Description
This is a PPT explaining the difference between inflation and hyperinflation, various hyperinflationary models, reasons of hyperinflation in zimbabwe. It also covers various approaches to tackle inflation.
HYPERINFLATION IN ZIMBABWE
Bread Basket of Africa
UNEMPLOYMENT
Lowest ever coal production in 2006 since 1946
Price of 3 eggs - 100 billion dollars
2008 (July) USD $1 = ZWD $18,700,000,000
HYPERINFLATION
• Inflation that exceeds 50 percent per month, which is just over 1 percent per day • This rate of inflation leads to very large increases in the price level • Large increase in the money supply not supported by gross domestic product (GDP) growth, resulting in an imbalance in the supply and demand for the money.
Pt=Po(1+r)t Po =Current Price Pt = Price after time t R= inflation rate
CHARACTERISTICS
• General population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. • People regard monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. • Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short. • Interest rates, wages and prices are linked to a price index and the cumulative inflation rate over three years approaches, or exceeds, 100%.
POSSIBLE APPROACHES TO HYPERINFLATION
Replacing the central bank with another monetary regime 1.Dollarization
i. Unofficial ii. Semi – official iii. Official
2. Currency Board 3. Free Banking System
CAUSES OF HYPERINFLATION IN ZIMBABWE
• Unstable Government • Violent land reform program • Decline of tobacco industry, manufacturing and mining sectors • Rapid and massive increase in the amount of money printed • Repudiation of debts to International Monetary Fund
CHAIN OF EVENTS
1980: Independence of Zimbabwe. Mugabe is named prime minister
June 2007: Prints ZWD$1 trillion to cater for civil servants' and soldiers' salaries that were hiked by 600% and 900% respectively.
Sept 2008: Money supply increased to 100 trillion
2000 Feb: Violent Land Reform Program
2006: Year on Year inflation exceeds 1000%
ZW$1.2 trillion is worth the same as one British pound.
July 2001: Economic Crises. No Foreign Reserves. Cut of Aid from world bank and IMF because of Land Seizure Programme
Aug 2006: 3 zeroes were chopped off the old currency
From January to December 2008, the money supply growth rose from 81,143 percent to 658 billion percent. Feb 2009: Zimbabwe slashes 12 zeroes from it currency. 1 trillion Z$ now becomes 1 Z$
April 2002: Disaster declared as worsening food shortages
Feb 2006: Government prints ZW$20.5 trillion to buy foreign currency to pay off IMF arrears
Solution that worked !!!
January 2009 : Government allows foreign currency to try stem hyperinflation. March 2009: Retail prices fall for the 1st time post hyperinflation
August 2010: It resumes official diamond sales.
Current Scenario in Zimbabwe
• Five foreign currencies have been granted official status • 80 % of transaction takes place in U.S. dollars • Stock exchange trading, the payments systems takes place in U.S. dollars • Inflation stands at 4.3% YOY as of Sep 2011 • Economy is slated to rise to about 7.8% – 9% in 2012. • Zimbabwe currency likely to be reinstated by 2012
GDP in Zimbabwe
THANK YOU !
doc_780038189.ppt
This is a PPT explaining the difference between inflation and hyperinflation, various hyperinflationary models, reasons of hyperinflation in zimbabwe. It also covers various approaches to tackle inflation.
HYPERINFLATION IN ZIMBABWE
Bread Basket of Africa
UNEMPLOYMENT
Lowest ever coal production in 2006 since 1946
Price of 3 eggs - 100 billion dollars
2008 (July) USD $1 = ZWD $18,700,000,000
HYPERINFLATION
• Inflation that exceeds 50 percent per month, which is just over 1 percent per day • This rate of inflation leads to very large increases in the price level • Large increase in the money supply not supported by gross domestic product (GDP) growth, resulting in an imbalance in the supply and demand for the money.
Pt=Po(1+r)t Po =Current Price Pt = Price after time t R= inflation rate
CHARACTERISTICS
• General population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. • People regard monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. • Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short. • Interest rates, wages and prices are linked to a price index and the cumulative inflation rate over three years approaches, or exceeds, 100%.
POSSIBLE APPROACHES TO HYPERINFLATION
Replacing the central bank with another monetary regime 1.Dollarization
i. Unofficial ii. Semi – official iii. Official
2. Currency Board 3. Free Banking System
CAUSES OF HYPERINFLATION IN ZIMBABWE
• Unstable Government • Violent land reform program • Decline of tobacco industry, manufacturing and mining sectors • Rapid and massive increase in the amount of money printed • Repudiation of debts to International Monetary Fund
CHAIN OF EVENTS
1980: Independence of Zimbabwe. Mugabe is named prime minister
June 2007: Prints ZWD$1 trillion to cater for civil servants' and soldiers' salaries that were hiked by 600% and 900% respectively.
Sept 2008: Money supply increased to 100 trillion
2000 Feb: Violent Land Reform Program
2006: Year on Year inflation exceeds 1000%
ZW$1.2 trillion is worth the same as one British pound.
July 2001: Economic Crises. No Foreign Reserves. Cut of Aid from world bank and IMF because of Land Seizure Programme
Aug 2006: 3 zeroes were chopped off the old currency
From January to December 2008, the money supply growth rose from 81,143 percent to 658 billion percent. Feb 2009: Zimbabwe slashes 12 zeroes from it currency. 1 trillion Z$ now becomes 1 Z$
April 2002: Disaster declared as worsening food shortages
Feb 2006: Government prints ZW$20.5 trillion to buy foreign currency to pay off IMF arrears
Solution that worked !!!
January 2009 : Government allows foreign currency to try stem hyperinflation. March 2009: Retail prices fall for the 1st time post hyperinflation
August 2010: It resumes official diamond sales.
Current Scenario in Zimbabwe
• Five foreign currencies have been granted official status • 80 % of transaction takes place in U.S. dollars • Stock exchange trading, the payments systems takes place in U.S. dollars • Inflation stands at 4.3% YOY as of Sep 2011 • Economy is slated to rise to about 7.8% – 9% in 2012. • Zimbabwe currency likely to be reinstated by 2012
GDP in Zimbabwe
THANK YOU !
doc_780038189.ppt