Hyperinflation in zimbabwe
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Transcript of Hyperinflation in zimbabwe
Hyperinflation in ZimbabweIts causes, current situation and possible solutions
Presented By
Name Batch Number Roll Number
Slides
Md. Golam Moula Mehedi Hasan 45E ZR – 14 1 - 7
Kazi Md. Masum 45E ZR – 04 8 - 15
Muhammad Maqsud Hussain 45E ZR – 13 16 - 22
Fardin Humayun 45E ZR – 25 23 - 31
Dipankar Ghosh 45E ZR – 36 36 - 38
Hasnat Imtiaz Uddin Ahmed 45E ZR – 56 33 - 35
Contents
1. About Zimbabwe2. What is Inflation?3. How is it Measured?4. What is Hyperinflation?5. Current situation in Zimbabwe6. What caused this Hyperinflation7. What can be done to overcome it
About Zimbabwe
Background about Zimbabwe
FactIn Numbers
(1st January 2012)Putting things into
perspective
Population 13 MillionAbout twice the size of
Dhaka.
GDP 6.21 Billion46 times smaller than the
GDP of Bangladesh
GDP per Capita $500Almost one third of what each Bangladeshi earns
Unemployment 95% Highest in the world
Current President Robert Mugabe
Head the first government as prime minister on 4 March
1980
What is Inflation?
What is Inflation?
By inflation we mean a general rise in prices throughout the economy. Government policy is
used to keep inflation both low and stable.
(J.Sloman,2001, 2nd edition, Pearson Education Limited. 'Essentials of Economics', pp.244-245)
How is inflation measured?
Inflation: How Is It Measured?
A number of goods that are representative of the economy are put together into what is referred to as a "market basket."
Inflation: How Is It Measured?A year is selected as the base year
1982
Inflation: How Is It Measured?A market basket is made and the price of goods is
noted down
1982
$3.25 $3.00 $0.75
Total Price = $(3.25+3.00+0.75)
= $7
Inflation: How Is It Measured?The base Consumer Price Index (CPI) is calculated
1982
$3.25 $3.00 $0.75
Base CPI =$7/$7
= 1 = CPI1
Inflation: How Is It Measured?Repeating the same process for the year 2013
1982
$3.25 $3.00 $0.75
2013
$8.25 $5.00 $2.75
Total Price =
= 16
$(8.25+5.00+2.75)Base CPI =$7/$7
= 1 = CPI1
Inflation: How Is It Measured?Calculating CPI for the year 2013
1982
$3.25 $3.00 $0.75
2013
$8.25 $5.00 $2.75
Base CPI =$7/$7
= 1 = CPI1
CPI2 = $16/$7
= 2.29
Inflation: How Is It Measured?Increase in inflation rate for the year 2013
relative to 1982
=Increase in Inflation =
(CPI2 - CPI1) * 100 (2.29 - 1.00) * 100
= 129%
What is Hyperinflation?
What is Hyperinflation?
In economics, hyperinflation occurs when a country
experiences very high, accelerating, and perceptibly
"unstoppable" rates of inflation. Two things happen as a consequence:
1. General price level of goods and services increase, meaning currency loses real value.
2. The real values of economic items generally stay the same.
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.
And as a result of Hyperinflation
People can obtain less products for more money
Currency devaluates
Prices of goods go up
People have more money to spend
Current situation in Zimbabwe
Hyperinflation in Zimbabwe
19801981
19821983
19841985
19861987
19881989
19901991
19921993
19941995
19961997
19981999
20002001
20022003
20042005
20062007
0%
10000%
20000%
30000%
40000%
50000%
60000%
70000%
Inflation Rate
Inflation Rate
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!
What caused this Hyperinflation?
What pushed Zimbabwe into such madness?
The three main causes of hyperinflation in Zimbabwe are as follows:
1. Controversial Government land reforms2. Drought3. HIV/AIDS
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 capacityWell-irrigated
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
840,000 black farmers eked out a living on the communal lands
Completely barren No water supply
Land Reforms The prime contributor to Hyperinflation
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
Land Reforms The prime contributor to Hyperinflation
Then president Mugabe decided on Land ReformsThis essentially caused,
1. Seizure of commercial farms from 4500 white families
2. Redistribution of these farms amongst black farmers
Land Reforms The prime contributor to Hyperinflation
Then president Mugabe decided on Land ReformsIn practice, however,
Most plots ended upin the hands of Mugabe’s political
supporters and government officials, whose knowledge of farming was
meager.
Land Reforms During the next 4 Years
INFLATION SOARED
Government started printing money to be able to afford goods in spite of increasing prices
Price of goods went up
Economy began to shrink
Due to lack of expertise the black people were clueless as to what to do with the commercial firms
Land Reforms After Which..
The demise of the agricultural sector led to widespread famine
Without equity in the banking system, vast networks of economic activity collapsed across all sectors of the economy
Because the government no longer enforced titles to land, there was far less collateral for bank loans. Dozens of banks collapsed; those that did
not collapse refused to extend credit to farmers
Financial investors fled, wondering if other businesses might be seized next. FDI fell to 0
Things that can be done
Possible Solutions
DollarizationFreezing
government spending
Stop printing currency Increase Taxes
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.
Freezing Government Spending
Inflation would decrease
There is no need for central bank to print any more money
If government decreases its spending
The central bank printed money to facilitate government spending
Stop Printing Currency
Eventually, Inflation would decrease
Price of goods and services go down
Less money circulates the economy
Printing less money would ensure
Conclusion
When all these policies are in place, hopefully, the inflation will die down and Zimbabwean economy would
see better days
THANK YOU