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Wednesday, 21 January 2009

[Zim] Dollars aren't even good for toilet paper

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Robert Mugabe has presided over a rate of inflation almost unprecedented in history. In 1980, when he began his reign, one Zimbabwe dollar was worth almost half again as much as an American dollar. Since the dollar itself isn't even worth half what it was then, the Zim should be worth at least $3 by now. But it's lost value much faster than the US dollar has: The government has now had to come out with the $100 trillion-Zim note. At at the current rate of inflation, even that bill will be worth less than 1/1000 of a cent before the month is out.

A placard over a public toilet in Zimbabwe reads:

TOILET PAPER ONLY
To be used in this toilet
No Cardboard
No Cloth
No Zim Dollars
No Newspaper

This is farther than any other fiat money system has gone in terms of digits printed on a bill, but in another way the situation in Zimbabwe is not uncommon.

No fiat money system has ever failed to eventually reach the stages of redenomination and/or hyperinflation. Even the relatively stable US dollar has lost 95% of its value in less than 95 years, and the vast majority of that has been in the past 48 years, since going off the silver standard. Redenomination of the currency is inevitable once the smallest bill--or largest coin--won't even buy a stick of gum. Already the US mint has had to reduce the level of silver, then copper, and soon nickel in the smallest denominated coins--and they have already reached the point of costing more to produce than they are worth (although the present deflationary depression has served to forestall the inevitable). Given the ongoing resistance to eliminate the penny, and the current propensity for denominating fiat money grants in billions or even trillions, the next move will probably be to eliminate coinage altogether--most likely by confiscation.

So prepare to bid good-bye to the contents of your piggy bank. And you might as well get used to the idea of a square of toilet paper being worth more than a million-dollar bill, because eventually it will.




Update January 29, 2009
Taking into account all the redenominations of the past 20 years, the Zim now retains only one sextillioth of its original nominal value. As an indication that the Zim has reached the point of no return, Mugabe's government lifted the last restrictions on usage of foreign currency. Rather than lug around boxes of Zim one hundred trillion dollar notes (February 6 update: these have again been redenominated with all the zeroes removed--but still just as worthless), Zimbabweans have reverted to the world currency of choice, the US dollar. But what currency will replace the dollar once it reaches fifteen digits?

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