Philip Haslam with Russell Lamberti

W H E N M O N E Y D E S T R O Y S N AT I O N S

How Hyperinflation Ruined Zimbabwe, How Ordinary People Survived, and

Warnings for Nations that Print Money
Published by the Penguin Group
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Copyright © Philip Haslam and Russell Lamberti 2014
Graphs © Philip Haslam and Russell Lamberti 2014
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ISBN: 978-0-143-53163-0
 Contents

Foreword by Leon Louw

Timeline of Zimbabwe’s hyperinflation

PART I: Money printing: the big picture

Chapter 1: Bernanke’s panic

Chapter 2: Beautiful Zimbabwe

Chapter 3: Storm warnings

Chapter 4: Global money printing

Chapter 5: Hyperinflation 101

Chapter 6: The politics of printed money

PART II: Hyperinflation: the personal experience

Chapter 7: The economics of hunger

Chapter 8: Government shutdown

Chapter 9: Strength in community

Chapter 10: The death of the Zimbabwe dollar

PART III: Global storm a’ brewing

Chapter 11: Dollar supremacy

Chapter 12: Total transaction control

Chapter 13: Get prepared

Chapter 14: Your opportunity

Endnotes
List of acronyms

List of big numbers

Disclaimer

Bibliography

Acknowledgements

More about the authors

Follow Penguin
To the millions of Zimbabweans who survived hyperinflation.
May this book do justice to the hardships you had to endure.
 PRAISE FOR WHEN MONEY DESTROYS NATIONS

‘The simplicity, clarity and great use of metaphors in this book make When
Money Destroys Nations a warning for the rest of the world. It makes me
ask: ‘Will the U.S. be next?’’
– Robert Kiyosaki, Educator, Entrepreneur, Investor and Author of Rich
Dad Poor Dad

To understand the future you must first understand the past. Haslam and
Lamberti have done a great job at documenting the Zimbabwean
hyperinflation in an easily readable manner. Even if you haven’t studied
economics or central banking, you’ll be able to understand what happens
when countries print money and why hyperinflation is coming to countries
across the world, including the US dollar.
– Jeff Berwick, founder and CEO of The Dollar Vigilante

Haslam and Lamberti have produced a fascinating, accessible account of

how Zimbabweans actually lived (and died) during the world’s second-
highest hyperinflation, one that dwarfed the German hyperinflation of
1922–23. Yes, the peak daily inflation rate in Zimbabwe in November 2008
was 98% – an economic tragedy that Haslam and Lamberti skilfully bring
to life.
– Steve H Hanke, Professor of Applied Economics at the Johns Hopkins
University in Baltimore and director of the Cato Institute’s Troubled
Currencies Project in Washington DC

An old and reliable adage states that one can learn either from experience
or by reading what others have learned from experience. Most people have
not lived through a monetary upheaval and have not experienced the
disruptions to society when a currency goes bust. So to learn from others,
When Money Destroys Nations should be on everyone’s reading list.
– James Turk, founder of GoldMoney and co-author of The Money Bubble:
What To Do Before It Pops
 We are rarely, if ever, exposed to what it is like to live through a
hyperinflation. This is because it is so economically, socially and
psychologically damaging. History records numerous runaway inflations,
including ones in Germany, France, Russia, China and in Revolutionary
America. With the spectre of hyperinflation looming in the future, When
Money Destroys Nations is a timely, accessible, and informative
contribution to prepare people for the consequences.
– Mark Thornton, Senior Fellow of the Ludwig von Mises Institute and a
Research Fellow with the Independent Institute

I always appreciate literature that brings economic concepts to non-

economists in a simple way that is fascinating to read. It is a measure of
their knowledge on both the subject of Zimbabwe and hyperinflation that
Haslam and Lamberti have been able to achieve the balance between using
anecdotal evidence through countless interviews and a deep understanding
of complex economic issues to achieve exactly that. This is a must-read for
anyone who cares about holding their civil servants to account, the
consequences of bad policies and how to prepare for the fallout.
– George Glynos, MD and Chief Economist, ETM Analytics

In When Money Destroys Nations, Haslam and Lamberti have given a vivid
account of how the Zimbabwean government’s profligate spending, financed
by central bank money printing, destroyed the living standards of people
who either survived or fled the country’s hyperinflation. Don’t repeat the
mistake of the millions of Zimbabweans who weren’t prepared for what lay
ahead. Pick up a copy of When Money Destroys Nations and learn about
the factors that led to Zimbabwe’s economic collapse, and use the
framework that Haslam and Lamberti provide to help you monitor and
understand hyperinflations. Consider implementing some of the authors’
practical suggestions on how you can protect your family from the effects of
a hyperinflationary economic collapse.
– Chris Becker, Economist and Founder of the Mises Institute South Africa
 Foreword by Leon Louw

This is a splendid book with much to offer lay readers as economists. It is a

rare example of scholarly substance combined with accessible narrative and
human interest. It explains much more than hyperinflation. Readers
experience a roller coaster ride through the ghastly horrors inflicted on
entire populations by central bankers and politicians who use money to
become diabolical oppressors. It provides disturbing insights into ominous
parallels between Zimbabwe’s hyperinflation and profligate polices that
have become increasingly trendy in supposedly responsible countries,
including the USA.
It is hard to believe that such manifest madness happens at the behest of
seemingly intelligent people.
My colleague and friend, economist Vivian Atud, read the manuscript
and said, ‘The book is an easy read for people in all walks of life.’ She was
especially taken by the observation that ‘governments have power and can
choose to manipulate monetary policy. However, they have no power or
ability to manipulate the outcomes of their policies.’
The book has touching stories of how communities rallied to support
destitute compatriots, how expatriates sent money and essential supplies to
friends and relatives, and how trade was forced back to primitive barter.
Tampons and toiletries, like much else, were scarce and used as currency
substitutes.
Zimbabwe’s hyperinflation was much more devastating than its liberation
war or the oppression from which it liberated them. The book warns, often
with Socratic and rhetorical questions, that money mischief is not easily
understood, even by supposed experts. Ingenious disinformation and
obfuscation deceives people into thinking perpetrators are rescuers. The US
government’s profligate response to their government-induced subprime
banking crisis, and the responses of Southern European governments to
their ‘sovereign debt’ crisis are prime examples.
If this book is read by all who should read it, it will promote a
substantially better-informed climate of opinion. Readers will be enriched
by an appreciation of inflation as a form of taxation at best and plunder at
worst. Hyperinflation is hyper-plunder of virtually all wealth. If more
people understand a few basics, the propensity of central banks and
governments to confiscate wealth by eroding currency values will be
constrained. The book explains why the difference between inflation and
hyperinflation is a matter of degree not principle; that the lesser of evils is
still evil.
The penultimate section presents a compelling, if contentious, thesis to
the effect that the Zimbabwe tragedy might be a portent of things to come
elsewhere. It has a critique of US dollar dominance and of dangers
emanating from exuberant confidence in the established view regarding
inflation policy. The proposition that there is a serious risk of global
hyperinflation, or at least US dollar hyperinflation, is not far-fetched. No
lesser paper than the liberal Washington Post laments similarities between
past hyperinflations and US monetary policy. It anguished about what ‘great
hyperinflation episodes … tell us about the Fed’. In the opposing
ideological corner, the leading conservative-libertarian publication, Forbes,
suggests that US hyperinflation might be ‘imminent’.
Having alerted readers to the economic crises that might lie ahead, the
book ends on a positive note with ideas on what individuals and
governments can do to avoid or ameliorate hyperinflation. Much can be
learned by readers ‘in all walks of life’, as Vivian Atud suggests, from
ordinary folk to people who influence the course of events. It is clear from
the book that every potential reader is one of the former and can be one of
the latter.

