Thursday, January 17, 2008

A few zeroes to go 

Courtesy of Mark Perry, we learn that Zimbabwe is printing new currency:
President Robert Mugabe's government, stricken by chronic hyperinflation, announced Thursday it was to introduce a 10 million Zimbabwe dollar note. Economists said they believed it was the highest denomination of any currency in the world.

Central bank governor Gideon Gono was quoted on state radio as saying that the bank would begin releasing a set of three new notes - 1 million, 5 million and 10 million - on Friday.

The issue of new notes follows nearly three months of banking chaos as cash dried up and queues, sometimes hundreds of metres long, became a permanent feature outside commercial banks.
I am going to guess, following Larry White's suggestion, that price increases in Zimbabwe are exceeding the rate at which the central bank could print currency. I have a hard time finding money supply data for Zimbabwe post 2004 so it's hard for me to show this, but it appears money supply growth was under inflation in 2005 and 2006 from what data I can find. Therefore real money supply is falling. Using more zeroes will help monetary growth to catch up.

Of course, Zimbabwe has four zeroes to go to catch up with the Yugoslav dinar. But with inflation worth less than 0.05% of what it was 1 year ago, it might set the record yet.

Labels: ,