08/01/08

Monetary reform Zimbabwe style

by Larry Email  232 words

In another episode of the sag saga of hyperinflation in Zimbabwe, the central bank of the African nation has announced a new monetary reform, this time to slash ten (10) zeroes from the Zimbabwean dollar.

The official price inflation rate in Zimbabwe is over 2,000,000% year-over-year, but private estimates place the CPI on the vicinity of 4 or 9 million per cent (you choose the poison).

As you probably know, we in Venezuela also implemented a "monetary reform", slashing only three (3) zeroes from the devalued bolívar, but so far this year, the new "bolívar fuerte" (strong bolivar) hasn't fared so strong, with an accumulated official inflation rate over 15% (up to June).

So, what is it about these monetary reforms that seem to go wrong all the time? Why don't they work? You see, Zimbabwe, or Venezuela are not special and they're not different the every other country, when the issue are the laws of economics. There's people who vehemently deny the existence of economic laws, but austrian economists have demonstrated the indeed there are universal, immutable laws that apply to human action everywhere at any time. And what do these laws tell us about money? That when you create money out of thin air, the value of already existent money will decrease, with a consequent rise in prices.

It's as simple as that, no matter how many zeroes you make disappear from paper bills.

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