Globe and Mail explains:
The country’s new finance minister, Tendai Biti, declared that the Zimbabwean dollar had ceased to exist: “Our currency,” he said, “is moribund.” On April 12, Zimbabwe suspended the use of its currency as legal tender.
“At first covertly, then in openness, and finally with the consent of the government,” Mr. Noko writes, “foreign currencies – the rand, the euro, the pound, the U.S. dollar, the [Zambian] kwacha – replaced Zimbabwe’s dollar.” Precisely as Mr. Hayek had imagined, Zimbabwe’s inflationary spiral ended. Within weeks, the country’s economy showed dramatic improvement. Businesses began to open. Banks began to function. Unemployment began to fall. GDP began to rise. Private credit began to increase. Foreign investment began to return. The human exodus ended.
Out of sheer necessity, Zimbabwe adopted the fiscal discipline known as “cash budgeting,” which meant that the government could spend and lend only the money it had in cash. Mr. Biti, the finance minister, said simply: “We will eat what we have gathered.”
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“Mr. Biti, the finance minister, said simply: “We will eat what we have gathered.””
Unfortunately this is not a wide spread attitude among the locusts that populate governments.
Will they continue without issuing their own fiat money?
It would be interesting to see how banks and businesses handle accounting with no “official” legal tender and many competing currencies. I think Ron Paul has advocated allowing multiple currencies as a first step to getting rid of the Fed.
What a great example! But they’ll ignore it, saying that what Zimbabwe went through could never happen here.
Or they’ll say that the problem was that they did not print enough money to stimulate the economy.
Or that things would have been even worse if they had not printed money and that printing money saved or created jobs.
It sounds like Zimbabwe should notice great prosperity in the next few decades, compared to other nations in the region. I wonder how lax Zimbabwe’s tax laws are, now that they have no legal tender in which to measure and set taxes.
I wouldn’t put too much faith in Zimbabwe just yet – removing the Z$ may have removed the central bank’s power to inflate, but the government as a whole still has a stranglehold on the economy.
My father works for one of the mining houses which are still struggling to be viable. The people working on the mines in Zimbabwe work as hard as they possibly can, because if the mines close, their entire village is out of work and starving.
But there’s another group of people at work as well – regulators. They’ve worked out that the mining company has a lot of money invested in the mine, and so they are willing to put up with a lot to keep their mine from being nationalised. That’s why one of the few growth careers in Zimbabwe is “environmental spot-checker”. These guys follow the mine’s trucks around, looking for evidence of oil leaks or really anything else, and send the mine a fine – one big enough to ensure that their own commission on the fine is a healthy sum. The mine pays, because if they complain, they know they will lose the whole operation. So now we are seeing a lot of these “spot-checkers” being killed by local villagers who see what’s going on, and have no other way to defend their livelihoods. It’s very sad.
In short, Zimbabwe’s predator may not have all its teeth left, but the teeth it has are still buried in the economic jugular. Don’t expect any miracles anytime soon.
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