Three or so years ago, Zimbabwe's inflation rate was at around 1000%, and I thought is was incredibly high.
Today, the inflation rate is 2.2 million percent.
While I goggled at this ( http://www.news24.com/News24/Africa/Zim ... 79,00.html ) Faramond asked, is there even a difference between 1000% and a million percent for practical purposes?
So, a question for those who know economics better than I do: at which point if any does the numbers become meaningless?
A question about inflation
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solicitr
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I dunno- but I have a German banknote from 1921 or 22- 1000 Reichsmarks - which was then overprinted 'Ein Milliard" - one (US) billion. Apparently two or three would buy a pack of cigarettes. Workers were paid twice a day, and would immediately rush out to buy potatoes, coal, a wheelbarrowload of ax-handles: anything to unload the worthless paper before it depreciated further.
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superwizard
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hmm well I'm definitely no economist nor am I even close to being very knowledgeable in the field but just thinking about it practically I'd have to say that it does make a difference. I mean if you think about it 1000% inflation means things are doubling in price maybe (very roughly) once a month but 2.2 million percent would mean that things are doubling in price in (very roughly again) half an hour! That's a big difference in my opinion...
Swiz hit it on the nose. The easiest way to get a handle on the impact of inflation is to ask how fast prices are doubling.
But the economy demonetizes long before you reach either of those points because money ceases to be a reliable medium of exchange. People revert to barter, and I would guess that only a small fraction of all of Zimbabwe's exchanges are actually taking place in the money economy. Wages as such become meaningless; what you can trade is everything.
In the US, we had double-digit inflation during the 1970's and even at such low rates the demonetization was measurable, to the extent that it was of concern to the IRS since it is almost impossible to get people to declare barter transactions as income.
But the economy demonetizes long before you reach either of those points because money ceases to be a reliable medium of exchange. People revert to barter, and I would guess that only a small fraction of all of Zimbabwe's exchanges are actually taking place in the money economy. Wages as such become meaningless; what you can trade is everything.
In the US, we had double-digit inflation during the 1970's and even at such low rates the demonetization was measurable, to the extent that it was of concern to the IRS since it is almost impossible to get people to declare barter transactions as income.
A fool's paradise is a wise man's hell.
Well here is another question.
Isn't our entire financial or economic system based on the value of gold? The stuff we shuffle back and forth, or in this day and age wire transactions, are all backed by the value of gold. We can earn more paper or wired money, but isn't our limit based on how much gold we mine? Or in this case, isn't that how the inflation skyrocketed in Zimbabwe?
Where and how does the GDP play into this? Or the GNP?
Isn't our entire financial or economic system based on the value of gold? The stuff we shuffle back and forth, or in this day and age wire transactions, are all backed by the value of gold. We can earn more paper or wired money, but isn't our limit based on how much gold we mine? Or in this case, isn't that how the inflation skyrocketed in Zimbabwe?
Where and how does the GDP play into this? Or the GNP?
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Túrin Turambar
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That's basically it. My $10 note has value because I know that I can give it to someone in exchange for something, and they'll be willing to take it for the same reason. The Government can simply print money as it thinks it needs it (within the limits of how fast the economy is actually growing, otherwise you get Zimbabwe's problem).River wrote:I might be wrong, but I think we left the gold standard under FDR. Now we're backed by faith.
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Primula Baggins
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No, I think it means he has 50 zimbablars. Which will buy him a chicken for a couple of hours, and then won't.
What a nightmare.
What a nightmare.
“There, peeping among the cloud-wrack above a dark tor high up in the mountains, Sam saw a white star twinkle for a while. The beauty of it smote his heart, as he looked up out of the forsaken land, and hope returned to him. For like a shaft, clear and cold, the thought pierced him that in the end the Shadow was only a small and passing thing: there was light and high beauty for ever beyond its reach.”
― J.R.R. Tolkien, The Return of the King
― J.R.R. Tolkien, The Return of the King
To answer the question asked above, we suspended the convertibility of dollars to gold in 1968, and then left the gold standard in 1971. What River is recalling is the 1946 transition to the Bretton Woods system, where other countries in the system could issue their money supply against US dollar reserves instead of gold, with the understanding that the dollars could be converted to gold at any time. That's the system that went terminally ill in 1968, died in 1971 and was buried in 1973.
Countries still hold gold in their reserves but it doesn't determine their money supply. If you have a dishonest government there's nothing to stop them from just printing currency. That's what causes the inflation.
Chopping zeros is a typical way to try to halt inflation. You issue a new currency with a lower nominal value and start all over again. I don't know of anywhere that that strategy, all by itself, has worked. As long as the treasury is printing money willy-nilly, the inflation is going to make the new money as worthless as the old. There's probably tremendous velocity of the currency - people get paid and convert their zimbablars to some other stable currency as fast as they can, doubtless on the black market. Whoever is buying the zimbablars is probably spending them on goods as fast as they can, forward buying and hoarding or else trading the goods out immediately on the black market to something that can be hoarded. There can actually appear to be a shortage of currency from the banks' point of view, and this encourages the Treasury or the central bank (if they have one) to keep chasing its tail. Hyperinflationary dynamics are interesting and not much studied considering the havoc they wreak, but you don't see inflation at this level very often.
Countries still hold gold in their reserves but it doesn't determine their money supply. If you have a dishonest government there's nothing to stop them from just printing currency. That's what causes the inflation.
Chopping zeros is a typical way to try to halt inflation. You issue a new currency with a lower nominal value and start all over again. I don't know of anywhere that that strategy, all by itself, has worked. As long as the treasury is printing money willy-nilly, the inflation is going to make the new money as worthless as the old. There's probably tremendous velocity of the currency - people get paid and convert their zimbablars to some other stable currency as fast as they can, doubtless on the black market. Whoever is buying the zimbablars is probably spending them on goods as fast as they can, forward buying and hoarding or else trading the goods out immediately on the black market to something that can be hoarded. There can actually appear to be a shortage of currency from the banks' point of view, and this encourages the Treasury or the central bank (if they have one) to keep chasing its tail. Hyperinflationary dynamics are interesting and not much studied considering the havoc they wreak, but you don't see inflation at this level very often.
A fool's paradise is a wise man's hell.
The currency of Zimbabwe is the dollar. Or, as Jed Clampett would say, the million dollar.