Leon Louw
Executive Director of the Free Market Foundation
14 August 2014
 Timeline of Zimbabwe’s hyperinflation

1965 Unilateral Declaration of Independence

1979 End of civil war
1980 First fully democratic elections
1980–88 Zimbabwe finds favour with international lenders. Past economic success and newfound
global acceptance mask underlying economic mismanagement, corruption and ethnic tension.
1989–96 Economic mismanagement intensifies. Bank lending rockets higher, saddling public and
private sectors with large debts. Robert Mugabe entrenches personal power.
1997 Government makes major pension commitments to war veterans. World Bank suspends its
$100 million loan facility to Zimbabwe.
Nov 14: Black Friday currency crash. Government raises taxes to cover large deficit. Large-scale
money printing begins. Annual inflation rate: 20%
1998 Sep: Mugabe sends 11 000 troops into the DRC. Widespread protests in resistance to increased
taxes. Government response is brutal but it decides to suspend the additional taxation programmes.
Numerous bank failures begin to hit the struggling economy. Annual inflation rate: 48%
1999 All external forms of funding are depleted, prompting full-scale money printing to take off in
earnest. Official exchange rate for US dollars is fixed – black market for foreign currencies takes
off. Annual inflation rate: 57%
2000 Failed referendum to change the constitution. Beginning of government land raids. Major
foreign exchange shortages spark first draconian foreign exchange controls on exporters. Annual
inflation rate: 55%
2001 Banks begin to receive daily direct cash loans from the Reserve Bank of Zimbabwe.
Widespread food riots erupt in response to soaring food prices.
First major divergence between black market and official exchange rate creates major market
distortions. Annual inflation rate: 112%
2002 Price Control blitz – closure of many stores. Shortages of goods, electricity and water. The
government’s land reform programme is accelerated after failed legal challenges. Annual inflation
rate: 199%
2003 Jun: First major money shortages. Queues at bank ATMs and periodic runs on banks, creating
a 30% premium paid on physical money vs bank deposits. Huge exodus of people from the
country.
 Dec: Gideon Gono appointed Governor of the Reserve Bank of Zimbabwe.
Annual inflation rate: 599%
2004 Mar: The Reserve Bank of Zimbabwe raises interest rates dramatically to over 5 000% in a
desperate attempt to reduce rampant inflation. The move reduces inflation sharply, but precipitates
a crash in the stock market and real estate.
Apr: Official exchange rate set equal to the black market rate for the last time. Annual inflation
rate: 133%
2005 Interest rates lowered to ‘stimulate’ the economy. Money printing continues. Official inflation
likely heavily understated.
May: Government raids and plunders informal sector traders to enforce transaction control. Annual
inflation rate: 586%
2006 May: Annual inflation officially exceeds 1 000%. All formal stores close – chronic food
shortages.
Aug: Reserve Bank drops 3 zeros from the currency in the first of three re-denominations. Fuel
coupons emerge as an alternative form of money. Annual inflation rate: 1.281%
2007 Zimbabwe enters dizzying rates of inflation.
Feb: Reserve Bank of Zimbabwe declares inflation ‘illegal’. Government printing press operating
around the clock (printing 3 million notes per day by Nov). Draconian price controls force most of
the population into the informal sector.
Annual inflation rate: 66.212%
2008 Acute hyperinflation pushes the country into economic shutdown. Mar: Mugabe sworn in to
his sixth term of office after presidential elections marred by high levels of political violence and
vote rigging. Jul: Reserve Bank drops 10 zeros off the currency. Nov: Certain companies permitted
to trade in alternative currencies – beginning of dollarisation. Annualised inflation rate: 89.7
sextillion %
2009 Feb: Reserve Bank decision to drop 12 zeros from the currency is futile as the currency ceases
to be used. Final collapse of the currency and full dollarisation. Shops fill up rapidly as formal
trade resumes despite acute foreign currency shortages.
 Part I

MONEY PRINTING: THE BIG PICTURE

Money from Heaven will be the path to Hell.
– Robert Wiedemer, Economist

Daniel’s warm eyes and greying hair contrasted with his tall, imposing frame. I
could tell instantly that this senior banker was a successful, street-smart man. He
was sitting across the table from me, explaining how clever it was for governments
of the world to print money to repay their debts, and as the conversation turned to
my plans for this book, a puzzled look came across his face.
‘A book on Zimbabwe’s hyperinflation,’ he mused. ‘Why on earth would you
write about that?’
His question surprised me. Zimbabwe, a once-prosperous nation, had been
utterly ruined in a few short years – not by war or natural disaster, but by
unrestrained money printing; the very action Daniel was advocating.
I recounted to him what had happened in Zimbabwe that led it towards its
extraordinary economic meltdown. As the government printed money to pay its
debts, prices began to soar until stores everywhere emptied and everyone became
hungry. Water supplies ran dry and electricity cut out. No one could get any fuel.
The Zimbabwean way of life was destroyed; ordinary people became destitute and
millions fled the country.
The account fascinated Daniel. As we shook hands and prepared to leave, he
paused and asked, ‘With the vast money printing programmes in developed
countries today, could any of them ever become like Zimbabwe?’

It’s a sobering question. The wealthiest countries of the world are printing money
on an unprecedented scale – the very same strategy that led Zimbabwe to a
predictable and severe economic disaster. This book examines the causes of
Zimbabwe’s economic collapse, how it impacted people practically, and what
lessons it holds for nations around the world.
 In researching Zimbabwe’s tragic story, I interviewed people from every sector
of society. I met with senior central bank officials. Business leaders imparted their
strategies. Farmers spoke about their heartache and pensioners told me their
desperate stories. I received input from people from all walks of life. Over 75
Zimbabweans shared their detailed experiences with me. Their personal stories of
hardship, resilience and ingenuity are heartbreaking and inspiring. Most have put
themselves at risk by talking to me, so I’ve changed their identities in the many
quotes throughout the book.
I then partnered with another economist, Russell Lamberti, who has provided
critical and substantial input.

In Part I, we unveil what happened in Zimbabwe, explaining why and how

debt and money printing cause economic crises.
In Part II, we show how hyperinflation practically affected people from all
walks of life, telling the dramatic and heartfelt stories of ordinary
Zimbabweans.
Finally, in Part III, we discuss how money printing threatens to destroy the
major currencies of the world and how this could affect you.

In total, from 1980 to 2009 Zimbabwe issued 82 different denominations of

currency notes. Throughout the book, we have included each note in the order that
they were issued, as visual aids to the inflation story.
Zimbabwe’s story gives us critical clues from which we have built a powerful
framework for broader application to other countries generally. Much of the
material has been developed from the numerous interviews I conducted. While the
principles established in this book are based predominantly on this particular case
study, we also draw on other such cases in history as well as on sound economic
principles. While no two episodes in economic history are ever identical, we found
very similar patterns emerging during different historical cases of hyperinflation
and these provide guidelines to assessing the threat of hyperinflation in other
countries.
This is a rich and wide-ranging theme and we recommend that you read further
on this topic. You can find a list of recommended reading and useful resources, as
well as advisory services at WhenMoneyDestroys.com.
We trust that, after this journey, you’ll never think the same way about money
and your future again.
 Chapter 1: Bernanke’s panic

What has been will be again, what has been done will be done again; there
is nothing new under the sun.
– Ecclesiastes 1:9

