With prices doubling every 24.7 hours because of too much money in circulation, Zimbabwe’s inflation rate was 79.6 billion percent in late 2008.
What to do when your own currency is worthless? Use a tattered and worn limited supply of U.S. dollars that you occasionally need to launder:
Zimbabwe’s Hyperinflation and Deflation
As more than just a snapshot, laundered currency tells you the story of a troubled economy. Lacking a functional money supply, the country winds up producing less. And then lower production means layoffs and diminishing demand.
To reverse the plunge, in 2009 Zimbabwe replaced their own dollar with several currencies that included the U.S. dollar. Knowing that money from other countries had value, people started doing more business and the GDP increased.
Then though Zimbabwe developed deflation.
With their exports worth more than their imports, Zimbabwe had less foreign currency and declining prices. So, to boost the supply of domestic currency they again decided to turn on the printing presses. The new money they are issuing in $2, $5, $10 and $20 denominations is supposed to equal U.S. currency.
Our Bottom Line: What is Money?
Money can be rectangular squares of paper, tobacco leaves or cows. It can be backed by gold or silver or a bank or nothing. What matters is what people think. If we believe that a commodity is a yardstick of value, a medium of exchange, and can store value, then it functions as money.
Because few people believe that Zimbabwe’s new currency is money, their monetary whiplash from hyperinflation to deflation could be tough to cure.