The Gift That Keeps on Diminishing
Looking for a nice Christmas gift for that special someone? How about making them a trillionaire?
A trillionaire in Zimbabwe at least. Back in January of 2007, Zimbabwe entered the hyperinflation zone. The minimum rate required to qualify as a hyperinflation is 50% per month. The most recent monthly supply figures are ancient history – January 2008. After 2008, the data becomes limited and unreliable.
This is the first case of hyperinflation in the 21st century. Use of the Zimbabwean dollar as an official currency was effectively abandoned on April 12, 2009. As is typically the case during hyperinflationary periods, there has been an adoption of another currency as people seek stability. A huge devaluation to this extent destroys savings and investments. Savings and investments lose substantial value by the day. In this case, one trillion Zimbabwean dollars couldn’t buy a loaf of bread.
The culprit of this hyperinflationary period was an extraordinarily excessive printing of dollars which made its way into the money supply. From January to December 2008, the money supply growth rose from 81,143 percent to 658 billion percent. That’s quite a leap.
|Country||Month with Highest Inflation Rate||Highest Monthly Inflation Rate||Equivalent Daily Inflation Rate||Time Required For Prices To Double|
|Hungary||July 1946||1.30 x 1016%||195%||15.6 hours|
|Zimbabwe||Mid-November 2008 (latest measurable)||79600000000%||98.0%||24.7 hours|
|Yugoslavia||January 1994||313000000%||64.6%||1.4 days|
|Germany||October 1923||29500%||20.9%||3.7 days|
|Greece||November 1944||11300%||17.1%||4.5 days|
|China||May 1949||4210%||13.4%||5.6 days|
Last I checked on Ebay, you can get a $100 trillion dollar Zimbabwe Currency for $4.99 plus shipping.
Since February 2009, after a period of hyperinflation and pervasive rejection of the devalued currency, companies and individuals are permitted to transact domestic business in other currencies, such as the US dollar or the South African rand. As a result, the Zimbabwean economy has undergone “dollarisation” (the supplanting of a nation’s currency with a substitute) and the Zimbabwean dollar has fallen out of everyday use.
While this example is obviously extreme, it does illustrate the hazards (if hyperbolic) of allowing currency production run wild. Likewise, this underscores the importance of safeguards we as a nation should have in place and the absolute value of having and maintaining monetary discipline.
A Registered Investment Advisor
©Summit Wealth Partners, Inc. 2012
Jason passed the rigorous CFP® certification exam and became a Certified Financial Planner™ in 2005. In addition to this designation, Jason holds securities licenses series 7, 63, 65, and 24 as well as his life, health and variable annuity license. Jason received a Bachelor’s degree in Economics from the University of Dayton in 2000 and completed the CFP® Certified Education Program from Northwestern University in 2005.