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Tuesday, 2 October 2007

Is Zimbabwe exporting inflation?

The South African consumers certainly think so, as this report by IRIN suggests. Some of South Africa's working class are blaming the increasing prices of basic commodities on Zimbabweans' shopping sprees, as they cross South Africa in search of basic essentials.

Update: In the meantime Gideon Gono plans to launch the Zim Kwacha apparently as a way to 'curtail a widely-used black market for foreign exchange and fight the world's highest rate of inflation'. History records that in 1945 the German Reichsmarch was worthless. Like in modern day Zimbabwe, the only money that mattered was dollars or cigarettes (read Maize). The years that followed where marked by hard winters, food and fuel shortages, endless cleanup of rubble, and political repair, if not retribution. And then in 1948 the new Germany issued a new currency, exchanging 1 deutsche Mark for 10 Reichsmark. Price controls came off, and hoarded came out of hiding. The economy took off, prompting Kindleberger to look back and say 'I regard the German monetary reform of 1948 as one of the greatest feats of social engineering of all time'. Will history look back and say the same thing about Gono's initiave? It won't be long before we find out!


  1. Sorry for the misleading title I gave the e-mail I sent you. Zim-Kwacha is the word we used to describe the "Zim-Dollar" when it started going down the drain. In my upcoming blog, I mention how the Reserve Bank of Zim buys foreign exchange from the parrarel market which is the sold/given to government oofficials at the official rate. If this is not theft of public funds, I do not know what to call it. And just think about the moral issue--these guys are able to get the forex cheaply and afford to buy goods from abroad while a poor citizen from Mbare can't even afford to buy a loaf of bread from OK.
    Anyhow, as an economist, you obviously find that ludicrous isn't it? If you remember recently, Nigerian president Yarad'ua overruled his Central Bank governor who wanted to re-valuate the Naira by factorising the Naira and issuing a new currency. Apparently, the governor did not seek the president's approval as per legal requirement.
    The whole issue has now died a natural death, as they say.

  2. I think the new currency will have a different name. Wouldn't be surprised if it was called "th Mugabe"!

    In terms of Government buying forex on the market and giving it cheaper to its workers, It is indeed theft but a different sort of theft. One where you are printing more money as a tool to redistribute the forex away from individuals into the pockets of your loyal soldiers. But in the long term it never works, because those ZANU-PF loyalists sooner or later have to spend the cash.


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