Friday, August 03, 2007


International evidence shows that once when inflation, as a monetary phenomena, is high and fiscal and monetary policies do not change fundamentally, inflation rate tends to increase exponentially.

Zimbabwe is a case-study of hyperinflation. Imposed price controls and exceeding money supply, to cover the unfunded fiscal expenditures (through monetary emissions) are the major sources of hyperinflation, an uncontrolled amount of money in circulation, chasing a tight scope of goods and services in the Zimbabwe's economy.

Currently, inflation rate in Zimbabwe is estimated at 13,000 percent.

"The launch yesterday of a new large-denominationbank note of Z$200,000 - worth £6.50 (€9.70, US$13) at the official exchange rate and 65 pence at the more realistic parallel rate - underlines the disarray. The central bank had wanted to issue a Z$500,000 note, but a bank official said this was vetoed by the finance ministry because senior staff thought such a large denomination would have re-inforced an impression that inflation was out of control."

Read more in today's Financial Times.

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