Many of us have heard about the Zimbabwe's political crisis; but, I was stunned after knowing about the financial status of this African nation. Last week, one of my friend, Dr. Nabin Basnet, sent me an article regarding Zimbabwe's economic crisis. I found the article interesting (?), and hence, trying to re-write the story before sharing with all of you.
The term 'recession' means a decline in the state of the economy; a widespread decline in the GDP & employment and the trade lasting from six months to a year. Likewise, the term 'hyperinflation' means a rapid and unchecked increase in the price level. Typically it may involve inflation rates of greater than 100% or greater than 1000% Hyperinflation is often reported per month, or even per day. Another distinguishing feature of hyperinflation is the idea that inflation is out of control. i.e. not only are prices rising rapidly, but the rate of increase is rising rapidly as well. With each cycle inflation gets worse.
What causes hyperinflation? Usually, countries with hyperinflation have the following features (source)
- Large government debt, usually over 100% of GDP
- Printing Money. To cope with meeting the debt, the government starts printing money. This decreases the value of existing money creating a multiplier effect where people lose confidence in money and keep demanding wage increases.
- Reluctance / inability to deal with it.
Interestingly, at a bank in Harare, people have queued up to withdraw their nearly worthless savings! (photo courtesy: The New York Times)
Economists say that Zimbabwe’s economic collapse is gaining velocity. As the bankrupt government prints ever more money, inflation has gone wild, to a figure so high that the government had to eliminate 10 zeros off the currency in August to keep the nation’s calculators from being overwhelmed. Had it left the currency alone, $1 would now be worth about 10 trillion Zimbabwean dollars!