Hard-Boiled Egg Index (Zimbabwe Inflation)#

  • Zimbabwean liberation struggle for independence pushed the government for compensation and were paid gratuities totaling ZWD$112 billion (equivalent to US$450 million)
  • Too much money in the system began chasing too few goods, and that kindled inflation fires.
  • However the inflation, which was 20 percent in 1997, spiked to 48 percent in 1998 and 57 percent by 1999 as a result
  • August 1998 - DRC war - costing US$25 million a month depleting forex reserves
  • War veterans began an invasion of white-owned farms to try to redress a colonial legacy
  • Sanctions on buying produce from Zimbabwe farms
  • Lack of skills meant production plummeted
  • Money was seized in connected banks
  • By 2003, year-on-year inflation had hit three figures at 598.75 percent
  • Some smartly jumped ship - as once it heats up the reaction becomes exothermic
  • Keeping cash in the bank, therefore, was suicidal and not an act of saving but a foolish endeavor of losing value
  • Those with a saving culture soon realized that saving money was not saving at all.
  • Zimbabwe relied on imports, and the exchange rate moved in sympathy to the higher demand
  • Controls were added for rationing foreign currency
  • Internet pirates burned music artists ontocompact discs
  • Exporters were happy
  • Central Bank responded by placing a maximum withdrawal limit on every account holder
  • Everyone wanted cash - straight from printing press to banks to account holders
  • In November 2003, the official market rate was at US$1:ZWD$824, when the parallel market rate was US$1:ZWD$6,000
  • White farmers sold their equipment in Zimbabwe with payment in foreign banks and currency
  • By 2003, ZWD$20,000 bearer checks were issued.
  • Bureau de change were seen as the enemy - forced to close - moving currency exchange underground
  • With no black market rates - exporters were forced to stop
  • The currently lost out - no foreign currency.
  • In a rural area, the price of my favorite legendary Mazoe orange crush was ZWD$1,000 per two-liter container - in Harare had gone up to ZWD$8,000 for two liters a week ago. Everything was 5 times cheaper.
  • Shop owner told about the price increase - knew no one could buy his stock
  • Information became priceless during these days.
  • Education had lost its value, as this trade was driven by people who did not need any education or hard work to show for it.
  • House sales were in USD or cash - no mortgage.
  • She accepted our offer to pay using a mortgage loan, but the offer was only valid for two weeks at ZWD$270 million, equivalent to US$327,670 at official rates of $1: ZWD824 and $49,090 at parallel market rates.
  • As inflation continued to erode the purchasing power of the Zimbabwean dollar, delaying in paying your loan meant you were gaining.
  • We settled for an offer from a bank employee for ZWD$120 million for a house we had bought in 1997 at ZWD$681,000. Cash offers of around ZWD$80 million and US dollar offers of $40,000 were unacceptable and illegal, respectively. At parallel market rates, I would sell my house at the equivalent of US$21,818, after I had bought it at US$64,857.
  • When we bought this house in August 2004, the price was 72 percent of my gross annual salary, which was a bargain. By July 2007 (three years later), I could take one ZWD$500,000 debased note (by “000”), now worth US$1.67 at parallel market rates, from my pocket and repay the mortgage
  • Workers at banks got loans and screwed people
  • Although the rate waned slightly in 2004 at 132 percent, it was still nauseatingly high. By 2005 inflation had ascended to 585.84 percent, and the exchange rate hit a massive US$1: ZWD$96,000 on the parallel market and US$1: ZWD$85,158 on the currency auctions. In January 2005, the exchange rate was at US$1: ZWD$6,400.
  • Top farmer had medical insurance of the highest tier in terms of coverage, but because of inflation, the coverage was totally useless.
  • In the end, some people stopped paying for their medical insurance, as it became a futile exercise.
  • By August 2005, the Zimbabwean dollar became the lowest-valued currency in the world at US$1: ZWD$75,000.
  • On July 31, 2006, Zimbabwe debased its currency with effect from August 1, 2006, by taking away three zeros from its currency.
  • Prices of goods and services in Zimbabwe were not just rising in terms of Zimbabwean dollars but were also increasing in terms of the US dollar rates. The sellers of goods and services realized that those goods and services were now scarce, especially imported stuff.
  • In July 2007 that accelerated the economic demise and decline to nauseating depths. Price increases were declared illegal for goods and services alike, and shops were ordered to reduce prices to match the official market exchange rates.
  • Those who were hoarding groceries in their warehouses—as a way of preserving value by selling goods at a price at which they were able to reorder stock at a profit—were raided and forced to release the goods to desperate consumers.
  • The disparity between the official exchange rate and the parallel rate meant that one could buy a US$2,000 wide-screen TV for around the equivalent of thirty dollars in Zimbabwean dollars at the parallel rate.
  • The gaining without sweating by the consumers had the whole country sweating profusely in no time.
  • Shops could not reorder and sell at a loss and therefore stopped restocking and became eerily empty
  • The tragedy was that the shop was still open, as they could not dare close due to the political tensions and the directors’ fear of arrest by the government price-control force.
  • US dollar payments were illegal
  • The fuel coupon became the actualization of “pay bearer on demand” twenty liters of fuel (diesel or petrol)
