5 Secret Lessons You Can Learn from the Survivors of Zimbabwe's Hyperinflation
The official Consumer Price Index (CPI) numbers are at their highest levels since 2008.
If you have been to the grocery store or the gas pump you know that prices are going up.
I just filled up at the gas station just this week for nearly $5 per gallon. I still remember paying about $3.50 per gallon in early 2021!
Vegetables, dried goods, meat products – just about all food items seem to be going up in price.
To make matters worse, the deteriorating supply chain is causing shortages of many goods. Lack of truck drivers and ships lined up outside of California ports waiting to be unloaded are adding to this supply crunch.
The result of these problems are higher prices for many goods - if you can get them.
New cars are in short supply due to a microchip shortage which is causing a shortage of new cars. This shortage of new cars is in turn is causing used cars to surge in price as well.
With the now apparent rise in prices some are warning of hyperinflation.
These “tin foil hat” alarmists are pointing to the current ongoing societal collapse in Venezuela and Lebanon as evidence it can happen here in the U.S. as well.
But don’t worry we have been told inflation is “transitory.”
Nothing to worry about, right?
All this talk about high inflation and hyperinflation reminds me of why I purchased this bank note.
This note reminds me of what can happen to your “money” – it is a lesson from history.
Recently, I began to dig a little deeper into this infamous time in economic history and learned a lot more about the Zimbabwe hyperinflation.
What was most interesting about the Zimbabwe hyperinflation was the human story of HOW the people were able to live through this chaotic time.
Their resilience. Their adaptability. Their will to survive.
But before we get to the “5 Secret Lessons You Can Learn from Survivors of Zimbabwe’s Hyperinflation” promised to you, I must define some terms for you and give you a little background information on this event.
What Is Inflation?
Inflation is generally known as a gradual rise in prices over time. That means the dollars in your bank account, or your wallet are buying you less and less goods and services over the years.
What causes this?
An increased amount of currency chasing the same goods and services in an economy.
From the monetarist viewpoint on inflation, inflation is the rise in the money supply.
Central Banks used to have to print physical paper notes but in the age of digital “money” just a few keystrokes can create trillions of dollars.
This increase in currency in the economy again results in more currency chasing the same number of goods and services.
A covert type of inflation is “shrinkflation” where the size of packages of goods decreases while the price stays the same.
Whatever the cause or the definition, the effect is the same: higher prices.
Lower purchasing power.
Less “stuff” you can buy.
What is Hyperinflation?
Hyperinflation begins when the monthly inflation rate is greater than 50%.
The price of goods and services you buy every day increasing 50% a month.
Hyperinflation ends when the monthly rate falls below 50% and stays below 50% for at least 12 months.
Imagine that.
Every month you spend $300 on gas for your car.
Then, the following month this same amount of gas costs $450.
Then, the next month after that it costs $675.
Do you think your income will increase 50% every month to keep up?
It’s hard to understand now if you have not lived through hyperinflation, but 50% increases a month is on the low end.
It is estimated that during the peak month of Zimbabwe’s hyperinflation, November 2008, the month over month inflation rate was 79.6 billion percent or 89.7 sextillion percent year over year!
I don’t know how many zeroes are in a sextillion, but I am assuming A LOT!
Basically, the Zimbabwe dollar became so worthless it littered the streets of Zimbabwe and was not even picked up!
Causes of Zimbabwe’s Hyperinflation
Zimbabwe’s hyperinflation did not happen overnight.
Instead, the seeds of hyperinflation were planted years before it peaked in 2008-2009.
Theses seeds were:
o A civil war ending in December 1979 with the establishment of a War Veteran Compensation Fund (which was raided and depleted because of corruption by 1996)
o Promises to pay pensions to these war veterans that were multiples of the average worker’s monthly salary with no way of meeting these obligations
o Default on debt payments to the World Bank in 1997 and resulting loss of confidence from Zimbabwe’s lenders
o 75% loss in value of the Zimbabwe dollar on November 14, 1997, due to a loss of confidence by investors
o An expensive war in the Democratic Republic of Congo in 1998 that resulted in a strain on already deteriorating public finances
o The political policy to print Zimbabwe dollars to cover decreasing tax revenues and keep the government functioning
o A land grab by the government seizing productive farmland and mines. The resulting mismanagement of these assets resulted in the destruction of the country’s productive capacity
As you can see it was not just one incident that led to the hyperinflation of the Zimbabwean Dollar.
