Zimbabwe can’t paper over its million per cent inflation anymore

Robert Mugabe has kept his embattled regime in Zimbabwe afloat on a sea of paper money. Now he'll have to try to do it without the paper, says the Wall Street Journal.

The Munich-based company, Giesecke & Devrient, that has supplied Zimbabwe with the special blank sheets to print its increasingly worthless dollar caved in to pressure on Tuesday from the German government for it to stop doing business with the African ruler.

Mugabe's regime relies on a steady supply of the paper to print the bank notes that allow it to pay the soldiers and other loyalists who enable him to stay in power, says the Journal. This has led to hyperinflation, which has ravaged the economy of Zimbabwe:

With an annual inflation rate estimated at well over 1 million per cent, new Zimbabwean dollars with ever more zeros need to be printed every few weeks because the older ones lose their worth so quickly.

A 500,000 Zimbabwe note issued in late 2007 is already out of circulation, and is worth just 0.00004 U.S. cents.

Vending machines are no longer in use in Zimbabwe, because a single soda would require the deposit of billions of coins.

A Coke sells on the black market for around 15 billion Zimbabwean dollars.

A loaf of bread costs 30 billion Zimbabwean dollars.

Steve H. Hanke, a professor of applied economics at Johns Hopkins University, says hyperinflation is a very simple equation – stop printing money and it stops.

Source: Marcus Walker and Andrew Higgins, Zimbabwe Can't Paper Over Its Million-Percent Inflation Anymore, Wall Street Journal, July 2, 2008; and Rod Nordland, Where the Money Isn't, Newsweek, July 2, 2008.

For WSJ text: http://www.moneyweb.co.za/mw/view/mw/en/page94?oid=213457&sn=Detail

For Newsweek text: http://www.newsweek.com/id/144387

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

FMF Policy Bulletin/ 15 July 2008