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Effects of hyperinflation in Zimbabwe. What next? Financial system recovery options
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wellington garikai bonga
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Abstract:Dollarisation can be a path to economic stability and growth if managed properly. Governments which end up dollarising only do so as a last resort.This paper used both explanatory and empirical approach to explore the nature of currency substitution and dollarisation in Zimbabwe. The paper also discuss the possibility and the requirements for de-dollarisation to take place. The process of dollarization in Zimbabwe was peculiar in that it was not backed by international reserves as is normally the case with countries that have dollarized. The only foreign currency that the government had was from taxation after full dollarisation. Currency substitution isan important phenomenon in countries with high inflation rates, complicating forecasts of money demand and making monetary policy more difficult to conduct. The most important incentive for currency substitution has been change in the domestic inflation rate, though there have been episodes of currency substitution arising for other reasons. Adequate reforms have been emphasized before de-dollarisation. Key Words:Dollarisation, Currency substitution, Dedollarisation, Currency boards, Bad money, Good money, Gresham’s law, Monetary policy, Monetary regime
Mark Ellyne
Zimbabwe’s 2008 hyperinflation is said to be the second highest in recorded history, and provides an interesting case study of policy failure. We explore possible motivating factors behind the hyperinflation to understand why it happened and persisted for so long, and who benefited from it. The paper examines the exchange rate–inflation spiral and explains how a large parallel foreign exchange market generated high profits for some, especially state-owned enterprises and those with insider connections who could arbitrage the dual exchange rate system. The paper explores the determination of the exchange rate, and tests the purchasing power parity hypothesis. It finds that PPP held for the official exchange rate but not the parallel exchange rate, providing evidence of structural change in the economy. It examines the causality among money, prices and the exchange rate using a vector error correction model to better understand the impact of monetary policy. In examining the hyperinflation, this paper uses the “Impossible Trinity Hypothesis” to explore the possibility that Zimbabwe’s policy-makers may have been trying set both the exchange rate and monetary policy. The paper also examines the “dollarization” exit strategy and post-2008 economic policies. It argues that the choice of using the US dollar as the main currency of the dollarized Zimbabwe was not optimal based on optimal currency area theory. Additionally, subsequent policies to influence domestic liquidity and control investment have created new and serious problems for the country’s economy. This case study of Zimbabwe’s hyperinflation and subsequent dollarization provides lessons for other developing economies about conducting monetary policy and the impact of full dollarization.
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Businesses do not operate in a vacuum but rather in a dynamic environment that has a direct influence on how they operate and whether they will achieve their objectives. This external business environment is composed of numerous outside organizations and forces that we can group into seven key sub environments,: economic, political and legal, demographic, social, competitive, and technological. Each of these sectors creates a unique set of challenges and opportunities for businesses.
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Hyperinflation in Zimbabwe
Background, Impact, and Policy
- © 2019
- Tara McIndoe-Calder 0 ,
- Tara Bedi 1 ,
- Rogelio Mercado 2
Central Bank of Ireland, Dublin, Ireland
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Economics Department, Trinity College Dublin, Dublin, Ireland
The south east asian central banks research and training centre, kuala lumpur, malaysia.
- Provides clear policy lessons
- Explores causes and effects of hyperinflations
- Considers a range of price data sources
- Written using case studies that will appeal to both an academic and policy-oriented audience
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About this book
This book investigates the hyperinflation in Zimbabwe in the 2000s. The authors present a full description of the Zimbabwean hyperinflation in its relevant economic, historical and political context. They address parallels with other hyperinflations, discuss the economics of hyperinflation in general and of the Zimbabwean hyperinflation in particular, and provide a money demand estimation using a new dataset. The study concludes with several policy lessons. This book will be of interest to researchers in both social sciences and the humanities, as well as practitioners and policy-makers in development economics, and those in the banking industry.
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Table of contents (8 chapters)
Front matter, introduction.
- Tara McIndoe-Calder, Tara Bedi, Rogelio Mercado
Historic Hyperinflation Episodes
Economics of hyperinflation, empirical strategy, data and a new price index, how is the hyperinflation in zimbabwe different, back matter, authors and affiliations.
