Imagine buying a loaf of bread in August, 2005 for $2 and then, just a year later, finding the same loaf priced at $22! That is the kind of annual price inflation—1000% or more—that the already poor people of Zimbabwe were experiencing in late May of this year according to such diverse sources as The Economist and The Washington Times. Unfortunately, this is just the latest chapter in the destruction of that East African nation’s money. It all began with the presidency of the current chief of state, Robert Mugabe in 1980. Zimbabwe had a relatively sound currency, the Zimbabwe dollar ($Z). At that time the $Z traded almost dollar for dollar with the US dollar. In fact, if you had one $Zimbabwe you would receive $1.60 U.S. in an exchange.
Things changed over the next two decades. Mugabe-directed printing presses spewed out more and more paper currency. By May of this year even the official governmental exchange rate was an astounding $Z 100,000 to $1 U.S.! (The official exchange rate is what the government itself says the national currency is worth compared to other world currencies). But, various news organizations reported the true market exchange rate at $Z 400,000 per U.S. dollar and the Financial Times says exchange rates are as high as Z$550,000 for a single U.S. dollar! In desperation the government of Zimbabwe commanded its citizens to immediately turn over their “old $Zs” in exchange for “new $Zs” the value of which it set much lower, that is, closer to their true value on international markets. This is what economists call an “official devaluation.” Of course such a “new start” was accompanied by fervent promises by the government that it would not resume the printing of paper money. Only time will tell whether the promises mean anything. In the meantime, the Zimbabwean economy is in shambles.
Zimbabwe is just one example of the monetary woes that have afflicted various African regimes over the past thirty years. African monetary policies have been cruel and capricious but oddly have received very little press attention. For example, Zaire (now Democratic Republic of the Congo), in the late 1990s, regularly experienced hyperinflation. In 1993, three of the “new zaires,” the name of the currency at that time, could be exchanged for one U.S. dollar. By April of 1997 the official exchange rate was a shocking 162,000 zaires for one U.S. dollar, and the market rate (its real value) was 340,000 zaires! Imagine trying to do business or oversee a grocery budget under those circumstances. There are numerous other examples– Uganda under Amin, Ghana in the 1970s and early 1980s, Nigeria and Tanzania. The list could go on and on. Of course, similar hyperinflations have been produced in advanced Western countries by government printing presses– the U.S. with its Continental currency, Germany twice during the 20th century and in Austria, just to name a few.
By means of the runaway printing of money, African rulers have deprived their citizens of one of the key human rights which men and women should enjoy. That right is the freedom and security to use stable money to exchange their goods and services with one another. When the national currency becomes worthless, citizens must either resort to barter, a cumbersome and time consuming process, or they must use other national currencies, often U.S. dollars, that they have received from foreigners. In choosing the latter approach they are almost always violating laws which make such transactions criminal. Of course, the absence of dependable money makes local trade difficult but it renders trade across borders using the declining national currency virtually impossible. Could one really expect a foreign producer to give up valuable goods in exchange for currency that depreciates by the hour? So, trade and exchange, the keys to economic improvement are severely thwarted by the destruction of a national currency that, only years earlier, was sound. Until African nations renounce such dissolute monetary policies, their people will be relegated to the most primitive type of commerce and its companion, endless poverty.