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What is hyperinflation?

Weimar vs Zimbabwe similarities

Hyperinflation Case Studies

Weimar vs Zimbabwe similarities

  • Two eras, two catastrophes
  • Comparative Analysis: Zimbabwe and the Weimar Republic
  • Summary of the process
  • 4 Similarities in the consequences of hyperinflation

Two eras, two catastrophes

In this chapter, we will examine the effects of hyperinflation, with a focus on the experiences of Zimbabwe and the Weimar Republic. Throughout my research, I have prioritized the exploration of direct testimonies from individuals who lived through these periods of hyperinflation, rather than adopting a purely economic or statistical approach.
Several books have been particularly informative:
  • "When Money Dies" by Adam Ferguson traces the post-World War I hyperinflation in Germany, as well as in Austria and Hungary.
  • Two books on hyperinflation in Zimbabwe, "Zimbabwe Warm Heart Ugly Face" and "Hard Boiled Egg Index" by Jérôme Gardner and Kudzai Joseph Gou Min-Yu, respectively, offer poignant testimonies from a CEO of a clothing store chain and an agricultural banker on their experiences during this tumultuous period.
While consolidating my notes, I noticed numerous similarities between the experiences of hyperinflation in Zimbabwe and the Weimar Republic, despite the 90-year gap between them. I identified around 17 similarities, with 13 illustrating a sort of progression towards the economic disaster depicted in these testimonies. These fascinating parallels demonstrate the repetitive and devastating nature of hyperinflation across time and borders. Today, we will examine these similarities and how they depict a worrisome trajectory during periods of hyperinflation.

Comparative Analysis: Zimbabwe and the Weimar Republic

The game of 14 differences!

1. Shortage of money

When currency depreciates at a dizzying speed, even the most ambitious attempts to flood the market with new banknotes can prove insufficient. The incessant demand for tangible currency can far surpass the central banks' capacity to produce banknotes, creating unprecedented liquidity crises.
Weimar: "During this month, it will be increased to almost 4 billion paper marks, a figure with which it is hoped that the currency shortage will be definitively overcome."
Zimbabwe: "From 2002 to January 2009, there were several critical liquidity shortages. There simply weren't enough banknotes printed or in circulation to keep up with the skyrocketing inflation."

2. "And that's manure!"

The speed at which currency can lose its value in certain economic situations is astonishing. Astronomical amounts of banknotes can be issued in record time, instantly transforming once considerable sums into something as insignificant as manure.
Weimar: "The current total issue amounts to 63,000 billion. In a few days, we will therefore be able to issue two-thirds of the total circulation in one day."
Zimbabwe: "On September 17, 2006, the governor of the RBZ, Gideon Gono, declared: '10 trillion is still out there, and it has become manure.'"

3. Banknotes are worth less than the paper they are printed on

In certain economic circumstances, the intrinsic value of a banknote can become lower than the value of the paper it is printed on. This drastic depreciation turns banknotes, which are normally symbols of value and purchasing power, into mere pieces of worthless paper.
Weimar: "Entire denominations of marks banknotes were almost worthless as soon as they came out of the printing press."
Zimbabwe: "The central bank wasted money by printing a banknote that was not worth the paper it was printed on. In other words, its value was lower than that of toilet paper. As absurd as it may sound, it was cheaper to use the ZWD 100 trillion banknote as toilet paper than to buy actual toilet paper."

4. Counting money

When currency rapidly loses its value, even the simplest transactions can become laborious tasks. Calculating the price of an item or simply counting the bills needed for payment can take several minutes, adding a layer of complexity to daily interactions.
Weimar: "The most ordinary purchase in a store required three or four minutes of calculation, and once the price was determined, several more minutes were usually needed to count the banknotes."
Zimbabwe: "Store managers were also allowed to hire a temporary worker to replace the staff member who counted money all day. Of course, counting money in-store for administration and bank deposit was one thing, but the whole process had to be repeated at the bank during the deposit."
Uzbek technique of counting money

5. Payments by check

In disrupted economies, traditional payment methods like checks can quickly lose their effectiveness. Banks, overwhelmed by the increasing demand for currency due to hyperinflation, may ration or delay the cashing of checks, thereby reducing their real value. This instability often leads to a prioritization of payment methods, where prices can vary depending on the chosen payment method.
Weimar: "Price increases intensified the demand for money, both by the state and other employers. Private banks could not meet the demand at all and had to ration the cashing of checks, so uncashed checks remained frozen while their purchasing power dwindled." Zimbabwe: “The time value of money created three prices for goods and services; namely, a cash price, a real-time gross settlement price, and a check price. Eventually, no one accepted checks, which took five days to clear.”

