CNN has a piece this morning that reminds us that the extreme hyperinflation occurring in Zimbabwe is continuing: Zimbabwe to print first $100 trillion note.
(The article contains a picture of the current $50 billion note that I can’t include here for licensing reasons, but you can click the link to view the photo.)
I first mentioned the Zimbabwean hyperinflation last June, when someone had posted to the Internet a photo of the bill at a Harare restaurant.
Money is a great fiction — it only has value because we all agree that it does. The actual material cost of that $100 bill in your pocket is a couple of cents at most. The difference between the cost to make it and its value is due to the collective fiction we all accept. I don’t mean this in a “tin-foil hat” kind of way. The concept of currency is very important. Without it, we would have no common basis under which to perform transactions.
With this fiction comes the variability of currency. If the entire nation simultaneously were to agree that $20 bills are each only worth a penny, then they are; it’s as simple as that.
Economic stability means that no one really thinks that, and the collective fiction of money continues unaffected for all of us. Sellers respect the value of money and accept it for purchases, and buyers trust that no matter where they go they can use that money to buy the things they want. Despite the “consumer culture” we hear spoken of disdainfully, the economy really needs to have currency flowing all around in order to function properly.
Hyperinflation is good for no one, because the fiction of money isn’t stable. No one trusts the value of a dollar, and so its value constantly changes.
Have a look at the Zimbabwean dollar’s Wikipedia page. Despite having a degree in physics I have a little trouble figuring out the distinctions between the various exchange rates, but I can still appreciate the tremendous amount by which the money has been devalued over the past 30 years.
If Zimbabwe had any sense, it would abolish its present currency and set up a new currency pegged to the South African rand. (I believe Namibia already does this.) Then again, Robert Mugabe is an irrational dictator, so I’m not assuming that he has what is best for his nation in mind.