UNIVERSITY OF ECONOMICS HO CHI MINH CITY

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PROJECT REPORT
MACROECONOMICS

TOPIC: HYPERINFLATION IN ZIMBABWE

Name: 1. Đồng Nguyệt Anh

2. Phan Hửu Lộc

3. Huỳnh Thị Mỹ Hoa

4. Nguyễn Thị Diễm Quỳnh

Class: AV003


 I. Introduction

Zimbabwe, officially the Republic of Zimbabwe, is located in Southern Africa. In April

1980, the Majority in Zimbabwe gained international dominance and independence after a
long colonial period and 15 years under the rule of the white minority.

Zimbabwean dollar was considered as the legal currency of Zimbabwe.

Zimbabwe has been suffering a worst economic shock which was called hyperinflation.

So what hyperinflation is and how important it is.

II. Definition about hyperinflation

Hyperinflation occurs when the government of a country tries to make more money by
simply printing more cash. This might seem sensible, except that there are no actual goods
and services to back up the increase in money being pumped into the economy, the money
is worse less and less. On the other way, hyperinflation is a term to describe the rapid,
excessive, and out-of-control general price increase in an economy. While inflation is a
measure of the pace of rising prices for goods and services, hyperinflation is rapidly rising
inflation. Normal inflation is measured in terms of monthly price increases, hyperinflation
is measured in terms of exponential daily increases that can approach 5 to 10% a day.
Hyperinflation occurs when the inflation rate exceeds 50% for a month.Hyperinflation is a
rare event for developed economies which has occurred many times throughout history in
countries such as China, Germany, Russia, Hungary, and Argentina. However, the poorer
countries, such as Zimbabwe, happened as a phenomenon.

Zimbabwe’s economy underwent one of history most extreme examples of hyperinflation

in the early 21st century. The economy went down from 2000, in particular, 5% GDP
growth per year declined in 2000, 8% GDP growth per year decreased in 2001, GDP
growth per year fell to 12% in 2002 and 18% in 2003.

Hyperinflation in Zimbabwe reached a peak from 2008 to 2009. In 2008, Zimbabwe had
the second-highest incidence of hyperinflation on record. The estimated inflation rate for
Nov 2008 was 79,600,000,000%. That is effectively a daily inflation rate of 98.0.

A man was bringing a lot of money which have lost its worth in Zimbabwe

This results in a high rate of unemployment, illegal migration,...

It can be seen that in Zimbabwe, where they printed a lot of money, a chicken would be
worth hundreds of trillions of Zimbabwe dollars. A little bit of inflation is acceptable, or
rather desirable for any economy as it boosts growth. Most countries try to maintain their
inflation rate at around 2%. But Zimbabwe is facing a hyper-hyper-inflation! They finally
stopped hyperinflation in April 2009 by getting rid of the Zimbabwe dollar and accepting
foreign currency, such as the US dollar.

III. Timeline of Hyperinflation in Zimbabwe

To trace the economy’s deterioration and understand the causes of the extreme price
changes, it helps to compare 1980 (when newly independent Zimbabwe left behind its
identity as Rhodesia) with 2008, the height of hyperinflation.

a) Before Hyperinflation

In 1980, the inflation rate was 5.4 percent per year, the average inflation rate was 0.5
percent per month. The maximum denomination of currency at that time was 20
Zimbabwean dollars, which was also the most used currency in transactions at the time –
responsibled for around 95% of all transactions. At that time, $1 US could be exchanged
for $ 0.647 Zimbabwe, and real GDP in 1980 raised by 14.6 percent from the year before.

In August 2006, at the official rate, a new Zimbabwean dollar was issued and priced at
1,000 old dollars, or one US dollar would equal 250 new Zimbabwean dollars.

In June 2007, an estimated 120,000 Zimbabwean dollars were 1 USD on the black market.

b) During Hyperinflation

In August 2008, according to the Central Statistics Office, inflation rose to the official
estimate as high as 11,200,000,000%. This is hyperinflation and a new "100 billion" dollar
was introduced by the government of this country.

In November 2008, prices in Zimbabwe will double every 25 hours, according to unofficial
figures. Zimbabwe's annual inflation rate stands at 516 times 10 or even 18 percent. The
purchasing power of the people at home fell sharply and people had to hurry up with
foreign goods.

