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Unbundling Zimbabwe’s journey to hyperinflation and official dollarization

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  • Terrence Kairiza

    ()
    (National Graduate Institute for Policy Studies)

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    Abstract

    The first impetus to Zimbabwe’s drive to hyperinflation and official dollarization predates the disruption in production caused by the fast-track land reform programme. The initial push came from the departure from relatively disciplined fiscal policies to a string of measures aimed at pacifying restive groups threatening political power through the transfer of economic and financial resources to those groups to the detriment of the fiscus. This stance caused investors to run away from the Zimbabwean currency thus causing currency depreciation hence inducing cost-push inflation which was worsened by the decline in production that accompanied the land reform programme and the associated disturbances to production in all sectors of the economy. The liquidity expansion by the central bank to prop the ruling party embodied in the quasi-fiscal activities veiled as expansionary Keynesian economics played a major role in firmly setting the stage for hyperinflation in the latter stages of the saga. In the backdrop of hyperinflation, the institution of official dollarization was merely de jure recognition of the unofficial dollarization that had set in. On the basis of Zimbabwe’s idiosyncrasies, the article contends that any attempt to dedollarize should be an endogenous outcome of a policy of macroeconomic stabilization.

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    Bibliographic Info

    Paper provided by National Graduate Institute for Policy Studies in its series GRIPS Discussion Papers with number 09-12.

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    Length: 19 pages
    Date of creation: Sep 2009
    Date of revision:
    Handle: RePEc:ngi:dpaper:09-12

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    Keywords: Africa; Zimbabwe; Hyperinflation; Currency problems;

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    1. Albert Makochekanwa, 2007. "Zimbabwe’s Hyperinflation Money Demand Model," Working Papers 200712, University of Pretoria, Department of Economics.
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