Inflation in Zimbabwe Essay Example | Topics and Well Written Essays - 1500 words

Inflation in Zimbabwe - Essay Example These are permanent dollarization, joining the Common Monetary Area membership, usage of its dollar as the only legal tender and employment of variable regimes. However, in its conclusion and recommendation, the brief singles out joining of the CMA as the best choice for Zimbabwe to permanently curb its inflation. Situation brief When Zimbabwe attained independence in 1980, its dollar’s worth averaged $1.25 (Kramarenko et al. 2010). Over time, inflation rose steadily under the presidency of Robert Mugabe until towards the end of the 1990s when the confiscation of land from White settlers had negatively affected food production (Coomer & Gstraunthaler 2011). With the seizing of these commercial farms, foreign investors fled away leading to halting of manufacturing and reducing the supply of foreign currency needed for importation of goods. Tax revenue also reduced drastically. In order to ensure that the government funded its debts, the Reserve Bank of Zimbabwe increased its pr inting of currency causing a rise in inflation to triple digits as of 2001. ... Wines (2006) referred to this as one of the world’s highest inflation. As of July 2008, Zimbabwe was suffering a high inflation at 231 million percent per year. President Robert Mugabe employed various strategies so as to bring this inflation into control. The economy was turned over to the president’s closest allies in the National Security Council. Intelligence officers and loyal army officers were used in controlling key functions including tax collection and food security. Key supporters of the president had their salaries increased drastically to cushion them from the effects of the inflation with the central bank printing more notes. This instead led to hyperinflation due to the circulation of too many worthless Zimbabwean dollars. By November 2005, the inflation stood at 400% which edged in January 2006 to over 600% (Wines 2006). By June 2008, this was at 11.2 million percent per year and kept increasing in the subsequent months to over 231 million percent in 200 8 (Berger 2008). In January 2009, the 100 trillion Zimbabwean dollar note worth $30 was introduced into the circulation (Pindiriri 2012). The US dollar exchanged for Z$180 officially but fetched Z$8,000 in the black market. This was further worsened by the deadlock that existed between the Zanu-PF party of Robert Mugabe and the Movement for Democratic Change, the opposition. The closest Zimbabwe came to finding a solution was with the dollarization in February 2009 where authorities allowed for trade with five different currencies, though the US dollar became the principal (Pindiriri 2012). The use of the Zimbabwean dollar was discontinued. But this was considered as a short term measure that would not give a permanent solution to the problem of inflation in Zimbabwe. Therefore, the