6. The "Burner-preneurs"

As the value of the currency erodes, new economic opportunities emerge, exploiting market distortions. These entrepreneurs, often referred to as "Burner-preneurs," can thrive by borrowing devalued currency to invest in tangible assets and then repay their debts with even more devalued currency.
Weimar: "Speculation on inflation involved borrowing paper marks, converting them into goods and factories, and then repaying lenders with depreciated paper."
Zimbabwe: The "Burner-preneurs"

7. Honesty and hard work lose their appeal

In unstable economic contexts, traditional values of hard work, thrift, and integrity can be overshadowed by the allure of quick wealth. Speculation and currency trading often offer significantly higher rewards than regular work, leading to a disruption in societal priorities.
Weimar: "As the old virtues of thrift, honesty, and hard work lost their appeal, everyone sought to get rich quickly, especially since currency or stock speculation could apparently yield much more than work."
Zimbabwe: "These practices, while enriching a few individuals, impoverished the urban working class and the rural population. Education lost its value, as this trade was driven by people who did not need education or hard work to justify it. All they needed were connections and initial capital to start their easy money business."

8. The "banks of the world"

In situations of hyperinflation or monetary crisis, parallel and unregulated markets for foreign currencies often emerge. These informal "banks," often humorously referred to as "world banks" or by other local names, provide a refuge for those seeking to protect their assets from devaluation. Although these markets can provide a necessary economic lifeline, they often highlight widespread distrust of official financial institutions and government policies. Weimar: "Their transactions were mainly carried out through the so-called Winkelbankiers, the street operators who had emerged with inflation and who, thriving in a sick economy, lived entirely by taking advantage of the difference between the buying and selling prices of foreign currencies." Zimbabwe: "They were also currency changers. They operated with impunity between 2nd and 6th Avenue and Fort Street in Bulawayo, thanks to their cunning business practices, which often involved corruption and other illicit activities. This area of the city was known as the 'World Bank'." Argentina: "So I went where all Argentines go: the cuevas, the 'caves', which are found in the Florida neighborhood in the heart of Buenos Aires." - TheBigWhale

9. Foreign currency exchanges were illegal

Governments, in an effort to stabilize their own currency and control the flow of capital, may make these foreign currency transactions illegal. These repressive measures, although intended to protect the national economy, can often have the opposite effect, exacerbating public mistrust and encouraging the black market.
Weimar: "People resorted to bartering and gradually turned to foreign currencies as the only reliable means of exchange. New decrees were introduced regarding the purchase of foreign drafts and the use of foreign currencies for domestic payments. In addition to imprisonment, fines could now be imposed up to ten times the amount of an illegal transaction."
Zimbabwe: "Raids on businesses led to the imprisonment of several businessmen from Bulawayo for the weekend and fines equivalent to twice the amount of recovered foreign currency, this bravery then subsided."

10. Capital controls

When a country faces a monetary or economic crisis, one common response by governments is to exert strict control over the movement and forms of capital. Whether through orders forcing the acceptance of devalued national currencies or through severe sanctions against those who reject certain payment methods, these measures often aim to contain panic and restore confidence. However, their effectiveness varies, and sometimes these measures can prove counterproductive or disconnected from the reality experienced by citizens. Weimar: "Merchants had recently been forced by a new decree to accept state banknotes; but since it also allowed the continued use of foreign currencies for all purchases, merchants generally found excuses to accept almost nothing else."
Zimbabwe: "The government introduced SI 175/2008 on December 12, 2008, regarding payment by checks. It stated, 'The penalty for refusing payment by check/bank card or any other bank-mediated electronic payment method shall be a level 8 fine or a prison sentence of six months or both.' Obviously, we ignored the SI because it was completely out of touch with reality."

11. Forced to keep their shops open

When the economy collapses and the currency loses its value, governments can resort to drastic measures to maintain an appearance of normalcy.
Weimar: "Merchants who continued their activities were subject to a new ordinance, enacted on October 22, requiring them to keep their shops open and offer goods in exchange for paper marks."
Zimbabwe: "Only empty steel shelves and refrigerators, coolers, and freezers remained. The tragedy was that the store was still open because they dared not close due to political tensions and the fear of leaders being arrested by the government's price control force. Even the workers were not laid off because everyone thought there would be a quick solution."

12. Everyone is a criminal

In the face of a collapsing economy and pervasive regulations, the line between survival and criminality becomes blurred.
Weimar: "All crimes against the state, each and every one of them, to varying degrees, became a matter of survival for individuals."
Zimbabwe: “Every resident in Zimbabwe was a criminal. As harsh as it may sound, it was true. With the myriad of small laws governing every aspect of life, it was inevitable that everyone broke a law each day. Possessing foreign currency was illegal, according to an SI published in 2004. Having multiple bank accounts to bypass the daily withdrawal limit was illegal. Not having the proper license plates on your car, or a car radio license, or a generator permit, were all laws that someone, somewhere, was breaking.”

