Inflation, or ‘funny money’. This program was researched, written and illustrated by Bruce...

Inflation, or ‘funny money’


This program was researched, written and illustrated by

Bruce Ellison of the

Albuquerque Coin Club Contents Copyright © 2011

by Bruce Ellison


This program is NOT about spending money, or saving money, or making money, or investing money, or even about giving it away.

It’s about the physical stuff that you can hold in your hand – and that you have in pocket, purse or bank account right now. .

and about what happens when there’s too much of it -- inflation


So, what IS money? -- a medium of exchange

-- a unit of account

-- a storehouse of value


We trade dollars for goods, not goods for goods…(exchange)

We keep records in dollars, not just heads of lettuce…(account)

We save money because it keeps its value for later. The lettuce would rot before we could trade it…(value)


But, if there’s wild inflation, money loses its usefulness.

No one wants it, because no one knows what it’s worth – or might be worth tomorrow, when you cashed

a check.


This isZimbabwe, in Africa, with about12 million people – rich agriculture,and plentyof copper


It’s a modern African country: here’s the capital, Harare, formerly Salisbury (Rhodesia).


It has a Central Bank, and central bank head:

Gideon Gono


It has industry, like this copper smelter:


But in Zimbabwe, inflation got the better of them. It skyrocketed… so much so that the currency became worthless,


Carrying

all that cash

around

became

a problem


Zimbabwe was called Rhodesia before independence. It used dollars, each then worth more than a U. S. dollar


The first currency (1980) from the new Republic of Zimbabwe was this $2 bill:


Later bills were similar


These balancing rocks, in a park near Harare, appear on almost all Zim currency.


But things soon inflated (2001):

Inflation, or ‘funny money

By 2003, the nation was slipping into economic chaos. Money was hard to come by. The Cargill Cotton Co., printed bearer checks used as cash.


In October 2005, the Reserve Bank announced a revaluation

1000 old Zim dollars got you $1 new

Effective when available, June 2006


Printing, in Germany on security paper, lagged, and special travellers’ cheques were issued --$5,000, $10,000 and $20,000.


Here’s a $20,000 check, used this time but not countersigned.


New bearer cheques arrived for the new currency, in August 2006. They were payable months later in “real money.”


The new money was dated August 1, 2006;. So sure was the government that it had whipped inflation that it also issued cents:


But inflation returned quickly:


On Dec. 20, 2006, cheques for $250,000, $500,000 and $750,000 were printed and distributed. In January, 2007, cheques for $1 million, $5 million and $10 million appeared.


In April 2007, along came checks for $25 million and $50 million. On May 5, they added $100 million and $250 million – and 10 days later, with inflation raging-- there was a $500 million check.


Bananas were somewhat costly:


So in July 2008, they lopped off 10 billion dollars – 10 zeros– and started over.

On August 1, there were new agro-checks for $1, $5, $10, $20, $100 and $500.

On September 11, the $1,000 bill arrived.


No stopping it now:

Sept, 29 – $10,000 and $20,000

Oct. 13 -- $50,000

Nov. 3 -- $100,000, $500,000 and $1 million

Dec. 4 -- $10 million, $50 million and $100 million. More More !!!


On 26 June 2008, the Zimbabwe Independent reported annual inflation rose by 7,336,000 percentage points to 9,030,000% by June 20.

It was set to end the month at well above 10,500,000%.


Dec, 8, 2008 -- $200 million

Dec. 12 -- $500 million

Dec. 19 -- $1 billion, $5 billion, $10 billion

Jan 12, 2009 -- $25 billion, $50 billion

Jan. 16 -- $10 trillion, $20 trillion, $50 trillion, $100 trillion.

Oops! Start over again.


Yes, trillions:


Zimbabwe's Annual Inflation Rate is now 516 Quintillion Per Cent Dec. 2, 2008

Hyperinflation has Zimbabwe in the throes of a financial crisis The monthly inflation rate is currently running at 13.2 billion per cent … The latest figures put the annual inflation rate at 516 quintillion per cent. That's 516 followed by 18 zeros.


Hundreds of trillions, the highest denomination ever:

:


Feb. 2, 2009

Lop off one trillion – 12 zeros.

Start over with new notes

$1, $5, $10, $20 $ 50 $100 and $500.


In the end, it was about the same inflation as Hungary after World War II – devalued first by clipping off 000; then by 10 zeroes, then by 12 zeroes.


You could not buy anything with the money.

ATMs could not keep up; cash registers could not keep up; bank accounts could not keep up.

For a time, it cost more to have Zim dollars printed in Germany than they were worth at home.


The post office sold non-denominated stamps for letters within Zimbabwe; to Africa; the U.K. and elsewhere. The price changed daily.


The government, reacting to complaints from government workers, raised salaries every few days, then every few hours. But by the time you could spend the money, you needed ever more. Eggs cost billions of Zim dollars.


The Zim dollars could not be used as a medium of exchange – nobody wanted them.

They couldn’t be used as a unit of account – there were too many.

They were not a storehouse of value.

They were worthless.


The Zimbabwean economy collapsed.

Barter returned.

Zim dollars were totally useless, except to kindle the stove


People began using South African rand notes, British pounds, and U.S. dollars.

There was political chaos.

Finally, in early 2009, another new Zim dollar came along.


It seems to have lasted; there are about four of those Zim dollars to a U S dollar in this new currency.


But looked what happened:

1 dollar = 1,000 (they dropped 000)

When that new $1 got too high, they knocked off 10 zeroes.

10,000,000,00 (that’s 10 billion) became yet another new $1.


That third new dollar skyrocketed in only a few months to almost one quadrillion: they knocked off 12 zeroes.

1,000,000,000,000= 1 new Zim dollar. So-called Third Dollar


Let’s put all the zeroes back:

1 2009 new Zim dollar equals(000, plus 0,000,000,000, plus 000,000,000,000) or

1,000,000,000,000,000,000,000,000+of the dollars we started with in 2005Wow!


In Zimbabwe, they quit using security measures on high-denomination banknotes: the quality printing was too costly, and the notes almost worthless by the time they could be counterfeited.

Printing took place in Harare, by litho.

Most of the notes, even crisp uncirculated, are worth very little today.


Two sets of notes are hard to find. They are the bearer cheques written on the Standard Chartered Bank, by Cargill, a cotton producer.

They circulated for a few months as currency.

Most were used and then cancelled..


Soon thereafter the Reserve Bank of Zimbabwe issued a series of so-called “emergency travelers cheques”… which are also not too easy to find.

Then came government bearer cheques, and special Agro-cheques, in place of bank notes. They are common.


Breaking News -- December 2010:Zimbabwe's President Robert Mugabe says his

country will nationalise all US and UK companies operating in the country unless Western sanctions are removed. He told a Zanu-PF party conference it was time to fight the sanctions imposed on him and party leaders. Mr Mugabe also said it was time to end power-sharing with the party of Prime Minister Morgan Tsvangirai. The agreement with the MDC, struck in 2008, is due to expire in February..


It was that power-sharing agreement after contested elections in 2008 that finally put a halt to the ruinous inflation.

Stay tuned for updates in 2011.

-- B.E.

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