At the official exchange rate as of December 31, 2008, US $1 could be exchanged for $4
million Zimbabwe, even though that figure on the black market is much higher. The real
GDP in 2008 decreased by 17%, and GDP per capita at $136 which 41% lower than it in
1980.
In January 2009, Zimbabwe introduced $ 100 trillion (10 ^ 14) banknotes. On January 29,
to cope with the country's hyperinflation, Zimbabweans was allowed to use foreign
currencies to exchange and trade goods, which was more stable: Euro, US Dollar, Rand,
Sterling, and South Africa, besides the Zimbabwean dollar. (Information from Patrick
Chinamasa - Acting Finance Minister)

On February 2, 2009, The Reserve Bank of Zimbabwe announced that another 12 zeros
would be removed from the currency, with 1,000,000,000,000 dollars (3rd generation)
Zimbabwe exchanging a new dollar. The new coins (4th generation) are launched in new
denominations include 1, 5, 10, 20, 50, 100 Z $. Generation 4 coins are in circulation with
3rd generation coins, used until June 30, 2009. Since February 2009, the new Zimbabwean
government has established a multi-trading system. the currency in which the US dollar is
most commonly used. The national budget allocation for 2009 and the 2010 budget
estimates are all using the US dollar as the currency unit. With the full dollarization of its
economy, the Zimbabwean government tied its economy to America's monetary policy.
This is also the optimal policy to help the Government and people of Zimbabwe quickly
get rid of hyperinflation.

Hyperinflation ended in April 2009 when the central bank of Zimbabwe stopped printing
Zimbabwean dollars and the country started using foreign currencies such as the US dollar
and South African rand as a medium of exchange.

In 2010, Zimbabwe's GDP reached 4.27 billion USD, the growth rate was 5.9% and
inflation was 5.03%, GDP per capita of this country was low, only about 400 USD.
industry at a record 95%.

Agriculture attracts 66% of the workforce but contributes only 17.9% to GDP. The main
agricultural products are corn, cotton fiber, tobacco, eyebrow powder, sugar cane, lamb,
goat, pork …

The industry attracts 10% of the workforce and contributes 24.3% of GDP. The main
industries are mining, clothing and footwear, food, and beverages ...

Services attract 24% of the workforce and contribute 57.95% of GDP. Tourism is an
important service industry in Zimbabwe but is currently in crisis as Western tourists avoid
the country due to concerns about anti-white sentiment.

Regarding foreign trade, in 2010, Zimbabwe exported USD 2.54 billion, mainly platinum,
cotton, tobacco, gold, iron alloys, textiles. The main trading partners of Zimbabwe are
Congo, South Africa, Botswana, China, Germany ...
In 2010, Zimbabwe imported the US $ 4.04 billion. The country's imported goods are
transport machinery and equipment, chemicals, petroleum, food. Zimbabwe's main import
partners are South Africa (62.2%) and China.

IV. Goods, services, and price in the period of hyperinflation

Due to the increase of price, and the central bank printed a number of denominations of
money so that the older of small denominations were devalued and worthless. A typical
example of this phenomenon can be found in a signboard at a public toilet in Zimbabwe.

At a local store, $ 12 million Zimbabwe (50 US cents) could only buy a bunch of withered
lettuce. 10 million dollars is not sure to buy a loaf of bread because of the scarcity of food.
This rate is also out of reach for most Zimbabweans. Or if you simply want to buy fresh
milk, in this hyperinflation period, you have to pay up to 3 billion Zimbabwean dollars to
get it.

Empty shelves in a supermarket in Bulawayo, Zimbabwe, March 19, 2008. With its
economy plummeting and oil prices hit all-time highs, very few Zimbabweans can afford
essentials. Most of the people live on international food aid.

A woman holds a loaf of Zimbabwe $ 45,000 ($ 0.45) bread in her hand in February 2006.
In 2008, the monthly inflation rate reached 3.5 million%. One egg costs 50 billion
Zimbabwean dollars.

The scarcity of raw materials caused great difficulties for the manufacturing industry.
Economist Gift Mugano said in 2007, Zimbabwe spent 2.3 billion USD to import goods
and foods such as fruits, vegetables, soybeans, wheat ... and also essential products such as
whipped cream teeth and medicine. Once considered Africa's thriving wheat granary,
Zimbabwe is grappling with drought, a high unemployment rate (over 90%), shortages of
basic commodities, and the foreign exchange crisis. Many local firms are forced to move
offshore or closing stores, while the company is still operating today, the hold with low
productivity due to lack of foreign currency.

In 2008, Zimbabwe became the second-worst hyperinflationary country in history, after

postwar Hungary. Prices doubled every 25 hours. Zimbabwe printed the highest bill of 100
trillion USD, but this note was only enough to buy a bus ticket for the week.

V. Which lead to the hyperinflation in Zimbabwe

Once a "breadbasket" of Africa, Zimbabwe now faces a stagnant industry, severe food
shortages, a dizzying currency depreciation, and rampant corruption.
After many years as a political prisoner, Mugabe became the first Prime Minister of
independent Zimbabwe in 1980. At that time, he was loved by the people of Zimbabwe for
a style that was supposed to resemble Nelson Mandela. The people expected him to lead
the country forward after decades of white rule. But Mr Mugabe's mistake in managing
Zimbabwe's agriculture sector is believed to be a turning point leading to economic
disaster in the country.

