Your SlideShare is downloading. ×
Zimbabwe in crises
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Zimbabwe in crises

931

Published on

Published in: Business, Economy & Finance
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
931
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
60
Comments
0
Likes
1
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide
  • 30% of foreign exchange earnings to govt. official at an artificial exchange rate (2005)
  • iron, nickel, platinum, coal, chrome, asbestos, diamonds, tantalite, coalbed methane, and gold.Zimbabwe has more than 6,000 recordeddeposits and the capacity to produce at least25 tons of gold annually.In 2006, for example, coal productiondropped to its lowest level since 1946
  • Annual foreign earnings from tourism were less than one-tenth of what they were decade ago
  • n economics, hyperinflation is inflation that is very high or "out of control", a condition in which prices increase rapidly as a currency loses its value.[1]Definitions used by the media vary from a cumulative inflation rate over three years approaching 100% to "inflation exceeding 50% a month." [2] In informal usage the term is often applied to much lower rates. As a rule of thumb, normal inflation is reported per year, but hyperinflation is often reported for much shorter intervals, often per month.
  • The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power.Her forign currency used is south african rand and now even the local shopkeepers have stopped accteptingzimbabwe dollar. The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that foreign currency.
  • Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short.
  • Interest rates, wages and prices are linked to a price index 
  • the cumulative inflation rate over three years approaches, or exceeds, 100%.
  • Whenever money supply is increased (without a corresponding increase in the overall economy), the currency is debased. In other words, it loses value. So the cost of goods rise to counter this loss of value. If the supply of money increases above the inflation rate, the rate of inflation increases too.Zimbabwe has been printing trillions of additional Zim dollars at a time when their economy has actually been contracting (quite rapidly). The punitive regulatory measures that Mugabe has imposed on traders (ordering that they fix their prices) has served only to increase the rate at which Zimbabwe’s economy contracts. So you have an ever increasing amount of currency chasing an ever shrinking amount of goods.
  • In February 2007, the central bank of Zimbabwe declared inflation "illegal", outlawing any raise in prices on certain commodities between March 1 and June 30, 2007. Officials arrested executives of some Zimbabwean companies for increasing prices on their products. Such measures, frequently tried during other episodes of hyperinflation, have always failed.six-month freeze on wages on September 1, 2007
  • Printing more and higher denomination currency and therefore zwd loosing its value
  • they linked their currency to a stable foreign currency (in their case, the United States dollar)they froze government spendingthey stopped printing currencythey lifted all price controlsthey deregulated their economy
  • RBZ’s money machine is the main source of hyperinflation.RBZ has no ability to resist the Government’s demand for cash.RBZ finances the Government expenditure by simply printing money.
  • To restore stability and growth the monetary system has to replaced. The three ways are: Dollarization Currency BoardFree Banking
  • When the natives uses any foreign currency extensively alongside or instead their own currency/// legal tender???offered payment that by law cannot be refused in the settlement of the debt…..Unofficial Dollarization Semi Official DollaizationOfficial Dollarization when foreign currency has a full status of legal tender
  • An officially dollarized country imports the monetary policy of the country whose currency they have chosen. E.g. Panama and U.S.Due to the arbitrage the prices of goods are in a narrow range.Interest rates, Inflation etc are similar to that of the selected country. Examples: Ecuador, El Salvador, Panama etc.
  • US DOLLARS ($)Fully ConvertibleInflation and Real Interest rates are low and stable.EURO (€)High credibilityFull convertibilityLow interest rates and inflation.Most of the African countries do business more with Europe than with US.
  • randsSouth Africa is the largest trading partner of Zimbabwe.Many expatriates are already living in S.A.Unlike US $ and Euro it has exchange controls.(exc. Control provide greater stabilitybcoz it limits the volatility due to currency in/out flow)There can be an unified currency zone which includes S.A., Namibia, Lesotho, Swaziland
  • Advantages: CB are successful in promoting fiscal discipline, low inflation , economic growth and financial integration.CHARACTERISTICS:No active role in determining the monetary base.Money Supply is controlled by the market forces.Not allowed to influence the money supply e.g. cannot impose CRR etc on commercial banks.Lack of dominance of Government as they are situated in other country
  • The Zimbabwean Dollar is fully backed by a foreign reserve currency and is fully convertible at a fixed rate of demand.To maintain the elasticity in money supply they acquire reserves.Successful examples: Argentina(1991-2002), Estonia(1992) and Lithonia(1994).
  • FREE BANKING SYSTEM (a system where issue of notes etc are )No Central BankNo lender of last resortNo reserve requirementsNo restrictions on bank portfolio’s interest rate or branch banking
  • Transcript