September 2008. Autumn. New York. It was a race against time. Panic had
spread across world markets in one of the scariest weeks in financial
history. The United States – and therefore the entire world – was on the
verge of an economic collapse that only two men could stop.
For the previous 18 months, American house prices had fallen, putting a
huge strain on banks. A few major multinational banks had collapsed. First
was Northern Rock in England, then Bear Stearns in New York, followed
by a host of others. The financial system began to bend under the strain as
52 banks across the globe either declared bankruptcy, were nationalised or
merged with other banks in emergency takeovers. Trust in the financial
system was evaporating.
Earlier in September 2008, Freddie Mac and Fannie Mae, two massive
American mortgage lenders, were brought to the brink of insolvency. The
authorities acted quickly and fully nationalised them in the hope that this
would stop the financial rot from spreading. It didn’t.
Sunday, 14 September 2008. By this point, the fourth and fifth largest
investment banks in the United States, Merrill Lynch and Lehman Brothers,
were in crisis. In an attempt to stop further insolvencies, the regulators had
been negotiating over the weekend for other banks to take them over. They
managed to force Bank of America to acquire Merrill Lynch, announcing it
in the morning papers. But they couldn’t find a buyer for Lehman Brothers,
despite desperate attempts to do so.
 United States Treasury Secretary Henry Paulson and Federal Reserve
Chairman Ben Bernanke had been working around the clock to avert
disaster – a disaster, many would later argue, made possible by the very
economic policies that Bernanke and Paulson had implemented in
preceding years. The pressure was relentless. Paulson was having sleepless
nights and the stress led to a nasty gastric condition that caused him to
throw up multiple times a day. He knew the dire consequences and later
said of the failed Lehman Brothers sale, ‘I wasn’t quite sure what to say. I
was gripped with fear. I called [my wife] and said, “Wendy, you know, I
feel that the burden of the world is on me and that I failed and it’s going to
be very bad, and I don’t know what to do, and I don’t know what to say.
Please pray for me.”’1
Monday, 15 September 2008. At 1:45 a.m., Lehman Brothers filed for
bankruptcy. The news was a dagger to the heart of financial markets. Banks
around the world were bleeding money as depositors withdrew everything
they could. The American banking and financial system was collapsing and
would potentially drag down the entire global financial system, with
dramatic consequences.
Tuesday, 16 September 2008. Market mayhem ensued. American
International Group (AIG), an enormous multinational insurer, was in dire
straits. It insured banks for certain kinds of losses, and after the collapse of
Lehman Brothers, the company didn’t have the money to pay out on its
insurance – it was broke. During the helter-skelter of financial panic, many
believed that AIG’s bankruptcy would push the markets over the edge. It
was unthinkable. Unwilling to take a chance, Ben Bernanke approved an
injection of US$85 billion of newly printed money into AIG from the
Federal Reserve.
Wednesday, 17 September 2008. Financial markets continued to unravel.
The other investment banks were cracking under the pressure. Stock market
prices plunged. Many expected another massive investment bank, Morgan
Stanley, to be the next in line in a host of bank failures.
Thursday, 18 September 2008. The break-the-glass rescue plan that
Paulson and Bernanke devised had been in discussion for nine months.
Time was of the essence, and at 4:30 p.m. New York time, the pair hastily
convened a meeting of congressional leaders. The United States
government would borrow US$700 billion from local and foreign lenders to
give in various ways as bailouts to troubled banks.
The lengthy meeting was attended by President George Bush and then
presidential hopefuls Barack Obama and John McCain. As deadlock set in,
Ben Bernanke warned, ‘If we don’t act immediately, we will not have an
economy by Monday.’ George Bush warned that ‘if money isn’t loosened
up, this sucker could go down’. Henry Paulson even got down on one knee,
begging the leaders to approve the plan.2 As the committee talked through
the night, the urgency of the situation became clear. They eventually put
aside their various political differences and agreed to the plan, which they
called the Troubled Asset Relief Program or TARP for short.
Friday, 19 September 2008. The paperwork for the TARP bailout plan
was hurriedly put together to be passed into law, and with a calm and
assured façade it was announced on CNBC at 3:01 p.m. New York time.
The plan dressed the immediate wounds of the financial system, but it
was only a hurried patch job. Stock markets continued to go haywire as
banks worldwide continued taking strain, and it was clear that the
authorities needed to come up with more money. Within a few weeks, on 26
November 2008, the United States Federal Reserve initiated a plan that
would eventually see it print a staggering US$1.7 trillion (US$1 700 000
000 000) of new money within 18 months, effectively giving it to the banks
as a bailout. The money printing plan became known as quantitative easing,
or simply QE (we discuss the detail of how quantitative easing works in the
endnotes3).
In the weeks and months to come, central banks around the world, from
Britain to China to Dubai to Japan, followed suit with their own money
printing and bank bailout schemes. By 2014, America had printed over
US$3.5 trillion since the 2008 crisis, not only to bail out the banks but also
to fund its increasingly indebted government. To illustrate how large this
number is, with the US$3.5 trillion, in 2008, the Federal Reserve could
have theoretically been able to purchase all the listed companies in the
United Kingdom, Germany and India combined!4

Is money printing really that new?

By the time of the crisis, the major economies of the world had incurred so
much debt that those in charge of economic policy were pressed into a
corner to print money on a large scale to ‘save the system’. In the relief of
avoiding a worldwide economic meltdown, few stopped to ask the question,
‘What is the long-term impact of all this money printing?’ Did the Federal
Reserve really save the global financial system, or did it merely postpone
the crisis, making the problems bigger in the process?
As the fires of the financial crisis burned in New York, these questions
were being answered 12 500 kilometres away, on the other side of the
world, in a small country in Africa. Zimbabwe’s currency, the Zimbabwe
dollar, was experiencing its final death pangs. By mid-November 2008, the
same month the United States started printing vast sums of money, annual
inflation in Zimbabwe soared to an unfathomable 89 700 000 000 000 000
000 000%. That’s 89.7 sextillion per cent! The country had reached the
culmination of its money printing excesses: hyperinflation and total
economic collapse.
The collapse had been two decades in the making. Eleven years earlier,
after nearly a decade of economic mismanagement, Zimbabwe had
experienced its own major financial crisis. In response, the desperate
Zimbabwean government chose to print money to save its economy. With
congratulatory slaps on the back, the government was sure it had liberated
the country from its debts. But as it continued to print money, Zimbabwe
descended into a deep, dark chaos. Dizzying rates of inflation totally
destroyed the once-prosperous economy.

Why study hyperinflation?

The more things change, the more they stay the same.
– French proverb
Zimbabwe’s sad story gives us clues to the consequences of money printing
and how it impacts the lives of ordinary families and communities. Some of
the Zimbabweans I interviewed had this to say:

The currency died a slow and painful death. We were all expecting the
economy to collapse in an instant – the warning signs were evident but the
‘Big Moment’ only came years later. Like the half-life deterioration of
radioactive waste, our situation became progressively worse. Each year the
situation got more dire. And every year we’d reflect, ‘This was the worst of
all possible years – surely the economy is going to improve.’ But it never
did. It just got worse.
– Farmer based in Harare, Zimbabwe

In the beginning, it started out simply with prices rising. But then came the
money shortages. Then food shortages. We lost everything we had and by
the end we were working multiple jobs but living in abject poverty. Slowly
but progressively our lifestyle evaporated away.
– Mother of two

My parents retired shortly before the collapse. They were well off
financially, having saved their whole lives, and their retirement plans stood
them in great stead. Within a matter of years, they had lost everything. They
didn’t even have enough to put food on the table.
– Zimbabwean living in South Africa

Had these people known the challenges they would face from the time the
central bank started printing money on a large scale, they could have
prepared – and they should have prepared.

What is hyperinflation and what causes it?

Hyperinflation is when prices surge uncontrollably with little respite,
destroying an economy in the process. Hyperinflation is caused by the
unrestrained creation of money to fund a government’s expenses – either by
printing new paper money or creating digital money (both of which we
refer to as ‘money printing’). Sooner or later, this leads to a collapse in
confidence in the nation’s currency. It is a tremendously personal event and
affects all people in an economy, relegating most to poverty. In Zimbabwe,
even people who understood very little about national finances came to
know what hyperinflation was.
Hyperinflation can happen anywhere. It has occurred all over the world –
in Germany, Greece and China, as well as in countries in Eastern Europe,
Africa and South America. Paper money printing technology (and later
digital money creation) has made the twentieth century the greatest inflation
period in history. While there have been significant inflation periods
throughout history, the most comprehensive study of hyperinflation to date,
conducted in 2012 by professors Steve Hanke and Nicholas Krus, reveals as
many as 56 incidences of hyperinflation, and all in the last century.5 That is
an average of more than one incident of hyperinflation every two years.
Inflation is not a new phenomenon. Ancient Rome, seventeenth century
France and eighteenth-century America all experienced terrible inflation
episodes. In each instance, hyperinflation varied in duration and ferocity,
but always left an unmistakable footprint of devastation on the nation.
Even with these global experiences of hyperinflation, money printing is
currently ‘all the rage’ among central bankers. Never before have we seen
such a readiness to print money. Japan and the United States are leading the
charge in money printing, followed closely by Britain and Europe. Not to be
outdone, the Chinese and Swiss central banks have been marching on with
their own enormous money printing programmes.
As countries around the world print money hand over clenched fist, the
signs are ominous. Zimbabwe’s experience is a blueprint and a warning to
governments and citizens alike. You can learn from its mistakes and
respond. This book shows you how.
 Chapter 2: Beautiful Zimbabwe

Why is it you can never hope to describe the emotion Africa creates? You
are lifted. Out of whatever pit, unbound from whatever tie, released from
whatever fear. You are lifted and you see it all from above.
– Francesca Marciano

