Thursday, March 26, 2009

There is Hope for Zimbabwe

Time to find a new poster child for hyperfinflation. Zimbabwe's economy seems to have turned the corner by (1) allowing foreign currency to be used in transactions and (2) abandoning any further production of Zimbabwe dollars. Here is one news report:
HARARE (AFP) — A man whistles as he picks groceries from the shelves of a supermarket in Zimbabwe's capital. Another shopper, spoilt for choice, compares cooking oil bottles while queues form at the tills.

In Zimbabwe, these were simple and almost forgotten luxuries.

For more than a year, supermarket shelves were bare and shops resembled empty warehouses as the country reeled under an economic crisis that turned sugar and the staple corn meal into rare commodities.

Now shops are stocking up again, after the government in January agreed to allow retailers to conduct business in foreign currency.

The government has even stopped printing Zimbabwe dollars, which it once churned out in trillion-dollar denominations that quickly became worthless under inflation that independent economists estimated in the quadrillions.

The switch to foreign currency has already started bringing prices down in US dollar terms, according to official statistics which are being borne out at the till.

The BBC also notes that prices are now falling in Zimbabwe and further claims the following:
The US dollar was adopted by Zimbabwe's government following the inauguration of the unity government between the MDC and President Mugabe's Zanu-PF.
So Zimbabwe has dollarized. This is certainly an improvement in policy, but why not adopt the South African Rand? The economies of South Africa and Zimbabwe surely are closely to an optimal currency area than the U.S. and Zimbabwe. Does Zimbabwe really want to import U.S. monetary policy? With all that said, this is good start for Zimbabwe.

2 comments:

  1. Greg Mankiw reports the same story. I liked his ironic closing comment: "So now it is up to Ben Bernanke to keep Zimbabwe's inflation in check"

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  2. That is a great line. BTW, thanks for the conundrum links. I hope to post on it at some point after looking at several papers on it, including the one by Cochrane.

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