve Bank of Zimbabwe has introduced a national currency for the first time since 2009 in an attempt to tackle a sharp shortfall of the US dollar, the country’s primary medium of trade. The new currency, called bond notes, is pegged at par with the US dollar and is backed by a $200 million bond facility with Afreximbank, according to the regulator.
An initial amount worth $10 million is going into general circulation in two and five dollar denominations. The circulation of the dollar will not be suspended. The bond notes have fueled fears of economic chaos with people’s savings being wiped out. Some analysts call the introduction of the new currency the Zimbabwean president’s “last gamble.”
The bond notes aim to halt the outflow of US dollars from the country as well as to ease a cash shortage.
The country started using US dollar as its primary currency seven years ago following the collapse the Zimbabwean dollar with hyperinflation of 500 billion percent.
Some vendors are accepting the new money, though say they will stop if the notes begin to lose value.
The introduction of the currency might cause shortages of commodities and price hikes, according to Harare-based economic consultant John Robertson.
“Anyone who needs foreign currency for imports will have to go to the black market. Inevitably the bond notes will lose their value. It is back to the Zimbabwe dollar scenario,” he said as quoted by AP.
Of course, as we pointed out previously, that’s the same thing they said 15 years ago. And it’s the same thing that every government and central bank says when they embark on an initiative to print money.
This is such typical thinking, and sadly not limited to Zimbabwe…
People in power across the world, including in North America and Europe, rely on this incredibly limited playbook.
They think they can engineer prosperity by going into debt and conjuring money out of thin air.
They think they can legislate and regulate their way to a quality healthcare or education system.
And when the majority of their initiatives fail, or even have the exact opposite effect as intended, they don’t learn from their mistakes.
They simply print more money, pass more laws, and go deeper into debt.