13. Buy foreign currency at any cost

The frantic purchase of foreign currencies has often marked a critical turning point in currency devaluation, exacerbating the fall in intrinsic value.
Weimar: "Fritz Mannheimer, on the instructions of his boss, went out in August 1921 and started buying foreign currencies at any price - 'because Germany had an infinite amount of paper marks but no foreign currencies.' This was the first sign of the absolute collapse in the value of the mark."
Zimbabwe: It has been alleged that they were given daily targets to meet, as some of the forex requirements were urgent and they would buy at any rate to accumulate forex to meet the deadline. This alleged practice was accused of fueling the fire of devaluation as the value of the Zimbabwean dollar continued its steep decline."

Summary of the process

When analyzing the economic trajectory, it is apparent that when high inflation is reached, the value of the monetary mass deteriorates. This devaluation leads to several complications, including a shortage of banknotes. In this context, arbitrage opportunities arise, particularly in response to fluctuations in exchange rates. As a result, many individuals turn to this arbitrage, investing heavily in tangible assets in anticipation of future currency devaluation that would allow them to repay their debts with a weakened currency. This economic environment undermines the appeal of traditional jobs and, consequently, erodes social cohesion.
In response to this situation, the government imposes draconian regulations, including capital controls. It also mandates that merchants accept the national currency and checks. Over time, new laws are enacted, expanding the definition of criminal behavior. Ultimately, the exchange rate climbs exponentially as the government is willing to exchange its currency, printed at a lower cost, for more robust foreign currencies.

4 Similarities in the consequences of hyperinflation

1. Oil and metals

During the Weimar period in Germany, the theft of valuable materials was so widespread that lead from roofs was frequently stolen. In Zimbabwe, desperation drove some to disrupt the power grid in order to extract oil from transformers and use it in their vehicles.
Weimar: “The metal plaques of national monuments had to be removed for safekeeping. Brass doorbell plates were stolen from the doors of the British Embassy in Berlin.”
Zimbabwe: “To make matters worse, due to the lack of foreign currency, there was a shortage of lubricating oil for cars, and transformers became an easy target for thieves who siphoned off the cooling oil during power cuts.”

2. Trains

Currency devaluation can drive citizens to adopt survival behaviors, including vandalism. Faced with a collapsing economy, costly public infrastructure, such as transport systems, can be compromised, leading to disastrous societal consequences.
Weimar: “In Berlin, the tram system ceased to operate for lack of funds.”
Zimbabwe: “One of the most troubling and saddest scenarios was when almost the entire electric copper line linking Harare to Dabuka (over 280 kilometers) was stolen. At its completion, it had been the pride of Zimbabwe, with fast electric passenger and freight trains running along this route.”

3. “Mealie Meal”

In the context of meager wages and an unstable economy, businesses were compelled to provide food to their employees in order to maintain productivity and operational efficiency. This initiative was not only a way to offset shortages and high food costs, but also a strategy to retain staff in a difficult economic environment.
Weimar: “In Berlin, office employees, who formed a very important class in the capital, had totally inadequate salaries ranging from 12,000 to 20,000 per month (equivalent to between 12 and 19 pounds a year), which were constantly shrinking; but most could still obtain their lunches for a symbolic amount, provided by their offices, so that body and soul could just barely be kept together.”
Zimbabwe: “At this stage, we were providing all our staff with a free lunch. Maize meal was essential to the continued functioning of our company, as in many cases it was the only meal our staff received each day.”

4. Gasoline coupons

Populations sought stable alternatives for transactions. In Weimar, products such as brass and fuel served as mediums of exchange due to their constant intrinsic value. In Zimbabwe, faced with the rapid devaluation of the Zimbabwean dollar, gasoline coupons, which represented a fixed quantity of an essential product, became a de facto currency. These situations highlight how societies adapt to extreme economic conditions, devising innovative solutions to maintain trade and the economy.
Weimar: “Barter was already a customary form of exchange; but now, goods such as brass and fuel became the common currency of purchase and payment.”
Zimbabwe: “These vouchers we now used to pay rent to landlords, municipal taxes, telephone bills – in fact almost everything – because everyone had stopped accepting payments in Zimbabwean dollars and checks.”

Conclusion

This concludes this video on the similarities of experiences during the periods of hyperinflation in Zimbabwe and the Weimar Republic. In the next video, we will discuss the differences and contemporary parallels. Thank you.
Quiz
Quiz1/5
What was a common response by governments to a monetary or economic crisis, as seen in the cases of Zimbabwe and the Weimar Republic?