  • The SIM cards became more expensive than a new Nokia 3310 (up to US$400) - the same lines were sold for fifty cents by end of 2011 because of a removal of price controls and the multicurrency system adopted by the government of national unity
  • During those days, most hospitals weren’t offering any meaningful service; they had run out of drugs, and most of their equipment was nonfunctional due to lack of repair.
  • The city councils could not afford the water purification chemicals
  • Billing in arrears killed every business doing that - municipal and cell phone
  • Most electricians voted with their feet and emigrated, mainly to Australia, leaving a huge dearth in workforce hands and experience.
  • thieves would drain the cooling oil during power cuts - Soon after the power was switched on, the whole thing would blow up, causing not only irreparable damage to the power grid but to numerous appliances connected to the line.
  • People who would otherwise have accepted ordinary checks, bank checks, and electronic transfers were now insisting on cash.
  • Bicycles became a target for thieves as they were the most reliable means of transport in urban areas, demanding neither cash nor fuel but just ordinary pedal power
  • Absenteeism by teachers looking for cash at the bank and unavailable transport services resulted in poor education standards - private schools offered USD incentives providing better education
  • Moreover, mahwindi (bus touts) and Makorokoza (gold panners) were earning more than teachers - teachers left.
  • Moral fiber erosion and criminality
  • Thieves targeted automatic gate motors, irrigation pumps, boreholes, irrigation pipes, electric and telephone copper cables, car parts, and transformer cooling oil for resale.
  • Insurance was no longer a viable option, as the sum insured would be inadequate to buy a replacement when it was paid out.
  • Police could not afford to keep petty criminals in custody, as they did not have enough resources to feed them.
  • The ladies of the night (or the “thigh vendors,” as they were now politely called) were everywhere. Every dark corner of busy places was now a marketplace for thigh-vending.
  • They played the Tambaoga’s song “Rambai Makashinga” - a song that praised land and farm theft - as propaganda every 15 minutes. Keep on sinking.
  • The Central Bank was importing groceries and distributing them at official prices (controlled prices)
  • Copper cable theft - It was alleged that the chief culprits were mostly retrenched workers of the same telephone companies and inadequately remunerated workers, who were in cahoots with other criminals
  • People cooked outside - trees were cut down for fire wood - people potjacked . stole a pot of food.
  • Clothes on the washing line was stolen
  • Urban-to-rural migration, as the rural areas provided safety nets, such as assistance from one’s extended family, and one could survive without cash
  • The Zimbabwean dollar was trading at the exchange rate of ZWD$1:US$1.5 at independence in 1980
  • The Central Bank was alleged to have started printing Zimbabwean dollars to buy foreign exchange on the black market to finance critical government foreign currency requirements, and every time they did so, it put more pressure on the exchange rate.
  • Unconfirmed tales were told of some of these dealers receiving a truckload full of newly minted ZWD currency notes and using a tent to cover the money in their backyards.
  • By the time the Zimbabwean dollars was decommissioned, the exchange rate used was US$1: ZWD$35 quadrillion
  • If the currency had not been revalued it would have been US$1: ZWD$350 octillion, if we add the thirteen cumulative zeros that were debased in 2006 and 2008.
  • Use of foreign currency was legalized in Zimbabwe in January 2009
  • In 2005 the Central Bank introduced a fund popularly known as ASPEF (Agricultural Sector Productivity Enhancement Facility), which was available to farmers at very low interest rates, as a strategy to revive production on the farms. This and other many funds resulted in a huge money-supply growth at a time when production was decreasing
  • In July 2008, after shops had emptied due to price controls, the Central Bank decided to import basic grocery items and resell them at jaw-droppingly low prices. They sold hampers that contained twelve items—including sugar, salt, cooking oil, baking flour, dried fish called capenta, beans etc.— priced at ZWD$110 billion. As absurd as it sounds, a $110-billion basket of groceries was rock-bottom cheap, as it was equivalent to US$4 at the parallel market rates.
  • One of the effects was that the local industries that were still producing could not match the competition brought by these imported products, resulting in company closures.
  • Both the equipment and groceries were sold at a loss, and IMF estimated that these losses amounted to 75 percent of the 2006 GDP
  • An inflation is considered a hyperinflation when the monthly rate of inflation exceeds 50 percent
  • By March 2007, the month-on-month inflation in Zimbabwe had hit 50.54 percent, thereby entering the hyperinflationary phase.
  • October 2007 saw the country’s year-on-year inflation breaching the 12,875 percent mark to 14,840 percent. “It cannot get worse than this,” we all said.
  • The last estimate was an 89.7 sextillion percent, year on year.
  • As rampaging inflation continued unabated, the impact on the currency and the banking system was brutal and tragicomic at the same time.
  • The Zimbabwean dollar was revalued several times on August 1, 2006, by three zeros; August 1, 2008, by ten zeros; and on February 2, 2009, by twelve zeros.
  • The finale of the end game of zero sums was played with the $100 trillion note. When the note was churned out, there was so much outrage that traders refused to accept the notes.
  • What remained of the currency were shadow balances in bank accounts, which were officially decommissioned in 2015.