I first experienced Zimbabwe in 1987 at the young age of eight. It was late
autumn when we left our home city of Johannesburg for our family
getaway. As we flew into Zimbabwe, orange and red trees flooded the
horizon under hazy blue skies.
The plane touched down and as the doors opened, a fog of dense,
subtropical heat greeted my youthful excitement. The world’s largest
waterfall, the mighty Victoria Falls, beckoned. The holiday was a blur of
adventure characterised by sunset cruises up the Zambezi River, soaked
viewings of the awe-inspiring falls and Z$1 sodas drunk out of dew-
drenched glass bottles. At that early age, I was struck by the untamed
beauty of the land and the disarming gentleness of the people.
Fast-forward 14 years to 2001. I returned to Zimbabwe, this time to
celebrate my friend’s wedding. We were having his bachelor party on the
shores of Lake Kariba in northern Zimbabwe, in a luxurious holiday house
20 metres from the water – as close to the wild as you could get. At night,
five or six wild hippos would wander up from the lake to graze on the
outside lawn. This place had ways to send a man off from bachelorhood that
Las Vegas could only dream of. During one festive evening, our friend was
sent to stalk the hippos, with the strict instruction to get as close as possible
without being attacked. Our half-naked bachelor crept to within two metres
of an unsuspecting hippo before both of them fled in terror!
 Amidst our revelries, we capitalised on what were, for us, fantastically
cheap prices. At the time, the exchange rate reflected the early stages of
currency collapse. We were poor students but still managed to afford a large
lakeside house, each with our own room and hot tub Jacuzzi en suite.
With housekeeping, meals and drinks, the trip (excluding airfares) cost us
each US$2 a day. An ice-cold soda cost us Z$20 at the lake store, a full 20
times what my family and I had paid in 1987.
While the undertones of inflation discord and political discontent were
distant rumbles to our travelling party, I couldn’t help but sense the
increasing poverty among the locals. The US$10 tip that we gave our
housekeeper would see to her and her family’s basic needs for the next few
weeks.
Six years passed before my next visit in 2007 for another wedding, this
time in the capital city Harare. A lot had changed. The blaze of
hyperinflation was roaring out of control. The dusty, potholed streets and
empty stores betrayed a nation in disintegration. Worthless money littered
the roads. Gone was the bustle of business activity. The distinctive odour of
want filled the air. A bottle of soda now cost Z$87 billion.

‘You can meet him behind the bar,’ he whispered.

I was enquiring at the post office as to where I could exchange foreign
currency shortly after I had arrived on my second wedding trip.
The skinny clerk had to come around the desk to speak in hushed tones.
‘The dealer only operates at night so you’ll have to wait. But make sure no
one is following you when you go.’
Three guarded doors later, I found the dealer sitting in a smoky room. His
glazed eyes revealed years of trial. We exchanged pleasantries, and once he
was sure I wasn’t a policeman, he pulled out a beaten black metal case
filled with packs of money.
We completed our secret trade by candlelight, and I marched, heart
pounding, with long, rapid strides to our car. I had just had my first
experience of Zimbabwe’s black market. The idea of a night in a police cell
inspired perspiration and constant checks over my shoulder – I wanted to
get out of there.
In a few short years, the entire culture had shifted from one of economic
hope to fear, suspicion and corruption. Zimbabwe was being ravaged by
unrestrained money printing.
As I boarded my departing flight two days later, I felt a strong sense of
relief to be going home. My bed that night was extra soft, and I slept in
peace and the comfort of stable prices.
In early 2013, five years after the collapse of the Zimbabwe dollar, I
returned to Zimbabwe, this time to study the personal effects of
hyperinflation. I arrived on a mission to hear from the people themselves
what had happened and how they had survived. In the many interviews I
conducted, people shared heartbreaking stories of personal suffering, and
yet they showed tremendous creativity and innovation in coping with
extreme economic stress. The scars of the nation carry stories few know
about yet everyone should hear.
The lessons learned the hard way by ordinary people in Zimbabwe –
parents, friends, teachers, employees and business leaders – are for one and
all. They paint the grim picture of what happens when governments print
money with the spectacular unreservedness that many are doing around the
world today.

The breadbasket of Africa

Prior to the hyperinflation, Zimbabwe was full of natural wealth and
economic opportunity.
The country is landlocked, bordered by four countries in the heart of
southern Africa. It is crowned with the natural beauty and wild heritage of
all things African, including a population of peaceable, well-educated and
hard-working people.
To the north lies the Zambezi River that pours over the Victoria Falls I
had visited as a child. The river, which acts as the nation’s northern border
to Zambia, rages and ebbs on its way to the Indian Ocean, but not before it
decants into one of the largest constructed lakes in the world, Lake Kariba,
venue of our bachelor celebrations.
Zimbabwe’s fertile soil is watered by great summer thundershowers and
many winding rivers. The fragrant red earth has long been the love of
Zimbabwean people.
Below the surface, the ground is rich in minerals, including diamonds,
gold, platinum, nickel, iron, silver and coal. The country is blessed with a
plethora of wildlife, and the vast nature reserves capture something unique
of the African wilderness.
This is a beautiful country.

How did Zimbabwe get to where it is today?

Zimbabwe has relatively few people groupings; it is almost entirely made
up of the Shona people of the north and east, the Ndebele people of the west
and south, and the English, who colonised it in the nineteenth century.
Today, it is difficult to find a kinder group of people anywhere across the
earth. Their richness in community became the backbone of survival during
the hyperinflation years.
As the beauty of Zimbabwe shines out, the shadow of its darker history
lies in stark contrast. Indeed, Zimbabwe is a land of contradiction. Its high
peaks are contrasted with low valleys. Peaceful communities are juxtaposed
with rogue leaders. Despair alongside hope, and faith alongside suffering. It
carries lessons – borne out of simple but costly errors – for the world.
Zimbabwe6 was occupied by Britain from the late 1880s until the 1960s.
With the independence movement sweeping across Africa during the 1960s,
many countries revolted against colonial control, and Britain was keen to
avoid a messy divorce with its Zimbabwean colony.
Independence negotiations began in the early 1960s and the British were
adamant that to receive full independence from the crown, the country had
to establish full democratic rights for all, including its black citizens. These
talks broke down with the local white-controlled political movement under
Ian Smith unhappy with giving black Zimbabweans the vote. Ultimately,
the local white movement made a Unilateral Declaration of Independence
(UDI) in 1965 and severed ties with the British.
The UDI caused international outrage, particularly in Britain, which
pushed for global sanctions against Zimbabwe until such time as the whole
population had the right to vote.
Zimbabwe developed rapidly despite the sanctions, trading with its much
larger (but internationally ostracised) neighbour, South Africa. Its
agricultural business sector exported produce to the rest of Africa, Britain
and Europe. The country developed sophisticated infrastructure, including
large hydroelectric dams, municipal water systems, roads and hospitals.
Local farms flourished as commercial farmers developed expertise in
tobacco, cotton, timber and most of the major grains. Zimbabwe became
known as the breadbasket of Africa as the level of production far
outstripped the needs of its population. Booming agriculture helped develop
complementary industries such as textiles, fertiliser and transport. Its
banking sector developed during this time in line with Western banking
standards, becoming based on a reserve banking model with fractional
reserve lending by commercial banks. Zimbabwe’s level of development
during this period was remarkable given the sanctions imposed upon it by
the rest of the world.
The UDI came with a dark side. Not only had it denied access to the vote
for most of the population, but it increasingly oppressed political parties
representing black people who were agitating for change. Eventually, the
political conflict descended into a long and costly civil war.
After 15 years of brutal combat, the parties moved to form a truce. By
1980, a conference chartering the terms for peace convened in London. The
parties agreed on terms that led to the first universal elections in the
country. The new president, Robert Mugabe, responded with reconciliation
and forgiveness towards his white predecessors. The elections were
acclaimed as faultless, and Zimbabwe became the darling of the
international community.
But while the world was singing Zimbabwe’s praises, beneath the surface
the Mugabe administration began to make unwise economic decisions and,
slowly but surely, centralised power around itself and its leader. Specialist
military units were developed and became politicised. Cracks in national
unity began to show.
This newfound power gave the state increased hunger for spending
money, and the state’s consumption habit grew, corroding Zimbabwe’s
dynamism. This was the start of a dangerous economic disease that
ultimately devastated the Zimbabwe dollar and collapsed the economy.

