How would you like to pay $417.00 per sheet of toilet paper?
Sound crazy? It’s not as crazy as you may think. Here’s a story of how this happened in Zimbabwe.
Around 2000, Robert Mugabe, the President of Zimbabwe, was in need of cash to bribe his enemies and reward his allies. He had to be clever in his approach, given that Zimbabwe’s economy was doing lousy and his people were starving. Sow what did he do? He tapped the country’s printing presses and printed more money.
Not so fast. The increase in money supply didn’t equate to an increase in productivity in the Zimbabwean economy, and there was little new investment to create new goods. So, in effect, you had more money chasing the same goods. In other words, you needed more dollars to buy the same stuff as before. Prices began to rise -- drastically.
As prices rose, the government printed more money to buy the same goods as before. And the cycle continued. In fact, it got so out of hand that by 2006, prices were rising by over 1,000% per year!
Zimbabweans became millionaires, but a million dollars may have only been enough to buy you one chicken during the hyperinflation crisis.
It all came crashing down in 2008 when -- given that the Zimbabwean dollar basically ceased to exist -- Mugabe was forced to legalize transactions in foreign currencies.
Hyperinflation isn’t unique to Zimbabwe. It has occurred in other countries such as Yugoslavia, China, and Germany throughout history. In future videos, we’ll take a closer look at inflation and what causes it.