Presentation is based on what is hyperinflation and its example(s).

1. Hyperinflation and examples
Its causes, current situation and possible solutions

2. Contents
1.
2.
3.
4.
What is Hyperinflation?
What are the causes of Hyperinflation?
Case study on Zimbabwe.
Measures suggested to overcome Hyperinflation.

3. What is Hyperinflation?

4. What is Hyperinflation?
In economics, hyperinflation occurs when a country
experiences very
high, accelerating, and perceptibly
"unstoppable" rates
consequence.
of inflation. Two things happen as a
The term “Hyperinflation” is generally used when monthly
inflation rates rise more than 50% and is supposed to end when the
same goes below 50% and remains that way for at least an year.

5. What is Hyperinflation?(1)
1. General price level of goods and
services increase, meaning currency
loses its real value.
2. The real values of economic items
generally stay the same, as measured by
foreign currencies.

6. Money supply and Price level

7. What causes Hyperinflation?
Hyperinflation is often associated with wars, their
aftermath, sociopolitical upheavals, or other crises that
make it difficult for the government to tax the population.
So, the government starts printing more money to
finance its expenditures and thus pumps money into the
economy.

8. Effects of Hyperinflation
People have more money to spend
Prices of goods go up
Currency devaluates
People obtain less products for more money

9. Hyperinflation in
Zimbabwe

10. Hyperinflation in Zimbabwe(1)
Inflation Rate
Inflation Rate
70000%
60000%
50000%
40000%
30000%
20000%
10000%
0%

11. Impact on Zimbabwe’s Economy
You have to spare a measly Zim$50 Billion to buy an
egg
They even have a 100 trillion Zim$ note!
And with ONLY two truck loads of money you could
pay your restaurant bill!

12. Underlying Reasons
The three main causes of hyperinflation in Zimbabwe are
as follows:
1. Controversial Government land
reforms
2. Drought
3. HIV/AIDS

13. Land Reforms
The prime contributor to Hyperinflation
The farm sector supplied about 60 percent of the inputs
to the manufacturing base—so agriculture was truly the
backbone of the economy.
Due to colonialism
4500 White Families owned most of the
commercial farms
Excellent productive capacity
Well-irrigated

14. Land Reforms
The prime contributor to Hyperinflation(1)
840,000
black farmers were deprived of farming land
and their potential employment opportunities.

15. Land Reforms
The prime contributor to Hyperinflation(1)
Commercial Farms
Communal firms
Had secure property titles
that gave farmers large
incentives to efficiently
manage the land
without property titles
allowed a banking sector to
loan funds for machinery,
irrigation etc.
Banks were reluctant to
provide loans

16. Land Reforms
The prime contributor to Hyperinflation
Then president Mugabe decided on Land
This essentially caused,
1. Seizure of commercial farms from
4500 white families
2. Redistribution of these farms
amongst black farmers
Reforms

17. Land Reforms
The prime contributor to Hyperinflation
Then president Mugabe decided on Land Reforms
In practice, however,
Most plots ended up
in the hands of Mugabe’s political
supporters and government
officials, whose knowledge of
farming was meager.

18. Land Reforms
During the next 4 Years
Due to lack of expertise the black people were clueless as to what to do
with the commercial firms
Economy began to shrink
Price of goods went up
Government started printing money to be able to afford goods in spite of
increasing prices
INFLATION SOARED

19. Adaptations in Zimbabwe
• Declaring inflation illegal:
The government declared
inflation illegal. Anyone who raised the prices for goods and
services was subject to arrest. This amounted to a price
freeze, which is usually ineffective in halting inflation.
• Use of foreign Currencies:
Central Bank of Zimbabwe
licensed around 1,000 shops to deal in foreign currency.
Citizens had increasingly been using foreign currency in daily
exchanges, as local shops stated fewer prices in Zimbabwe
dollars because they needed foreign currency to import
foreign goods.

20. Adaptations in Zimbabwe(1)
• Black Marketing: Markets serving out of the law, rose as
an alternative to flying to another country for buying daily
goods.
•
Redenomination: The government did not attempt to
fight inflation with fiscal and monetary policy. In 2006, before
hyperinflation reached its peak, the bank announced it would
print larger bills to buy foreign currencies.

21. Possible Solutions
Dollarization
Freezing
government
spending
Stop printing
currency
Increase Taxes

22. Dollarization
Occurs when the inhabitants of a country use
foreign currency in parallel to or instead of
the domestic currency as a store of value, unit
of account, and/or medium of exchange within the
domestic economy.
This is effective because the real
value of
non-monetary items does not
decrease, what decreases is the value of the currency
with which those commodities are bought.

23. Freezing Government Spending
The central bank printed money to facilitate
government spending
If government decreases its spending
There is no need for central bank to print any more
money
Inflation would decrease

24. Stop Printing Currency
Printing less money would ensure
Less money circulates the economy
Price of goods and services go down
Eventually, Inflation would decrease

25. Solutions
• The most direct solution is a credible promise to stop printing
unlimited amounts of money. However, Zimbabwean inflation
has lasted for five years and the credibility of any promise is
problematic.
• Alternatively, the government could declare some foreign
currency to be the nation's official currency.

26. Solutions(1)
• Short of abandoning the Zimbabwean dollar, Zimbabwe could
enact a strict monetary policy. For example, the government
would allow the exchange rate to float for a period of perhaps
30 days, so that the market would decide its true value, then
declare a fixed exchange rate with the rand and declare the
rand a currency simultaneous with the Zimbabwean dollar

27. References