BullionStar News
Writers Torgny Persson, Koos Jansen
& Hong Kang See

Hyperinflation in Zimbabwe – It’s back, but maybe not for long

Monday the 20th of November 2017
When a nation adopts a foreign currency it will typically face significant hurdles when it tries to rid itself of that currency, or de-dollarize. But Zimbabwe’s autocratic ruler Robert Mugabe has appeared to have done the impossible. After dollarizing ten years ago, over the course of the last year or two he and his cronies have managed to throw off the U.S. dollar and re-introduce a Zimbabwean replacement.

We can see evidence of this new currency in Zimbabwe's stock market. Below I've charted the country's main equity index, the Zimbabwe Industrial Index, going back to 2011. What an incredible rise over the last year, right? Beware; these returns have nothing to do with real economic growth. Zimbabwean equities have switched from being claim on an a stream of cash flows denominated in U.S. dollars to a stream denominated in Zimbabwe's new currency. Because investors expect inflation of the new currency to drive up future cash flows, they have responded by bidding stock prices up. In real terms (i.e. U.S. dollar terms), stock prices are probably flat–and may have even declined.


Dollarization and de-dollarization

Let's back up a bit. For those countries that mismanage their currency, the penalty box has typically been some form of dollarization. The citizens of a nation grow so tired of the hyperinflating currency that they opt for an alternative, whether that is euros, dollars, or some other medium of exchange.

Dollarization is usually only partial, the mismanaged currency continuing to circulate–albeit to a lesser extent–in conjunction with a stable alternative. Zimbabwe is unique in being one of the few... Continue Reading
By: JP Koning
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