Beautiful Zimbabwe in a nugget

Prior to its economic collapse, Zimbabwe was loaded with potential. It had
abundant infrastructure and trade was booming. Known as the breadbasket
of Africa because of its massive agricultural industry, it brimmed with
possibility and opportunity. And yet increasing control by the government,
militarisation and unbridled state consumption created a political and
economic infection that would lead to the ultimate death of the currency
and the collapse of the economy.
 Chapter 3: Storm warnings

There has never occurred a hyperinflation in history which was not caused
by a huge budget deficit of the state.
– Professor Peter Bernholz, hyperinflation economist

When national debts have once been accumulated to a certain degree, there
is scarce, I believe, a single instance of their having been fairly and
completely paid. The liberation of the public revenue, if it has ever been
brought about at all, has always been brought about by a bankruptcy …
frequently by a pretended payment.
– Adam Smith, The Wealth of Nations

The build-up of a storm

We crossed Zimbabwe’s border at dawn. The first beams of sunlight had
begun to warm the African horizon, illuminating the unfolding landscape. It
was my second trip to Zimbabwe, and the three of us, plus mountains of
wedding luggage, were squeezed into an old Toyota Camry.
‘I’m glad we have air con,’ my brother sighed as the summer sun baked
the meandering tar highway.
The drive was long but beautiful. Random wooded hills punctuated the
green landscape, and white cotton clouds dotted the sky. As our day
progressed, the rolling hills flowed by as a blur of grassland and wilderness.
At each stop, loud crickets sang their shrill greetings. We were in Africa for
sure.
The day progressed with the sky growing ominously darker. The clouds
had grown from their small white wisps into an imposing weather system.
A large storm was developing ahead.
 The first giant raindrop bulleted onto our windscreen; then came the
barrage. The assault was so fierce we had to pull over as the sky emptied its
arsenal of rain and hail over our hapless Camry. The storm crashed and
boomed its battle symphony. Violent. Terrifying. Majestic. And over within
an hour.
Throughout the day, we had noticed the telltale signs of the coming
storm. First, the billowing black clouds, brightened by the occasional flash
on the horizon, then the deep rumblings of thunder, followed by gusty
winds rustling the leaves. If you’re attuned to it, an electric scent hangs in
the air just before a storm. And if you don’t find shelter quickly, you’ll be
caught in the torrent.
Just like the great storms of Africa, hyperinflation builds up with telltale
signs, with a final deluge of paper notes and prices soaring out of control.

How did Zimbabwe go from ‘normal’ to ‘hyperinflationary’?

What went wrong in this land of endless potential? Can we learn from the
precursors to the Zimbabwe crisis? Are there principles that apply to other
countries of similar great potential? What are the signs to look for, and can
we see storm clouds on the horizon?
The answers to these questions are both simple and complex. Yes, we
absolutely can learn from the precursors to the Zimbabwean crisis.
Hyperinflation isn’t something that just happens. You don’t wake up one
morning to find that your country slipped into it overnight. It gathers
momentum and builds over time, with key warning signs.
In another sense, we must always remain humble in our predictive
abilities. Hyperinflation is never a neat, high-precision event. It is a chaotic
process. It is a fundamentally complex socio-economic phenomenon. Some
hyperinflations are worse than others. Some political leaders make the right
choices in the tough times and others do not. Some hyperinflations build
quickly and others slowly. Yet, as complex as these events may be, it would
be foolish to ignore the warnings. There are common precursors to
hyperinflation – warnings of an impending storm.
 Typically, government spending increases to a point where it is a
significant component of an economy. It runs up large debts over a
prolonged period and increasingly uses money printing as a source of
funding. If debts keep mounting and are not paid off, a time comes when
lenders lose confidence in the ability of the government to repay, and
withdraw their financial support, resulting in financial panic and loss of
value of the currency. At this stage, the government runs out of debt-
funding alternatives, and the weaker currency causes the cost of imports to
rise. The government then makes the political decision to use money
printing as its primary form of financing after exploring all tax options
available to it. This pushes the country down an inflation path that cascades
into hyperinflation.7
Two leading Harvard professors of economics and advisors to the
International Monetary Fund (IMF), Kenneth Rogoff and Carmen Reinhart,
have done extensive analysis of government debt after financial crises.8
They show that government debt typically spirals out of control after a
major financial crisis. At some stage, these increased debts cause a
government debt panic, leading to a subsequent currency crisis.
Zimbabwe’s episode certainly supports these findings. A financial crisis led
the country down a debt spiral that culminated in the ultimate currency
crisis: hyperinflation.
In analysing Zimbabwe, we’ve divided these precursors into three
specific categories: (1) Running Up Debts, (2) Financial Panic, and (3) the
Political Decision to Print Money.

1. Running up debts
Behind a glossy veneer, Robert Mugabe’s government was making poor
policy decisions from the early 1980s, decisions that would allow the storm
clouds to build large and dark by the late 1990s. Government’s spending
and indebtedness rose steadily. It made pension promises that the country
couldn’t afford, got involved in a costly war, and developed an unhealthy
addiction to offshore loans.
 1.1 False promises: large pensions and social security
Robert Mugabe’s government came to power on the back of a liberation
struggle. After the civil war ended in December 1979, rehabilitation of the
war veterans became a primary political concern. Few of these veterans had
any skills that could be gainfully employed. The government established a
social security scheme called the War Veteran Compensation Fund to
provide disability payouts to war veterans. Over the years, the fund was
depleted by corrupt government officials, and by 1996 the kitty had run dry.
With no further compensation, the war veterans movement began
organised marches to petition for additional payouts, increasing in intensity
and strength through the first six months of 1997. They were a nuisance
pressure group to the ruling party. Mugabe responded by approving a new
monthly pension plan for all war veterans that equated to around double the
average monthly salary of a civil servant in Zimbabwe at the time.
With the cost of living rising, other groups began to ask, ‘What about
us?’ Social security obligations were firmly on the political agenda,
becoming a primary source of excessive state spending.
These obligations hadn’t been planned for and they particularly alarmed
the country’s foreign lenders who were concerned with how these social
security plans would be funded.

1.2 Military misadventures: costly war in the Democratic Republic of

Congo
In addition to these pension expenses, in 1998 Robert Mugabe sent 11 000
troops into the Democratic Republic of Congo (DRC) on a peacekeeping
mission to support the leader at the time, Laurent Kabila. The DRC was
facing civil war as rebel forces had destabilised the country.
As Mugabe was to find out, wars are costly excursions. The war
expenses added another burden to the already floundering public finances
and only increased the concerns of the international investment community,
who feared that they would lose their money.

1.3 Debt sweat: pressure from lenders

After the country gained its independence, the international community
welcomed Zimbabwe into its fold with open arms. Zimbabwe had an almost
perfect credit record internationally because of its strong farming and
mining sectors, and the IMF and the World Bank began to lend heavily to
the country, arm-wrestling the government into making various structural
economic reforms. These structural reforms served to bolster the already
sophisticated banking system that had been developed in Zimbabwe.
Based on normal fractional reserve bank lending, the government and the
banks started to increase the supply of money in the economy at a much
more rapid rate. From 1990, the money supply (known in economic circles
as M1) nearly tripled in four years, and by 1997 it had almost tripled again.
In 1997, the World Bank was in the process of arranging a US$100
million loan facility for Zimbabwe when it heard the news of the huge
pension expense about to be incurred. Within a month of the pension being
declared, the World Bank withdrew its facility pending further details on
how these pensions would be funded and how the proceeds from its loans
would be spent. It had become concerned by the increased spending and lax
attitude towards debt and money printing. In response, Mugabe’s
government stopped making debt repayments – an effective default – to the
World Bank and suspended the economic reform initiatives it had started.

2. Financial panic

2.1 Market crash: Black Friday

The breakdown in the relationship with Zimbabwe’s funders was the
forerunner of a market collapse. Brewing investor distrust boiled to panic
point, and on Friday, 14 November 1997, the Zimbabwe dollar plummeted,
losing 75% of its value in one day. That day, known as Black Friday, was a
definitive turning point. Years of complacent mismanagement found
expression in one panic-stricken moment. The day triggered a continued fall
in the value of the currency and the Zimbabwe dollar was never to recover.
Black Friday was economically catastrophic. One woman who owned an
import business in Zimbabwe at the time said this:
 I remember the crash like it was yesterday – it was a Friday
morning in the middle of spring. I was sitting at my desk drinking
my third cup of coffee when our purchasing manager rushed
through to tell me the news. I was in meetings for the rest of the
day and he came through five or six times to give updates on how
far the currency value had fallen.
We ran a small business in printing and we imported all our
branding and technology to sell locally. Our input costs were
based in US dollars and the crash practically destroyed our
business. The exchange rate kept on getting worse and worse.
From then on, everything changed. We eventually had to close up
shop.
With the spectacular drop in the value of the Zimbabwe dollar, the cost of
the country’s imports soared overnight, which required much more foreign
currency, already scarce with the international loans being withdrawn. The
currency continued to plummet.
It wasn’t the only market crash. The country would have many
subsequent crashes as it spun down its debt and money printing vortex. In
2000, the economy experienced a major contraction from a land
confiscation and redistribution project. In 2003, it had a major banking
crisis. Crisis after crisis followed as money printing escalated.