Instead, hyperinflation was a PROCESS the country went through before Zimbabwe’s currency became utterly worthless.
Fall Out from Zimbabwe’s Hyperinflation
Many businesses and shops, especially retail and manufacturing, went bankrupt and closed due to the hyperinflating currency. Prices for goods and supplies were costing more and more every day while what they could get was decreasing in value.
Shelves in stores became bare. Shortages of everyday items such as toilet paper, tampons/sanitary pads, fuel, meat, and soap became scarce and valuable barter items.
People began to play “hot potato” with the Zimbabwe Dollar and got rid of it as fast as they could into “stuff” that had real value.
This increased demand in goods which in turn drove up prices even faster!
Municipal and governmental services (not just businesses) also began to shut down because they could not keep up with rapidly rising prices. Their pricing process was slow and full of bureaucracy and could not adapt to quickly rising prices.
Water supply became spotty, and the quality of the water became questionable.
Sewage plants suffered from the same problems and sewage could be seen openly flowing into streets and nearby rivers.
Electrical infrastructure was ravaged by copper thieves and could not be replaced due to sourcing problems. The electrical company’s rising costs could also not be covered.
Garbage began to pile up. And roads went into disrepair.
Zimbabwe’s society was collapsing.
The 5 Secret Lessons
1. Leave the Country
If your house is burning, do you stay inside and burn with it?
Or do you run out to safety?
It’s the same with your country.
If your country is burning and collapsing all around you, would you leave?
And that’s what millions of Zimbabweans did to survive.
Often it was the educated members of society with the means to leave who migrated to a different country.
This large migration left major gaps in Zimbabwe’s workforce putting more strain on the society to provide much needed services and maintain a productive base of working citizens.
But the people who left, while not all financially stable in their new country, were able to live life without having to worry about sourcing goods and services just to survive.
Their quality of life was much better than those who stayed.
And the people who migrated became a vital source of foreign currency for friends and family back home.
2. Have Foreign Currency to Trade
Transactions in foreign currency and owning large amounts of gold were made illegal by the country’s leaders.
Therefore, a black market developed for “stable” foreign currencies.
US dollars, UK pounds, and even the South African Rand were used as alternatives to the quickly depreciating Zimbabwean dollar.
Gold was primarily used to acquire these “stable” currencies.
3. Have Items or Services to Barter
When the currency you use to buy goods and services no longer has any value, you find items of value to trade.
Fuel, grains, meat, and water were all items used to trade and barter due to supply chain break downs and municipal services shutdowns.
Fuel was especially important to see because it was mostly uniform and was needed by most of society.
Goods and services began to be priced in liters of fuel.
4. Maintain Relationships and Community
Being able to source goods like meat and grains became a game of relationships. You had to “know” someone to be able to purchase food items such as meat (which became difficult to source).
People traded and sold “illegal” goods and currencies with people they knew and trusted because they risked arrest for just trying to survive.
You would expect crime to soar in this type of harsh economic environment, but it didn’t. Why? Because of the strong ties to the community and a cultural based on unity rather than tribal allegiances.
5. Diversify Financial Assets
Imagine working your entire life for your nest egg or pension and only to see it evaporate overnight.
This is what happened to many elderly pensioners and fixed income retirees as the Zimbabwe dollar lost all its value.
A whole generation who did all the right things in life and financially got wiped out in the end through no fault of their own.
The lesson here? Diversify your financial assets with stores of value and hard assets.
Financial assets priced in a hyperinflating currency probably won’t survive.
Final Thoughts
In this article I laid out the PROCESS that is typical in the hyperinflation of a country’s currency.
Debt. Loss of productive base. Money printing.
I don’t know when or if it will occur in any country.
But the pattern is presented here for you.
PREPARE or not to prepare.
It is your choice.