US dollar eases Zimbabwe inflation

[bemildred]

Source: al Jazeera


Zimbabweans have seen a slight fall in the price of everyday items since the government allowed shops to abandon the local currency in favour of the US dollar, government figures indicated.

The data showed consumer prices fell in the first two months of the year, media reports on Friday said, raising hopes that there could be an end to the country's rampant hyper-inflation.

Data from the Central Statistical Office showed inflation at -3.1 per cent on a monthly basis in February and -2.3 per cent in January.

The last time official figures showed a month on month fall in inflation was in mid-2005.

Read more: http://english.aljazeera.net/news/africa/2009/04/200943204855550770.html

[imdjh]

1. I can't really wrap my mind around that.

Here we have a hostile country on another continent an ocean away, and they use US currency? Not that it matters if I get it or not, but i don't get how that works. For one thing, what do they do with the old and worn out currency? Do the Zimbabwean banks pack it up and ship it back to the US to be swapped out for new bills?

[DissedByBush]

2. Their currency is worth absolutely nothing

The government printed so much of it that the value nose-dived. They just renamed their $1,000,000,000,000 (yes, one trillion) bill to $1 because the inflation was getting that absurd under Mugabe's policies. Prior to that they had already done a 1/1000 re-evaluation meaning one dollar now is the same as one quadrillion dollars of a few years ago.

As far as the dollars it doesn't matter so much what the government issues, but what the people trust as a currency mechanism to trade goods and services. The Zimbabwe dollar is literally halving in value in just over a day, every day. There is no confidence in it so people don't want to use it. They'll use something else IF the government allows them to.

[Posteritatis]

4. I think this is the fourth revaluation, too

Not counting the one you just mentioned, I think they've stripped twenty-six zeroes off their currency's value since 2005. Twenty-six.

I saw a chart of the ZWD's inflation a few months ago; the graph was logarithmic, but the curve of the inflation was exponential. I still can't wrap my head around that.

[cobalt1999]

3. I thought crazy Mugabe said he'd never allow that.

I guess the look of hunger in the eyes of even his own security detail must have changed his mind.

[willing dwarf]

5. I just talked to a friend whose returned from Zimbabwe

He agree--says inflation has been tamed with the switch to dollars. But I can't figure out how the switch was made. Didn't they need to buy US Dollars with their own dollars? Didn't that cost ahuge amount?

He gave us a souvenir from his recent trip -- a 10 billion dollar bill from Zimbabwe. My kids are delighted to be able to tell their friends that they have 10 billion dollars at home.

[bemildred]

6. There is no switch.

You just declare US currency to be legal tender. The government doesn't buy anything. It's already declaring an exchange rate. But people start using US currency instead. It's not a new situation.

[willing dwarf]

7. Thanks for the clarification

It's interesting, reading back over some Paul Krugman columns, from early 2008, he described how many nations in the developing world have come to use dollar as de facto currency because of inflation problems with their own currency.

He reckoned that that was a major unnoticed force driving the US financial markets and ultimately the Housing bubble.

[bemildred]

8. Yes. All currencies are fake these days, or almost all.

They are faith-based", have no intrinsic value. The US currency has had a special position though, as a reserve currency, and that has made possible the spree of waste and excess that the US has been collectively indulging in these last few decades. We've had sort of a monopoly. To really understand the folly of US fiscal policy, you have to understand that this advantage, this monopoly, has been thrown away.

[willing dwarf]

9. Do you suppose they were trying to redeem the dollar

by agreeing to pump so much into the IMF?

I like your idea that the value is "faith based" -- it makes sense if you take the idea that you should love the Lord your God with all your heart and all your soul and all your might. That's the way people love their dollars. The dollar has been God in this country. -- Soon now, like Frederich Nietzsche we may hear Americans say "God is dead and we have killed it!"

[bemildred]

10. I think they are trying to avoid a deflationary cycle.

Where consumption contracts, causing production to contract, causing employment to contract, causing consumption to contract, and so on ...

This is sound policy, but attention needs to be paid to where the money is applied, and the best place to apply the money is to employment, it ought to be used to create good, stable, well-paying jobs, which will increase consumption, which will increase production, etc.

We also need structural reforms in the economy, the restoration of regulation, regulation that - among other things - aims at decentralization of production, distribution or wealth, and stability.

The dollar is a God that has failed, I would say, though it can be handy to have enough.
:hi: