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Zimbabwe Issues New Currency To Tackle Inflation

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http://www.guardian.co.uk/business/2008/ju...nomics.zimbabwe

Amid echoes of the action taken by Germany to halt the hyper-inflation of the 1920s, people in Zimbabwe will tomorrow start to use a new currency introduced by the central bank to halt the African country's runaway increase in the cost of living.

Osborne Gono, the central bank governor with the unenviable record of presiding over the world's highest inflation rate, said he was no longer prepared to continue printing notes of ever higher denominations. "Ten billion dollars today, will as from August 1 be revalued to one zimdollar dollar," Osborne Gono said earlier this week."

The move follows an increase in Zimbabwean inflation to 2.2m%, with a loaf of bread costing 200bn dollars in Harare this week, and represents the government's attempt to get to grips with the economic crisis in what was once one of sub-Saharan Africa's richest countries.

Notes of higher and higher denominations have been put into circulation since the start of the year and the new $100bn bank note came into circulation in Zimbabwe only 10 days ago.

Gono has now decided, however, that the only way to restore confidence in the currency is to follow the example of the president of the Reichsbank, Horace Greeley Hjalmar Schacht, who helped bring an end to Germany's financial crisis by striking nine zeros from the currency and turning 10bn old marks into one new Rentenmark. Germany's inflationary problem in 1923 was even worse than Zimbabwe's today, with workers being paid three times a day and families using worthless bank notes to burn furnaces because it was cheaper than buying firewood.

Prices were rising so rapidly in the second half of 1923 that it was almost impossible to keep track of inflation, but one estimate puts it as high as 854,000,000,000%.

"one zimdollar dollar"

zimdollar sounds like a made up number perhaps that's the idea?

So as a result of the HPC what should sterling be renamed as?

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omg they are going to have the mother of all house price crashes!!

people will be telling their kids of the days their house was worth 20,000 Trillion dollars and how overnight it crashed to just 2 million dollars

this is a prime example to why real falls are important and more so than nominal.

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omg they are going to have the mother of all house price crashes!!

people will be telling their kids of the days their house was worth 20,000 Trillion dollars and how overnight it crashed to just 2 million dollars

this is a prime example to why real falls are important and more so than nominal.

Good point!

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I couldn't understand how this would work, until I heard that they were re-printing the currency.

So what will happen, everyone will have to trade in their notes (can't imagine coins would be worth much) for the new notes?

There was a story on here a few weeks back saying they couldn't afford to buy the paper to print the money, so how are they re-printing the countries WHOLE currency?

Sorry to sound naive, just trying to work out how this will work!

Just to add, something that isnt mentioned above which is interresting from an I.T point of view. One big reason they had to do this was because the computer systems handling transactions could no longer cope with the size of the amounts. Imagine cash machines trying to display amounts in Trillions etc

Edited by Ted

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Actually, houses in Zim have been holding their (relative) value because its one of the few things that actually does have a value.

Houses are actually bought and sold in US$, although its technically illegal to do so. They wait until the day the house is actually sold, calculate the exchange rate and do the sale there and then .... before the dollar price triples again a few hours later...

Incidentally, I remember when my parents first moved to Zim in '99. You could by a beer for Z$2 at the local sports club. Must be billions for a beer there now.

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Poland did the same thing with the Zloty in 1995: http://en.wikipedia.org/wiki/Zloty

I don't really understand how this works. Inflation gets out of control, so you just knock a few zeroes off the end of alll the notes and hey-ho, everything's fine again... it can't be that simple, can it?

It's not: the government also has to stop printing, and people have to believe that the government will do so.

A good description of the Weimar hyperinflation, and the eventual recovery by the introduction of the Rentenmark, can be found here.

In November 1923, a currency reform was undertaken. A new bank, the Rentenbank, was created to issue a new currency--the Rentenmark. This money was exchangeable for bonds supposedly backed up by land and industrial plant A total of 2.4 billion Rentenmarks was created, and each Rentenmark was valued at one trillion old paper marks. From that moment on the depreciation stopped--the Rentenmarks held their value; even the old paper marks held stable. Inflation ceased.

What was the secret of the "miracle of the Rentenmark"? After all, the new currency was not redeemable in anything. Its backing by real property was a fiction, since there was no way by which property could be foreclosed or distributed. Further, there we have the government distributing a vast new supply of money--2.4 billion trillion in terms of the old mark. Ought that not have led to a new wild inflation?

To understand this, we must recall that the real value of the money circulating in late 1923 was small--equal to a mere 168 million pre-war gold marks. The continued depreciation at this point was due to utter lack of confidence--to the belief that the printing presses would run indefinitely. But actually there was a great shortage of and need for money. New money could be introduced without price inflation if only people had confidence in it. How was confidence developed?

First, the government announced that the new currency would be "wertbestaendig"--stable in value. In their hunger for usable money people accepted this, at least until it should be proven false. Then the property backing seemed to give the currency value. True, the Assignats of the French Revolution, backed by fixed property, had depreciated, but still the backing helped.

Second, and certainly most important, the government limited strictly the amount of Rentenmarks which could be issued and it halted the issue and discounting of notes and the creation of paper marks. Finally, after April 1924, the Reichsbank stopped the expansion of credit to businesses which had been stimulating inflation. Businessmen were required to repay loans in gold marks, equal to the original value of the loan. Thereafter, incentive was gone to borrow except for legitimate needs.

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What's the difference between a nominal fall and a real fall?

nominal is just the price you pay

real is real

for example, if the price of everything doubles, wages, shoes, toys, food, ect but house prices stay the same. then they really fell 50% realative to everything but the paper you call money. so that was a real fall of 50% but in £££ it didnt fall so nominally it was the same

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What's the difference between a nominal fall and a real fall?

I like the Nationwide explanation, also reveals they adjusted the data in a hurry.

Edit: add link http://nationwide.co.uk/hpi/downloads/UK_h...r_inflation.xls

Real =House Prices adjusted for retail prices. This uses the Office for National Statistics Retail Price Index (RPI) to convert nominal prices to current prices

For example, a typical property in 2002 Q1 would, on average, have cost £95,356 at the time.

The buy this amount of 'retail goods' today would require c£118,100

Nominal = The price paid at that time.

Edited by maxwell

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the only way to top inflation is to stop printing, zim is currently printing because the leadership and wealthy need the forex to live on because zim produces nothing anymore and taxes are useless. Mugabe has been printing for years, he fully understands money supply and how printing money makes him wealthy.

creating a new currency is a good idea as long as you print a fixed amount/keep money supply very slow/the population trusts the leadership not to print. Zims reason for a new currecy is probably because they ran out of paper a couple of weeks ago, i expect a further accelerating inflation and a zimdollar zimdollar doller, and a newer zimdollar, zimdollar, zimdollar dollar as they repeat the trick in a vain attempt to print more money with less paper....

EDITED : A gold backed zim dollar backed by actual gold in grammes that can be redeemed for that actual gold when you want would halt inflation, a USD backed zim dollar backed by an actual USD would keep zim inline with the USD. Neither are options for mugabe as he would starve, loose control of police, and government ministers

Edited by moosetea

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  • 396 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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