2.2 Debt spiral: maxing out the national credit card

Black Friday exposed a harsh reality: the emperor had no clothes. Lenders
could now see how exposed Zimbabwe really was, facing the threat of
bankruptcy.
With the currency falling in value and import costs rising rapidly, the
government had to find an extra 55% in its 1998 budget or be forced to cut
spending dramatically. Mugabe responded by raising taxes but came against
strong resistance as food riots erupted in the major towns.
The government’s reaction to the riots was brutal – 10 people were killed,
and hundreds were assaulted and arrested.9 Wanting to avoid further
confrontation, the government removed the additional taxes. Increasing
taxes was no longer a viable political option for funding public expenses.
By 1999, the government’s financial mismanagement was plainly
evident. All foreign donor organisations had suspended aid to Zimbabwe.
Assistance and funding in any form of foreign exchange had largely dried
up. Soaring government debt and trade deficits only damaged confidence in
Zimbabwe further, and the currency continued to weaken. Trying to keep
pace with rising costs, the government exhausted every avenue to fund its
expenditures as debt spiralled out of control. In particular, the cost of
importing critical goods such as fuel into the economy became
astronomically expensive.
Graph 1 shows how Zimbabwe’s government debt burden rose
considerably in the years preceding Black Friday and then accelerated after
the crisis.
Given the extent of inflation, we have put the graph in a log-scale. At
each point where the graph crosses a horizontal line, the total government
debt increased tenfold.

3. The political decision to print money

In many senses, yes it was the Reserve Bank of Zimbabwe that caused the
hyperinflation. But it didn’t have any option. It was driven by the
government’s wishes. Monetary policy was driven by political policy.
– Reserve Bank of Zimbabwe employee
 Graph 1: Zimbabwe general government debt 1990–2007, Z$ billions (log-scale)
Source: International Monetary Fund, St Louis Federal Reserve Bank, Philip Haslam & Russell
Lamberti

3.1 Choosing to print money

Government finances were floundering. The options available to Mugabe’s
government had expired. The financial malaise was wrecking the economy,
and tax revenues were dwindling. The desperate government could respond
in one of two ways. Either it could reduce its expenses dramatically by
closing down many government services and laying off state employees, or
it could print the Zimbabwe dollars it needed.
Prior to 1997, the normal restraints for printing money embedded in the
Reserve Bank’s operating procedures had begun to erode. When the value
of the currency crashed on Black Friday, the Reserve Bank, compelled by
the government, completely discarded any residual money printing
discipline.
This second option – to print money – had comparatively little immediate
negative effects and was by far the most politically convenient. And yet, as
the country would later experience, the eventual effects were far more
destructive.
 After 1997, and especially after 2000, the amount of money printing went
into orbit, rising exponentially as the malaise of hyperinflation took ever
greater hold.
Graph 2 shows the extent of money printing in Zimbabwe. It is in log-
scale: every time the graph crosses a horizontal line, the amount of money
in the economy increased tenfold.

Graph 2: Reserve Bank of Zimbabwe Money Printing 1990–2007, Monetary Base, Z$ billions
(log-scale)
Source: International Monetary Fund, St Louis Federal Reserve Bank, Philip Haslam & Russell
Lamberti

The political decision to print money wasn’t only directed at funding the
government; banks also needed newly printed notes to stay afloat. Banks
had lent out a lot more money relative to what they had on hand. They were
very exposed to a bank run (when depositors lose confidence in the security
of their deposits and all try to withdraw their money en masse). Since the
banks held only a fraction of the actual money relative to the amount of
money that reflected on their books, the banks didn’t have enough money to
repay depositors. The central bank had to give these banks newly printed
money to bail them out.
 Initially, as banks received bailouts with newly printed money, they
hoarded it to restore their financial health. This meant it could take quite
some time for newly printed money to find its way into the broader
economy, delaying its inflation effects.
Later on, however, as inflation began to increase, banks realised that the
value of their money holdings was decreasing. They began to spend it on
things that would hold value. The money that was originally printed and
given to the banks now began to enter the economy, causing a much greater
rise in inflation.

3.2 Increased government control

With the rising tide of new money coming into the economy and inflation
beginning to escalate, people began to ask whether it was worthwhile to use
Zimbabwe dollars in trade. They produced real goods and services out of
their time, labour and resources, but were being paid in money that had
been created out of nothing.
The state therefore had to enforce more radical and restrictive legal
tender laws in order to keep the population using the newly printed money
in everyday trade. And in order to stop the inflation effects of money
printing, the state turned to price controls. Inevitably, since prices and
money affect all aspects of an economy, the state bounded down the path of
totalitarian control, forcing people to use the currency and then further
forcing the population to keep prices low.

3.3 Raid and plunder

As the authorities became financially desperate, they began violating
private property rights by plundering the nation’s assets. It became illegal
for anyone to hold foreign currency. Exporters, who were managing to do
quite well at this stage of the crisis, had to bring all their foreign currency
home and deposit it with the Reserve Bank of Zimbabwe at unfavourable
rates. Then the Reserve Bank, at the government’s behest, raided bank
balances by instituting withdrawal limits that severely restricted people’s
access to money.
 Finally, the government turned to Zimbabwe’s most crucial and
politically sensitive resource: land.

The war veterans invaded the property, locking the farmer and his family in
the bathroom for about two days. We had to negotiate for many hours and
finally the veterans let the family go – but only after a lot of flattery from my
side and free alcohol. That family lost their farm but luckily came away
with their lives.
– Former head of a Zimbabwean NGO

Land ownership was and still is a highly contentious issue in Zimbabwe.

Post-colonial societies grapple with the lingering problem of land justice,
and by the turn of the twenty-first century, the land question in Zimbabwe
took on a political life of its own. The government began expropriating
farmland, allowing war veterans to invade farms as the judiciary largely
turned a blind eye. The major part of the productive base of the economy
was rendered defunct.

Land politics
The land raids were as much politically motivated as they were
economically driven. In 2000, the government issued a new constitution,
which had to be approved by a national referendum. When the general
consensus on certain issues went against what President Mugabe wanted, he
rejected the consultation process outright, rewriting the constitution to
include his key points – most notably a life president term for himself.
As time came for the referendum, the opposition political party worked
closely with the farming community and its tens of thousands of farm
workers. This coalition succeeded in a no vote against the new constitution.
The coalition of the opposition party and farming community was
becoming a powerful political bloc. Humiliated by his first electoral defeat,
Mugabe reacted strongly, announcing an acceleration of land reform. Days
after the referendum, the war veterans began a string of violent farm
invasions, and by the middle of that year the government announced plans
for 2 455 farms to be claimed, resettling 150 000 farm families.10
The process quickly descended into a brutal and frenzied land grab with
most farms being distributed to politically connected officials. Large mobs
entered farms by force, kicking farmers off their properties. Almost without
exception, the farms were stripped of all assets that could be sold.
The process effectively destroyed the opposition’s political networks, but
the economic effects were far more devastating. Zimbabwe’s agricultural
and mining export industries shrivelled away. Farms stopped supplying
local markets with food, and a food supply crisis erupted. Those who took
over the land had little farming expertise, and the land largely reverted to
bare earth and bushveld.
The industries on the agricultural and mining supply chain closed down.
These once highly productive industries became a whisper of their former
selves.
Farmers who had bank loans simply couldn’t repay after their land was
taken, so banks stopped accepting land title deeds as collateral, which
significantly reduced people’s ability to access finance. These defaults on
farm loans shook the banking sector to its core. The land reform process
wrecked lending markets, making it far more difficult for other non-farm
businesses to borrow money. The entire financial sector contracted as
private property rights were stripped away from citizens by their
government.
Faced with the threat of imminent economic collapse, the government
made a short-sighted decision. It turned fully to the only option it had left –
printing money to fund all of its expenditures exclusively, leading to the
destruction of the currency and the entire economy.
The government’s land policies – and the associated collapse of industry
– significantly exacerbated the effects of hyperinflation. Other episodes of
hyperinflation in other countries have had less severe effects. The extent to
which a government will go to maintain expenditures by money printing
and thieving private property directly affects the severity of the crisis.
 Timing
The economic storm had been building for two decades and began
intensifying after Black Friday in 1997. But the torrents of extreme
hyperinflation were only seen about a decade later, culminating in the
ultimate deluge of rising prices, economic destruction and the beginning of
dollarisation11 in November 2008. Money printing took time to work its
way through the economy with a delayed inflation effect. The rates of
money printing grew significantly from 1988 but ballooned after the Black
Friday of 1997. The growth in inflation was small at first, but eventually
accelerated when people lost confidence in the currency. Following Black
Friday, it took 11 years for the currency finally to collapse.
Annual inflation figures for consumer goods in Zimbabwe were
staggering, as shown in Table 1:
 Table 1: Annual inflation figures
Source: Hanke, Steve and Kwok, Alex. ‘On the Measurement of Zimbabwe’s Hyperinflation’, Cato
Journal, Vol. 29, No. 2. Washington DC: Cato Institute, 2009

Storm warnings in a nugget

Along the way, the hyperinflationary storm had numerous warning signs
that many ignored. The Zimbabwean government lived beyond its means
for years, spending more than it could really afford on government
programmes, including war and social security. After the Black Friday
crash, international lenders pulled back their loans, pushing the country into
a debt spiral and multiple market crashes.
The government responded by printing money to fund its expenditures,
which it did in ever greater amounts. Simultaneously, it had to increase
control over the population and ended up plundering the nation’s assets.
While this money printing started off as a temporary crisis measure, the
authorities found it harder and harder to stop. Money printing gathered
momentum and fuelled an inflation frenzy, which poured down economic
ruin upon millions of ordinary people. It ultimately led to the Zimbabwe
dollar being abandoned as a currency beginning at the end of 2008 – 11
years after Black Friday in 1997.
Zimbabwe’s experience is not entirely unique. The path it pursued to
hyperinflation has been well trodden by other nations.

