Central banks fight hyperinflation with bank note releases
- Published: Jul 18, 2021, 9 AM
Zimbabwe and Venezuela, two of the world’s more prominent economic basket cases, are taking different approaches to the problem of inflation.
Zimbabwe is issuing a new note with a higher denomination — a $50 bank note to join the already circulating $2, $5, $10 and $20 notes that were introduced in February 2019.
The Reserve Bank of Zimbabwe issued 7.2 million $50 bank notes on July 7. Each is worth about 60 U.S. cents, but depending on the source, only about 14 to 35 cents at the unofficial black market rate. As one skeptic told Inquirer.net, the note is not enough to buy a loaf of bread. Another, journalist Hopewell Chin’ono tweeted, “It tells you something about inflation in your country if you need 3 notes of your highest currency denomination to buy a premium beer in a supermarket.”
The face of the note has the traditional Three Balancing Rocks, the logo of the Reserve Bank of Zimbabwe. It has a segmented security thread that shifts from green to red. The back shows the Tomb of the Unknown Soldier and the statue of Mbuya Nehanda in the center of Harare. She was a female spirit medium who along with the male religious leader, Sekuru Kaguvi, inspired the 19th century revolution against British colonization. She was executed by hanging in 1898.
The new denomination has rekindled fears of the kind of hyperinflation that tormented the country in the first decade of the century, when a note as high as $100 trillion was issued. The inflation rate last year was as high as 800%, but according to the National Statistical Agency it is now down to only 55%.
Officials say a renewal of hyperinflation is unlikely because policy now stipulates that cash in circulation be limited to 10% to 15% of the money supply.
Venezuela is still doing what Zimbabwe once did — lopping zeroes off denominations that already exist.
In a move to combat hyperinflation in 2018, Venezuela issued new currency that removed five zeros from each denomination. This time, possibly as soon as August, it is going one better and making it six zeros.
The action has not been officially announced, but was first reported by Bloomberg, citing three sources. Since zero elimination was first implemented by President Hugo Chavez in 2008, eight zeros have been removed by him and his successor Nicolas Maduro, so this would raise the total to 14.
The move is practical. Some everyday transactions require the entry of so many digits that they no longer fit a calculator, or are so large that a card has to be used multiple times to complete a transaction. Companies have been complaining that simple accounting is becoming complicated.
The country introduced high denomination notes of 200,000, 500,000, and 1 million bolivares in March of this year. At 3,200,000 bolivares to the dollar, 1 million bolivares is worth about 30 cents, not enough for a loaf of bread.
The Central Bank of Venezuela does not release inflation rate data, so Bloomberg created the “Café con leche (coffee and milk) index that tracks prices at a Caracas bakery. It puts inflation at more than 2,300%, actually down from the 300,000% in 2019.
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