Transition is not a continuation of the existing system, but a replacement of the current one. One of the severe macro economic problems we talked about in class during transtition was hyperinflation.
This article regarding the current hyperinflation situation of Zimbabwe examplies the reasons why hyperinflation is considered a major macro economic problem. With hyperinflation, money eventually losses its worth and the economy will retract to one similar to a barter economy. Where in economics money is suppose to facilitate trade, in the case of hyperinflation it losses this ability rendering it quite useless. Instead of advancing, the economy "de-advances".
The alternatives citizens of Zimbabwe have in battling this situation is by using foriegn currencies. This solution is of a very practical one that would effectively help. However, what about those who do not have access to this option, these people would be helpless and suffer the full effects of hyperinflation.
So now, imagine a situation where your money effectively losses its value by 50% within 1.3 days. What would it do to the mindset of the people and the economy?
2 comments:
I can't imagine that! It's hard to imagine your money lessening in value that much for a few days, but what if it never stopped?! Do you know what foreign currency they would convert to? Do the world economic problems affect this choice?
according to other blogs from Harare, shops are divided into shops with goods that you pay in US dollars, and shops which take Zimbabwe dollars but which cannot afford to keep inventory...the US dollar available on the black market for a ridiculous price because the central banks cannot even give it out.
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