Think about it
1. How much debt is your own government in? Can it repay this debt without printing money?
2. If your government wanted to take your land and assets, what would you do?
 Chapter 4: Global money printing

It is against this background that Government stepped in to save the

situation through various interventions by the Reserve Bank of Zimbabwe
…
These interventions, which were exactly in the mould of bail out packages
and quantitative easing measures currently instituted in the United States
and the EU, were geared at evoking a positive supply response and arrest
further economic decline …
Despite numerous intervention measures undertaken by Government
through the Reserve Bank of Zimbabwe, economic activity continued to
decline progressively with inflation peaking at 231 million per cent by July
2008.
– Gideon Gono, Governor of the Reserve Bank of Zimbabwe12

We had just finished a long interview, and Sarah, a stylish young woman in
her mid-twenties, paused for reflection. Her distant gaze was a mixture of
colonial charm and reflective nostalgia. And as she reached for her glass, I
could tell she was going to make a poignant statement:
You know, at school we studied the German hyperinflation of the
1920s. I remember thinking at the time: What a bizarre situation –
who could possibly live like that? … I would never have
imagined that within a few short years we would be living life
exactly as the Germans did, replete with wheelbarrows of money
and empty stores. How wrong I was.
Yes, how wrong she was! She had come to take for granted the basic things
in life.
 I, too, studied the German hyperinflation in my high school history class.
For the schoolboy me, the story had a macabre surrealism about it. The
footage was black and white and seemed to be on constant fast-forward.
How on earth could a society get to the stage where people had to carry
money packed in a wheelbarrow just to pay for a loaf of bread?
As I studied the Zimbabwean hyperinflation, the German hyperinflation
of the 1920s began to make more sense. The precursors to Zimbabwe’s
hyperinflation were uncannily similar to those of Germany.
From well before the twentieth century, Germany was an industrial force
and had pivotal economic influence throughout Europe. But by the end of
1923, its money was worthless and the majority of its manufacturing base
had shut down – impoverishing the nation and ultimately leading to the rise
of Adolf Hitler’s extreme fascism. The years between 1921 and 1923 are
regarded as the years of acute hyperinflation, but Germany’s economic
storm had actually begun years before. Like Zimbabwe, Germany was
saddled with large debts, leading to a financial panic that pushed the
country down a debt spiral and finally to the political decision to print
money, control the population and violate land rights.
In late July 1914, Germany became involved in the biggest war the world
had known. The war was to prove exceptionally expensive and wasteful,
catapulting Germany into significant debt. The German government
responded by suspending all redemptions of gold for its currency, the mark,
and began to print money on a large scale. The war crippled the country’s
productive base and forced it to run large trade and fiscal deficits to
maintain consumption levels and meet social security obligations.
In 1918, after the war, the Allied forces met in Versailles to impose
onerous penalties on Germany for its part in the conflict, burdening it with
even more financial obligations for its ailing economy. Compounding the
harsh terms, Germany was forced to surrender much of its productive land
to neighbouring countries.
Impoverished and disempowered, the German government made the
political decision to print money to pay its debts and fund expenditures,
which finally pushed the country into hyperinflation and the collapse of its
currency at the end of 1923.
In total, nine years passed from the start of the war to the final collapse of
the German mark.

Do these principles still apply today?

The only thing we learn from history is that we learn nothing from history.
– Friedrich Hegel

There are alarming similarities between the precursors to the Zimbabwean

and German hyperinflations and present global trends. Governments of
highly developed countries have in recent years turned to money printing to
solve their financial problems.
The precursors of Zimbabwe’s hyperinflation have many fascinating
parallels to what we see happening in present-day United States, Britain, the
Eurozone and Japan.

1. Running up debts

1.1 False promises: large pensions and social security

In the United States, the government has legal obligations to pay social
security, medical costs and pensions for retirees. The total amount allocated
in the US 2014 budget for general healthcare, Medicare, Income Security,
and Social Security was $2.4 trillion. In other words, social security
spending consists of over half of the total federal government's annual
expenses. The number of welfare recipients grows by nearly 5 000 people
every day, and this is accelerating as the baby boomer generation begins to
retire.13
In 1950, there were about 10 taxpaying employees for every person
receiving some form of social security benefit in America. By 2013, that
number had reduced to just 1.5 taxpayers for every social security
recipient.14
 Although estimates vary, the total social security liability in the United
States is estimated to be at least $100 trillion, and some estimates have it at
as much as $220 trillion. This means if every family in America had to fund
it, they would each have to pay between $1 million and $2.5 million after
tax out of their own pockets!
The government presently has insufficient assets to pay pensioners –
these pension obligations are known as unfunded liabilities. Monthly
contributions of the existing workforce are used to pay out existing
pensions, but there just isn’t enough coming in to cover the fast-growing
pension liabilities indefinitely. Social security is on a fundamentally
unsustainable path and these public pension funds are careering headlong
towards a cliff, where they will be unable to pay out pensions.
Japan, Europe and Britain have the same kind of problems, with their
ageing populations – who are living longer than ever before – placing
unsustainably large demands on their young, productive populations. This
adds up to a significant and rising annual expense, eating into resources
needed elsewhere in their economies. Compared to the size of their
populations, pension and social security obligations are similar in the
Eurozone, Britain, Japan and the US.
The many millions who receive pensions and social security grants
represent a large voting bloc with a powerful vested interest in their very
livelihood. There is growing pressure on politicians to appease this bloc by
making sure the benefits keep flowing at all costs.
Relatively, the small pension that Zimbabwe paid out doesn’t even come
close in comparison to the massive social security obligations in these
major economies.

1.2 Military misadventures

The major North Atlantic Treaty Organisation (NATO) allies (including
most of the Eurozone, the United Kingdom and America) have been
involved in an extensive and costly campaign rather vaguely labelled the
War on Terror. US military expenditures in particular are sky-high and
rising. The United States government currently spends about 30% of tax
revenues, or over $800 billion, every year on running their military
machine. That’s double what it spent annually at the turn of the twenty-first
century and has an equivalent cost to every American family of about $8
000, every year. America certainly has its fair share of war veteran pension
and social security benefits – each year it pays out over $150 billion to war
veterans.
Britain, the Eurozone and Japan all have large military budgets, but they
pale in comparison to America’s, which alone accounts for just under half
of the world’s total military expenditures.