1. A Major Decline in Agricultural Exports

In the early 2000s, Robert Mugabe implemented a series of land redistribution reforms.
Land owned by white farmers was forcefully taken (with no compensation) and handed to
the black population of the country. The people that were given the land had little
managerial experience in running farms and agricultural production declined significantly.

The land acquisition campaign followed two years of crop failures and drought, leading to
the worst famine in Zimbabwe in 60 years.

In the context of serious shortages of basic food and persisting year after year, the Central
Bank of Zimbabwe stepped up printing money to import goods. As a result, inflation
skyrocketed.

At the height of the crisis, prices doubled every 24 hours. Economic experts estimate that
Zimbabwe monthly inflation hit 7.9 billion percent in 2008. With that, unemployment has
grown dramatically, public services paralyzed, and the Zimbabwe economy decline by
18% in 2008.

In 2009, Zimbabwe abandoned its own currency and switched to foreign currencies.

2. Excessive printing of money caused much of the hyperinflation

The Mugabe government copes with the ongoing economic crisis and inflation by
increasing the money supply in circulation, especially by printing more money. Analysts
say that it is the main cause of hyperinflation in Zimbabwe: the government was constantly
printing money to meet their needs, destroying the value of the Zimbabwean dollar, and
pushing up the prices of imported goods. high. The analysis by economists Chidhakwa and
Chigumira mentioned that the money supply increased by about 46.7% in 1993 and
102.7% in 2001. In 2008, the Governor of the Central Bank of Zimbabwe Gono introduced
27 new currency denominations but still couldn't print money fast enough to keep up with
the world's highest inflation rate, estimated at 231 million% in July.

Another explanation for the growth of the money supply is that the Mugabe government
participated in the Second Congo War. This means that Zimbabwe would reap lasting
financial rewards with the country. To finance its participation in the war, the Zimbabwean
government added a huge amount of money to support its military and government
officials. In addition, the population of Zimbabwe has also decreased sharply due to the
mass migration of people abroad. Government spending increased while tax revenues
declined, causing the government to print money.

The other reason was Mugabe's self-serving purpose. In order to strengthen its position and
win the support of political alliances and other socio-political factions, the Mugabe
government deliberately increased the money supply through excessive printing of money.

VI. The effects on people and economic in Zimbabwe after the

hyperinflation

The effects of hyperinflation on the lives of the people of Zimbabwe are extremely heavy:
Once considered Africa's thriving wheat granary, Zimbabwe is struggling with drought, a
high unemployment rate (80% of workers are unemployed), and a foreign exchange crisis.
The education and health system collapsed. The shortages worsened each time basic
commodities. Political and economic instability. Having money and still falling into
poverty among the people.

Zimbabweans gathered in front of a local bank in Harare to wait for their withdrawals on
12/12/2008. The central bank of Zimbabwe then printed a $ 500 million note as the country
struggled with the world's highest inflation and currency shortages.

Many domestic companies are forced to move overseas or close stores, while those still
operating today struggle with low productivity due to a lack of foreign currency to import
raw materials or upgrade machinery.

Bread has joined the list of scarce necessities, making its price beyond the reach of many
Zimbabweans. And now, a lot of people have gotten used to drinking tea, a favorite
breakfast drink, without a toast. Gibson Nhema now sells alternatives to bread. People
sometimes have to eat solid porridge, sweet potatoes, and green corn. The best is to have
one meal of bread per week. Even if they want to eat bread they have to skip dinner.

Positive effects: Reducing deposit rates. Attract foreign investment. Stable state budget

Defect effects: National competitiveness is not guaranteed. The national banking system
depends on the US. Failure to respond to financial system shocks

VII. What the government did to reduce hyperinflation?

1. Dollarization of the economy and economic restructuring

Zimbabwe started using the US dollar in 2009 when the sale of the Zimbabwe Dollar was
canceled. Those with an account of up to 175 billion Zimbabwe dollars are paid 5 USD.
Cash holders at home can exchange 250,000 Zimbabwean dollars (2008 issue) or 250
Zimbabwean dollars (2009 release) for 1 USD.

With the dollarization of the entire economy, the Zimbabwean government has attached its
economy to the US monetary policy, so they are attracting the attention of many people,
especially in the economic world. , in determining the effect of the 2nd quantitative easing
program (QE2) on the economy of Zimbabwe.

2. Anti-corruption

Beginning on February 17, the Committee conducted the national approval process through
public interviews around the contents of the Draft Strategy.

Accordingly, ZACC will go to all provinces and cities to organize consultation workshops
through the Draft Strategy. Then, giving the final text, the strategy is expected to be
announced by the end of April this year. ZACC said it is waging a tough fight against
corruption at large corporations, with the scandals that paralyze the national economy.

Although the efficiency and salvation of the Zimbabwean Economy, the effects and
consequences of hyperinflation are still there and lessons for all of the world!