    • 1.
    • 2.
    • 3.
    • 4. Bread Basket of Africa
    • 5.
    • 6.
    • 7.
    • 8.
    • 9. UNEMPLOYMENT
    • 10. AIDS
      AIDS
    • 11. REASONS THAT LED TO THE CRISIS
    • 12. GDP
    • 13. AGRICULTURE
      60% Labor force
    • Wheat Production
      300,000 tons in 1990 to less than 50,000in 2007
    • 15. Tobacco
      Responsible for 1/3rd exchange earnings
      US$600 million in 2000 generated less than US$125 million in2007
    • 16. MANUFACTURING
      Economic Structural Adjustment Program (ESAP) failure:
      • No foreign aid
      • 17. Local borrowings
      • 18. Restrictions on exchange earnings
      • 19. Price control policy(2007)
    • 20. MINING
      Lowest ever coal production in 2006 since 1946
      6,000 deposits
      25 tons gold annually
    • 21. GOLD
    • 22. TOURISM
      • Victoria Falls
      • 23. Game reserves
      • 24. Stunning mountains
      • 25. Wonderful climate.
    • 26. TOURISM
      1/10
    • 27. INFORMAL SECTOR
      • Main source of income
      • 28. Informal sector share of employment grew to about 20percent in 1986 and to an estimated 40 percent in 2004.
      • 29. Operation Murambatsvina
    • 30.
    • 31.
    • 32.
    • 33.
    • 34.
    • 35.
    • 36.
    • 37.
    • 38. Out of control
      Loss of value
    • 39. Characteristics
    • 40. Non monetary asset
      Foreign currency
    • 41. Credit purchases
      Fall in purchasing power
    • 42. Price index
    • 43.
    • 44. How it happened
    • 45. Confiscation of white-owned farmland
      Killing of other white farmers
    • 46. Repudiation of debts to the International Monetary Fund
    • 47. Why these factors caused hyperinflation
    • 48. What else the government did?
      Declared inflation illegal
      Freezing of wages
    • 49.
    • 50.
    • 51. what is the best strategy forward to tackle this hyperinflation ?
    • 52. Linking of currency
      Froze government spending
      Stop printing currency
      lifting all price controls
      Deregulate their economy
    • 53. ROLE OF RBZ
      HYPER-INFLATION
      DEMAND FOR CASH
      PRINTING MONEY
    • 54. DOLLARIZATION
      CURRENCYBOARD
      FREE BANKING SYSTEM
    • 55. DOLLARIZATION
    • Characteristics of Dollarization
      Imports Monetary Policy
      Arbitrage keeps price low
      Inflation etc. are low
      Exp: Ecuador, El Salvador etc
    • 58. OPTIONSAVAILABLE
      FULLY CONVERTIBLE
      HIGH CREDIBILITY
      LOW AND STABLE INFLATION etc
    • 59. Fully Convertible
      High Credibility
      Low and Stable Inflation etc
      More Business with Europe
    • 60. Largest Trading Partner
      Large base of Expatriates
      Exchange Controls
      Unified Currency Zone
    • 61. CURRENCY BOARD
      Currency Board
      No role in monetary base
      No Government Control
      No Control on money Supply
      Market Forces determine Money Supply
    • 62. Fully backed by Foreign Reserve
      Fully convertible at fixed rate
      Acquire reserves for elasticity
      Exp: Argentina (1991-2002)
      Estonia (1992)
      Lithonia (1994)
    • 63. FREE BANKING SYSTEM
      .
      FREE BANKING SYSTEM
      No Central Bank
      No Lender of Last Resort
      No Reserve requirements
      No restrictions on Banks Portfolio’s rate
    • 64. THANK YOU!!
      Faraz Khan
      RoshanSonthalia
      Smriti Gupta
      Stuti Gupta
      FORE School of Management

    ×