Tara McIndoe-Calder
Rogelio Mercado
About the authors
Tara Bedi is a Marie Curie (CAROLINE) Irish Research Council Post Doctoral Fellow in the Economics Department at Trinity College Dublin. Prior to this, she worked with Trócaire, an Irish NGO, leading on policy research, including Leading Edge 2020. Before moving to Ireland, Tara worked in the Poverty Reduction Group at the World Bank, where she worked and published on impact evaluations, poverty maps and poverty monitoring systems. She received a master’s degree in Public Administration in International Development from the Harvard Kennedy School. She holds a PhD in Development Economics from Trinity College Dublin.
Tara McIndoe-Calder is a Senior Economist in the Irish Economic Analysis Division of the Central Bank of Ireland. She carries out research in the areas of household finance, consumption, income and wealth; labour markets; and SMEs. Prior to joining the Irish Economic Analysis Division she worked in the Financial Stability Division of the Central Bank of Ireland developing loan loss forecasting models for household and SME risk management in the Irish financial sector. Tara holds an MPhil from Oxford and a PhD from Trinity College Dublin. She is a Rhodes Scholar and a Trinity Scholar.
Rogelio Mercado is a Senior Economist at the Macroeconomics and Monetary Policy of the SEACEN Centre. He develops and delivers training courses on international macroeconomics and monetary policy to various central bank staffs in Asia. He is also the primary author and manager for the SEACEN Capital Flows Monitor. Prior to joining the SEACEN Centre, he held various research and teaching positions. Rogelio's area of research interests include international macroeconomics, international financial economics, and growth theory. He has a portfolio of research publications in international peer-reviewed journals and book chapters. He holds a PhD in Economics from the Trinity College Dublin.
Bibliographic Information
Book Title : Hyperinflation in Zimbabwe
Book Subtitle : Background, Impact, and Policy
Authors : Tara McIndoe-Calder, Tara Bedi, Rogelio Mercado
DOI : https://doi.org/10.1007/978-3-030-31015-8
Publisher : Palgrave Pivot Cham
eBook Packages : Economics and Finance , Economics and Finance (R0)
Copyright Information : The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2019
Hardcover ISBN : 978-3-030-31014-1 Published: 27 November 2019
eBook ISBN : 978-3-030-31015-8 Published: 16 November 2019
Edition Number : 1
Number of Pages : XI, 118
Number of Illustrations : 12 b/w illustrations
Topics : Macroeconomics/Monetary Economics//Financial Economics , Economic Growth , Development Economics , African Economics
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Both qualitatively and quantitatively, Zimbabwe’s lead-up to hyperinflation fits the mold of a modern high inflation incident, while its climax recalls the most severe WWI-era cases. Zimbabwe’s unique political situation also complicates the process of economic stabilization.
Hyperinflation, defined as inflation of over 50 percent month-over-month, in Zimbabwe began in March 2007. However, the economy has been plagued with annual inflation of over 20 percent since the early 1990s. Once regarded as the bread basket of Africa, Zimbabwe’s political mismanagement has destroyed its own economic wellbeing.
This paper tells the story of Zimbabwe's hyperinflation period from 2000-09, and examines the inflation-depreciation in terms of purchasing power parity and the quantity theory of money.
In Zimbabwe, due to hyperinflation, households saw an increase in food insecurity and faced limited access to much needed public services, including health care and education.
The causes of Zimbabwe’s hyperinflation, its efects and how it was stopped are particularly instructive. In his seminal work, Phillip Cagan defined hyperinflation as beginning when monthly inflation rates initially exceed 50 percent.
In Zimbabwe, due to hyperinflation, households saw an increase in food insecurity and faced limited access to much needed public services, including health care and education.
Zimbabwe’s 2008 hyperinflation is said to be the second highest in recorded history, and provides an interesting case study of policy failure. We explore possible motivating factors behind the hyperinflation to understand why it happened and persisted for so long, and who benefited from it.
Zimbabwe is in debt distress: external debt—of which about 64 percent corresponds to external arrears—is projected to be about 151 percent of GDP by 2015 (Table III–1). This paper raises three inter-related questions relevant for the analysis of external stability in the context of Zimbabwe.
Hyperinflation in Zimbabwe Abstract This chapter looks at the Zimbabwean economy during its hyperinflation episode. One of the main motivations behind this chapter is to illustrate how the macroeconomic instability as a result of the hyperin-flation affected households, firms across all sectors, parastatals and public services in Zimbabwe.
This Palgrave Pivot investigates hyperinflation experienced in Zimbabwe in the 2000's and provides policy lessons. The authors present a full description of the Zimbabwean hyperinflation itself in relevant economic, historical and political context, and discuss parallels with other hyperinflations.