Toilet paper only to be used in this toilet! No cardboard, no cloth, no Zim dollars, no newspaper!

“Most affected were international businesses with rigid policies and procedures for their subsidiaries, which could not adapt quickly enough. Noncompliance was perceived to be an act of political defiance and sabotage and was dealt with firmly through the state machinery, with arrests and sometimes outright forced closure of business.”

If you had savings of ZWD$1 million in 2000, it would have been a significant amount, worth about $17,857. Had you left the same amount in a bank and came back in November 2008, the balance in your bank account would have reflected an amount of ZWD$0.0001 because of the debasing that occurred by thirteen zeros (three in 2006 and ten in 2008). As if this was not enough, the exchange rate for ZWD$0.0001 would be US$1: ZWD$28,400,000,000,000,000 at the parallel market cash rate, or ZWD$150,000,000,000,000,000 at the old mutual implied rate. Effectively, you had zero United States dollars. It was utter obliteration and decimation of cash savings in the bank.

“If you took the situation too seriously you could have easily become a nutcase.”

“The only export crop that seemed to have been less impacted was tobacco, since an alternative market was found in China”

You turn into the walking dead immediately when you get sanctioned. It was like attempting to rescue a friend who an enemy was holding hostage by firing a gun through your friend’s heart. Civilians and the ordinary populace are the real victims, as politicians always have a way of escaping the bite and grit of sanctions.

In 2008 - all currencies were allowed. Zimbabwe was the only country with no exchange-rate risk for investors. Stores began to fill up and inlfation halted - with the stability. The black market stopped overnight. The allocative efficiency of the market was once again restored.

Zimbabwe introduced bond notes (the new Zimbabwe dollar in November 2016)

The lesson we learned during hyperinflation was that money is not a store of wealth or value, but assets are.

Governments should have no business in running business.

We found that at its peak in mid-November 2008, Zimbabwe’s inflation rate reached an astounding 89.7 sextillion percent. In less than ten years, Zimbabwe experienced another bout of hyperinflation when the annual inflation rate peaked out at 313 percent in October 2017.

Prices are valid only after you have paid and have been presented with your receipt

We had to use acceptable language and had to use the term parallel market instead of black market, as one would not want to ridicule the majority black populace

It was generally accepted that the purchase parity of three hard-boiled eggs in most parts of Africa was one dollar US, and therefore this became a reference point.

Sources#