Germany and Zimbabwe both experienced periods of hyperinflation due to excessive money printing by their central banks. In Germany in the 1920s, hyperinflation was caused by the large war debts from WWI and the occupation of the Ruhr Valley by France which led Germany to print more money. By late 1923, the monthly inflation rate was over 726 billion percent. In Zimbabwe from the late 1990s to the late 2000s, hyperinflation resulted from the government printing money to fund war spending and corruption as well as from land reforms that reduced agricultural production. Inflation reached rates of 79.6 billion percent in November 2008. Both countries saw devastating economic and social impacts from hyperinflation including short

1. GERMANY AND ZIMBABWE
HYPER-INFLATION

2. INFLATION RATE
• The inflation rate is the percentage rate of change of a price index over
time.
• Inflation rate measures how fast prices for goods and services rise over
time.
HYPER-INFLATION RATE
Hyperinflation is very high inflation. Although the threshold is
arbitrary, economists generally reserve the term “hyperinflation” to
describe episodes when the monthly inflation rate is greater than
50%

3. CAUSES OF INFLATION
Excess
Aggregate Demand
Cost Push
Factors

4. ZIMBABWE
On 18 April 1980, the Republic of Zimbabwe was born from the
former British colony of Southern Rhodesia.
Early years:
• Zimbabwean dollar was more valuable than the US dollar.
• Zimbabwe experienced strong growth and development. The
tobacco industry was thriving . Strong Economic indicators.
From 1991 to 1996:
• Zimbabwean government embarked on an Economic
Structural Adjustment Programme (ESAP)
In the late 1990s:
• The government instituted land reforms intended to
redistribute land from white landowners to black farmers to
correct the 'injustices of colonialism'.
From 1999 to 2009:
• sharp drop in food production ,collapse of banking sector and
others.

5. REASONS
• Zimbabwe is the front-line evidence that shows that government deficits
will generate hyper-inflation.
• The Mugabe government was printing money to finance involvement in
the war with Democratic Republic of the Congo and, in 2000, in the Second
Congo War. Zimbabwe was under-reporting its war spending to
the International Monetary Fund by perhaps $22 million a month.
• Another motive for excessive money creation has been self-dealing.
Transparency International ranks Zimbabwe's government 157th of 177in
terms of institutionalized corruption.
• Lack of confidence in government to practice fiscal restraint feeds on itself.
In Zimbabwe, neither the issuance of banknotes of higher denominations
nor proclamation of new currency regimes led holders of the currency to
expect that the new money would be more stable than the old.

6. GERMANY
Germany lost world war I but exited at more or
less at the right time for its economy to recover,
but they had no plans for mobilizing its civilian
economy from the war effort.
Germany lost the war because it was decisively
defeated by a stronger military power.
Die-hard nationalists had the chance to blame the
civilians back home for betraying the army and
surrendering.
This soured German politics in the 1920s and
caused a distrust of democracy and the Weimar
government.

7. REASONS
• The outbreak of hyperinflation in Weimar Republic in 1920s actually had its
roots since World War I.
• The Germans had borrowed a large sum of money to finance the war.
Inadequate supply of fund forced the Central Bank, Reischbank to print
more money to finance itself.
• The "London ultimatum" in May 1921 demanded reparations in gold or
foreign currency to be paid in annual installments of 2,000,000,000 (2
billion) goldmarks plus 26 percent of the value of Germany's exports.
• Later, the Germans decided to stop paying the reparations. In response the
French & Belgian troops occupied Ruhr in 1923, the more industrialised
area. They intended to get reparations in the form of goods & raw
materials.
• Beginning in August 1921, Germany began to buy foreign currency with
Marks at any price, but that increased the speed of breakdown in the value
of the Mark.

8. GERMANY HYPERINFLATION
Reparations
French marched into Ruhr
Workers on Strike

9. ROOTS FROM WORLD WAR I

10. WORKERS ON STRIKE
To prevent the French from getting money, Germany
asked their workers to go on strike.

14. 50 MILLION
NOTE
1 BILLION
NOTE

16. PRICE OF A NEWSPAPER
USING NOTES AS NOTEPAD

17. CARRYING DAILY WAGE

18. ZIMBABWE HYPERINFLATION
War Veterans
Zimbabwean Military in Congo
Land Reforms

19. WAR VETERANS
The first was that the war veterans, who fought for independence and
had traditionally been loyal to the ZANU-PF, became ever more
disgruntled with the ruling elite’s growing wealth and began
demanding a bigger stake. In response, Mugabe committed to increase
pension payments and other forms of benefits.

