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Keeping an eye on the competition

By Dave Birch posted Jul 3 2008 at 10:09 AM

[Dave Birch] The Digital Money Forum is really all about retail electronic payments, but I'm always keen to see how the competition (ie, notes and coins, cheques) are getting along. Hence it's hard not to be fascinated by what is going on in Zimbabwe. Inflation there has passed the gazillion (it's a technical term) per cent level, which is almost impossible to imagine. There's no point even trying to calculate the figures, because they are meaningless. The Zimbabwean dollar has no value whatsoever.

Comparing Old Mutual's share price in London and Harare, Josh Giersch concludes that there are now 35 billion Zimbabwean dollars to one US dollar - up from a mere 17 billion on Friday. Which would put annualized inflation, he says (I haven't checked his math) at 430,000,000,000,000,000,000,000,000,000,000,000,000%.

[From Zimbabwe Datapoints of the Day - Finance Blog - Felix Salmon - Market Movers - Portfolio.com]

This must mean that there is yet another interesting case of negative added-value here: paper is being made into banknotes that are by the end of the week worth less than the paper that was used to make them. This makes the U.S. government's own 7.7 cents per dime look like quite a bargain in comparison. Why would anyone use expensive banknote paper to make scrap paper? Well, apparently, they won't any longer, as yesterday I read that:

The Management Board of Giesecke & Devrient GmbH, Munich, today decided to cease delivering banknote paper to the Reserve Bank of Zimbabwe with immediate effect.

[From Zimbabwe deliveries stopped]

Oh dear. No more banknotes: people will have to go back to something that worked in the past, such as cowrie shells or tobacco. (Money fact of the day: tobacco notes were a currency in the colonies and the U.S. was on a tobacco standard for twice as long as it was on a gold standard!)

the crop [served] as legal tender in Virginia and Maryland for almost two hundred years

[From Chapter Two of the Ecology of Money: People-Produced Money]

I'm sure that in a few years' time that Zimbabwe, like most other developing countries, will have a mobile payment system that will begin to replace cash -- it's mobile, not cards, that will make the difference in Africa -- so the government will be able to cause inflation at the press of a button (as they do in, for example, Britain) instead of having to air freight in crates of expensive garbage. The technology will change, but I'm afraid ignorance of the basic laws of economics will remain invariant...

By the end of the third century, Rome had clearly reached a crisis. The state could no longer obtain sufficient resources even through compulsion and was forced to rely ever more heavily on debasement of the currency to raise revenue... A measure of Egyptian wheat, for example, which sold for seven to eight drachmaes in the second century now cost 120,000 drachmaes. This suggests an inflation of 15,000 percent during the third century.

[From How Excessive Government Killed Ancient Rome]

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]


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