Hyperinflation - A Nightmare in Zimbabwe!!

Hyperinflation is a situation where inflation rates are very high or out of control. In such conditions, prices rise rapidly and value of currency plummets drastically. Definitions used by the media vary from a cumulative inflation rate over three years approaching 100% to inflation exceeding 50% a month.

The main cause of hyperinflation is a massive and rapid increase in supply of money which is not supported by a growth in goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run.

Zimbabwe entered the Hyperinflation zone during January, 2007. Since, then the rates have hardly looked back. In November 2008, Zimbabwe’s annual inflation rate was 89.7 Sextillion (10²¹) percent. This means that prices are doubled every 24.7 hours approximately. This was a record rate. However, it failed to beat the rate faced by Hungary in June 1946. The table below shows some of the highest inflation rates in the world till today -

Highest Monthly Inflation Rates in History

Country	Month with highest inflation rate	Highest monthly inflation rate	Equivalent daily inflation rate	Time required for prices to double
Hungary	July 1946	1.30 x 1016%	195%	15.6 hours
Zimbabwe	Mid-November 2008 (latest measurable)	79,600,000,000%	98.0%	24.7 hours
Yugoslavia	January 1994	313,000,000%	64.6%	1.4 days
Germany	October 1923	29,500%	20.9%	3.7 days
Greece	November 1944	11,300%	17.1%	4.5 days
China	May 1949	4,210%	13.4%	5.6 days

Source: Prof. Steve H. Hanke, February 5, 2009.

Four Zimbabwean Dollars have been introduced since 1980 to tide over the problem of issuing higher currency notes. In fact even the 100 trillion Zimbabwean Dollar bank note was issued. The 3rd Dollar (ZWR) that was created in August 2006, was again revalued in February, 2009. One unit of the new currency (ZWL) was equal to 1 trillion ZWR. The new bank notes of the 4th Dollar was issued in face values of 1, 5, 10, 20, 50, 100 and 500.

Lets hope that situation improves in the future. The hyperinflation in the past have been so devastating that currencies were being used as wall-papers or thrown as trash. Zimbabwe being the first country in the 21st century facing hyperinflation, we can hope that other countries are well equipped to counter it!!