20. ZIMBABWEAN MILITARY IN CONGO
Secondly, Mugabe ordered an expensive deployment of the Zimbabwean
military in the Democratic Republic of Congo (which lasted until 2003), in
order to support the regime of Laurent Kabila, and in doing so protect the
mining investments made by members of the Zimbabwean ruling elite.

21. LAND REFORM POLICY
Thirdly, and probably most crucially, critics argued that it originated from
Mugabe’s controversial land reform policy. Lands were confiscated from the
White farmers, further break down & ‘so said’ equitably distributed to
landless peasants, when the primary beneficiaries are ministers & their
nearest families.

22. Extent of Hyper
Inflation
Price of a toffee
Money do see dustbins!

23. Britain stopped money supply

24. LAND LYING IDLE, NO PRODUCTION

25. Whilst the first two events increased government
spending.
The third lowered production and exports, which
reduced tax revenues.
This rise in government spending and fall in
government income was “the beginning of the
Zimbabwean’s economy’s downward spiral”.

26. Germany was now witnessing "the complete depreciation of the only truly
credible value in this godforsaken era: that of money.“
The effect of the devaluation of the German currency was like that of a
second revolution, the first being the war.
The ratio of the German price index in November 1923 to the price index in
August 1922—just fifteen months earlier—was 1.02 × 1010. In October 1923,
German prices rose at the rate of 41 percent per day
GERMAN HYPER INFLATION RATE
By late 1923, 300 paper mills were working top speed and 150 printing
companies had 2000 presses going day and night turning out currency.
By October 1923, 1% of government income came from taxes and 99% from
the creation of new money

27. Date Inflation Rate
Jan 1919 2.6%
Jan 1920 12.6%
Jan 1923 2785%
Nov 1923 726 Billion %

28. ZIMBABWE HYPER INFLATION RATE
• First country in 21st century to hyper-inflate.
• In early 2009 the government printed the largest
denomination of currency, that’s Z$100 trillion.
Date Monthly Inflation Rate Annual Inflation Rate
Jan’07 13.7%
Dec’07 61.5% 215,000%
Nov’08 79.6 Billion% 89.7 Sextillion %

29. Inflation was more than 231 million percent on a year-on-year basis.

30. External debt as a share of GDP increased to 119 percent in 2008 from
11 percent in 1980.

31. CONSEQUENCES OF HYPER-INFLATION
 Inflation and Unemployment - As inflation decreases,
unemployment is expected to rise and vice-versa
 Inflation and Investments- Inflation is greatly feared by investors
because it grinds away at the value of your investments.
 E.g. If you invest ₹100 today in a bank, that will pay you an
interest of 5% p.a, you will be giving up ₹ 100 today for ₹ 105 in
1year. If over the course of that year there is a hyperinflation of
30%, the purchasing power of ₹ 100 has decreased by ₹ 30 and
you have actually lost ground.

32. People can obtain less products for more money
Currency devaluates
Prices of goods go up
People have more money to spend
CONSEQUENCES OF HYPER-INFLATION

33.  Price inflation soon turned to
hyperinflation as Germany fell into
a financial disaster.
 In January 1919, one US dollar ($1)
had been worth 8.9 German marks.
By November 1923, $1 was worth
200 billion marks.
 Money became worthless – stories
existed of people stealing baskets
but leaving money.
INITIAL IMPACTS
 Prices rose so much that workers
would rush to spend their wages as
soon as they got them. Restaurant
prices would change from the time a
meal was ordered until it was eaten.
 The government had 300 paper mills
and 2000 printing companies working
24-hour shifts to produce banknotes.

34.  The effects on most Germans
were devastating.
 Huge queues existed for food,
and there was a food shortage as
farmers would not sell for
worthless money.
 A barter economy developed,
with people swapping items or
services in exchange for essential
items.
IMPACT ON FOOD AND ESSENTIAL GOODS

35.  At first, many workers were given
compensatory wage rises, however
eventually their incomes fell below
the speed of hyperinflation.
 Some businesses struggled to cope,
and as a result went bust or laid off
workers, causing a large increase in
unemployment.
IMPACT ON THE
WORKING-CLASS
IMPACT ON THE
MIDDLE-CLASS
 People on fixed incomes (such as
pensioners) were particularly hurt as they
could not afford the hugely increasing
prices.
 Many members of the middle class who
had savings saw the value of their
investments wiped out overnight, forcing
them into poverty.

36. IMPACT ON
HEALTH
• Hyperinflation had an
associated impact on
health in Germany
too.
• The rise of extreme
poverty and food
shortages meant that
many people became
ill and
undernourished; this
was especially true
for pensioners.
• Many of these people
blamed the
government for their
plight.
IMPACT ON
HOUSEHOLD
• However, some
Germans did profit
from hyperinflation.
• People who had
previously been in
debt – mortgage
holders, for example –
easily paid off their
loans.
• Others benefitted too;
people on fixed rents
or investors that could
get cheap credit and
increase their
holdings.
POLITICAL IMPACTS
• Unsurprisingly, the
German government
faced public anger.
• At first they tried to
compensate by
printing more money,
but ultimately this
made the problem
worse.
• Many Germans
became attracted to
extreme political
messages, and began
to lose their faith in
democracy.

37. HYPERINFLATION IN ZIMBABWE

38. PROBLEM GOVT’S SOLUTION EFFECT
HIGH FOOD PRICES FIXED PRICES SHORTAGES
BLACKS HAVE NO LAND REDISTRIBUTED LAND MORE SHORTAGES
COMPETITION FROM USA & SA BANNED IMPORTS STILL MORE SHORTAGES
NOT ENOUGH MONEY PRINTED UP MORE MONEY INFLATION
(HYPER)
ZIMBABWE 1990’S
0%
10000%
20000%
30000%
40000%
50000%
60000%
70000%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
INCREASE IN INFLATION - ZIMBABWE
Series 1 Series 2 Series 3

39. DUE TO HYPERINFLATION IN ZIMBABWE
A toilet
paper
would cost
you $417
You have
to spare a
measly $50
Billion to
buy an egg
They even
have a 100
trillion
dollar
note!
And with
ONLY two
truck loads
of money
you could
pay your
restaurant
bill!

40.  Agricultural production falls 51%
 Industrial Production 47%
 GDP falls 40%
 Money Supply increases by
more than 500B% (2008
estimate)
 94% unemployment
 Election Fraud
 Human Rights abuses
 Redistribution of farmland
HAPPENINGS FROM
2000-2007

41. THE FINAL RESULT
• Germany defaulted on its payment to France and Belgium
• French and Belgium troops entered Germany and occupied Ruhr, the
industrial capital of Germany to ensure that the reparations were repaid
in goods
• They started harassing the Germans
• The Germans united and went on a general strike. Even the Government
supported this strike. This is know as PASSIVE RESISTANCE
• The Government had to print more currency in order to continue paying
the workers on strike
• By November 1923, $1 was worth 42,10,50,00,00,000 German Marks

42. GUSTAV
STRESEMANN

43. THE STRESEMANN ERA : 1923-1929
• Formed the ‘Great Coalition’
• Created a new currency called ‘Rentenmark’
• Accepted the Dawes Plan
• Central Bank stopped monetizing Government debt
• Young Plan
• Locarno Pact
• League of Nations
• Kellogg-Briand Pact

44. LESSONS FROM THE GERMAN
HYPERINFLATION
• Failure of Fiat Money
• Irrational quantitative easing doesn’t help
• Over confidence can be a killer
• Lack of proper governance can lead to a disaster

47. MULTI-CURRENCY SYSTEM
BENEFITS
• Re-monetization of the
economy and financial re-
intermediation
• Enforce fiscal discipline by
precluding inflationary
financing of the budget
• Brought transparency in
pricing and accounting after
a long period of high
inflation.
CHALLENGES
• Prices and wages quoted in U.S.
dollars, while South Africa is
Zimbabwe’s main trading
partner and country of origin of
capital inflows.
• Shortages of small-denomination
U.S. dollar banknotes and coins
pose difficulties for retailers.
• loss of the national currency and
seigniorage is an undesirable
erosion of sovereignty and
monetary independence.
In order to stabilize inflation expectations and restore confidence, macroeconomic tool
deployed is implementation of a fixed exchange rate pegged to a stable currency.

48. • In 2009, the government abandoned printing Zimbabwean
dollars at all. From then through 2014, Zimbabwe still used
a combination of foreign currencies, mostly US dollars.
Stop printing
currency
• It shows how dollarization has allowed Zimbabwe to quash
hyperinflation, restore stability, increase budgetary
discipline, and re-establish monetary credibility.
Dollarization
• In 2014, the Reserve Bank of Zimbabwe unveiled
"convertible" coins in denominations of US$0.01 through
US$0.50. The Bank said that 80% of Zimbabweans use the
U.S. dollar
Convertible coins
• It lead to decreased printing of currency and hence,
reduction in inflation
Freezing
government
spending

49. DEMONETISATION IS
A NECESSITY
“Demonetisation is the act or process of
removing the legal status of a currency
unit. In our case the currency unit is the
Z$ that we are demonetising.
Demonetisation is necessary whenever
there is a change of national currency. The
old unit of currency must be retired or
decommissioned.”