1.3 Debt sweat: pressure from lenders

The regions with the four major international currencies (United States
dollar, euro, British pound and Japanese yen) are all deeply indebted.
Governments and private households have been living beyond their means
for decades.
Excluding welfare obligations, the combined debt of the United States
government and its household sector at the end of 2013 was approximately
US$30 trillion.15 The United States government in particular is heavily
reliant on foreign sources of funding. As the Mugabe regime discovered, an
addiction to foreign funding is dangerous when foreigners become reluctant
to carry on lending.
Here is a summary of government and household debt in the major
economies at the start of 2014:16

Table 2: Debt of the major economies compared to tax revenues

Source: The Economist, Datastream, Federal Reserve, Bloomberg, EuroStat, Statistics Japan, Office
 of National Statistics (ONS), OECD

The culture of debt has spread far beyond the halls of government. The
United States as a whole, including the government and the private sector,
currently imports about US$500 billion more than it exports every year.17
This means that annually, an American family of four consumes, on
average, nearly US$8 000 worth of goods from the rest of the world more
than it produces for the rest of the world, adding to a growing debt that
must be repaid at some stage in some way. America must either begin to
consume less and pay what it owes, or face a moment when the rest of the
world stops funding its consumption. Most of Europe has similar problems.
Even Japan, which used to be a consistent net exporter to the rest of the
world, has become a net importer of goods and services.
To put the above numbers into context, if every American tax dollar each
year was diverted away from all government departments and only used to
build up a fund to cover unfunded liabilities and repay the national
government debt, it would take about three decades to repay – and that’s
assuming that all other government expenditure stopped immediately and
the government completely shuts down!
Debts have been rising, placing increasing power in the hands of
international lenders. Germany, as the main lender to Europe, has
tremendous political authority in the region purely because of its lending
strength. Likewise, China and other global lenders such as Middle East oil
producers have grown in their financial authority on a global scale as they
become primary lenders to the developed economies.
At the same time, within five years after the 2008 financial crisis, the
United States Federal Reserve doubled its money supply.
The lessons from Zimbabwe are clear. Zimbabwe’s government
consumed too much and became highly indebted, complacent and over-
reliant on foreign funders, while at the same time increasing its money
supply in the economy. The government developed an unsustainable
spending habit and when the funding suddenly dried up, it was left with two
options: either take the hard road and live within its means or bumble down
a potholed inflation road leading to destruction.
The major developed economies of the world today face just such
challenges. They are living in the debt sweat, and some, like Greece, Italy,
Spain and Portugal, have come to the brink of outright default. The rising
debt of the major countries supports the Rogoff-Reinhart findings we
mentioned in Chapter 3. A worldwide government debt and currency crisis
remains one of the largest of all global economic risks.

2. Financial Crisis

2.1 Black Friday event

It’s no longer in China’s favour to accumulate foreign-exchange reserves …

– Yi Gang, deputy governor of the Chinese central bank, highlighting
China’s reluctance to continue lending to America, November 201318

Although the specific details differ, financial crises always have the same
complexion – debts build up unsustainably through reckless borrowing and
lending until eventually borrowers can’t repay, causing a loss of confidence
in the banking system, a collapse of lending, and a sharp decline in
economic activity.
The banking crisis of 2008 was colossal and international in its reach,
tearing through financial systems from Iceland to Dubai and Japan to
Ireland. Banks, particularly in the major economies, had lent recklessly to
governments, companies, and households. One major area of reckless
lending was mortgage lending. When people couldn’t repay their home
loans, banks started to get into financial trouble. Trust within the global
banking system evaporated, culminating in financial market panic in late
2008 and a prolonged economic slump known as the Great Recession.
To try restore stability and confidence back to the financial system, the
major central banks of the world began printing money on a large scale to
bail out the commerical banks and indebted governments.
 In Zimbabwe, major international lenders, who had lent recklessly to the
Zimbabwean government for many years, suddenly stopped lending as they
realised Zimbabwe would be unable to repay. On Black Friday – 14
November 1997 – the value of Zimbabwe’s currency crashed as confidence
in the government and the economy plummeted. The banking system began
to seize up, banks became fearful to lend, and economic activity plunged.
With the government going broke and the banks in major trouble,
Zimbabwe’s central bank began printing money on a large scale to bail
them out.
For all the money the world’s major economies have printed to date since
the 2008 financial crisis, it hasn’t yet been enough to spark a wholesale loss
of confidence in currencies or runaway hyperinflation. Furthermore, it
would be naïve to underestimate the ability of policy makers with enormous
vested interests to delay the day of reckoning for their precarious fiscal
situation. Yet the 2008 financial crisis has started a trend of money printing
and debt spending, the extent of which is likely to lead at some stage to
another major financial crisis and loss of confidence in currencies. America
and the major economies are yet to have their true Black Friday moment,
where lenders permanently withdraw financial support..19
McKinsey & Company estimate that the world economy – governments,
households, and companies – went a further $57 trillion into debt between
2007 and 2014, with total global debts exceeding $200 trillion, and
counting. Governments alone account for nearly half of this increase.20 A
large proportion of this new debt comes from newly printed money lent out
by central banks and commercial banks. In other words, instead of
reforming the financial and economic system to avoid the mistakes of the
past, the major economies of the world have tried to fix their debt problems
with even more debt, making the global financial system arguably even
more fragile.
It is certain that, if governments continue to pile up debts recklessly and
to devalue their currency by printing money, a day of debt reckoning must
come.
 2.2 Debt spiral
While the ultimate Black Friday moment has not happened yet in the
world’s major economies, the 2008 financial crisis has been a catalyst to
push most developed countries into a slippery government spending and
debt spiral. American government debt has grown by a teeth-clattering $8
trillion, up over 80% in the seven years since the crisis – equivalent to an
additional $67 000 of debt for every American family, and rising. By the
end of its terms, the Obama administration will have borrowed more money
in eight years than all administrations from Lyndon B Johnson to George W
Bush combined,21 and the same pattern is playing out in the other major
economies. Pension debts continue to rise and war expenditures remain. In
Europe, Britain and Japan, the government debt levels also continue to soar.
With the massive amount of debt that the United States and other
developed economies have accumulated, they will either have to default,
print money or increase taxes significantly to repay debts. Most likely they
will choose some combination of all three.
The debt spiral has begun. Graph 3 shows how debt burdens in the major
industrialised economies have relatively accelerated after the global
financial crisis.
Chart 3 shows comparative growth rates of debt in each of the
economies. However, the absolute debt figures vary in each economy. Since
2007, the UK and United States have become much more profligate – the
United States government almost doubled its debt in the time period to
2014, and the UK government increased its debt by almost 2.5 times.
 Chart 3: General Government Debt Major indebted economies, 1995–2013 (base 100 in 2007)
Source: International Monetary Fund, St Louis Federal Reserve Bank, Philip Haslam & Russell
Lamberti

3. The political decision

3.1 Money printing

America’s response to the financial crisis has been to print money on a large
scale via its quantitative easing programmes. Other major economies have
done likewise. In 2013, the Federal Reserve printed just over US$1 trillion
to bail out the banks and the United States government, 40% of all the
money it had printed in the previous 100 years.22
Chart 4 illustrates that Zimbabwe’s money printing programme was
larger than America’s, comparatively. However, there is definitely a
significant upward trend in United States money printing.
For Japan, an economy less than half the size of the US, the scale of
money printing in 2013, relatively, was more than double the size of that of
the US! By 2015, the rate of Japanese money printing had escalated 60% to
¥80 trillion created every year in order to repay its government debts.
 From 2008 to early 2015, the Bank of England printed about £310
billion, the same amount of money printing as America relative to the size
of Britain’s economy. The European Central Bank had been relatively
conservative, printing about €1 trillion over the same period. This has been
about 60% as large as America’s money printing programme relative to the
size of Eurozone GDP. However, in January 2015, the European Central
Bank became more aggressive in its plans, announcing that it would begin
printing about €60 billion every month to bail out indebted governments
and banks.
From September 2008 to early 2015 these four major central banks
combined printed a staggering almost US$7 trillion, and counting. This
would be roughly enough to purchase all the listed companies in Brazil,
Russia, India and China.
In the five years from 2008 to the end of 2013, the Federal Reserve
increased the money supply by 4.5 times, printing US$350 for every
US$100 it had printed in the previous 100 years, indirectly lending that
newly printed money to government and banks.

Chart 4: Central Bank Assets/Monetary Base United States 2003–2013 & Zimbabwe 1985–
1995 (log-scale)
 Source: International Monetary Fund, St Louis Federal Reserve Bank, Philip Haslam & Russell
Lamberti

Each of the major four currency blocs has been significantly increasing its
money supply. The effects of this money printing may not be clearly seen in
official measures of consumer prices yet, but it is certainly causing price
inflation. House prices and stock market prices in particular rose
considerably from 2012 to 2015, giving rise to concerns about new
financial bubbles. At the same time, as much money as these countries have
already printed, the large size of their economies and currency systems
means that money printing hasn’t yet sparked runaway inflation of the sort
that would be associated with hyperinflation. However, with the enormous
government debt burdens in America and other developed economies, if
leaders continue to make the wrong political decisions, the amount of
money currently being printed will only be the tip of the iceberg. These
countries are steadily adopting the dangerous policies that ultimately proved
disastrous in Zimbabwe.

Chart 5: Central Bank Money Printing Central Bank Assets, 2006–2013 (log-scale, base 100 in
2007)
Source: International Monetary Fund, St Louis Federal Reserve Bank, Philip Haslam & Russell
Lamberti
 3.2 Raid and plunder
With escalating government debt burdens in the world’s major economies,
attempts to raise taxation are increasing in almost every facet of life and the
state looms a larger threat over private property rights. Governments across
the world are making it increasingly difficult for ordinary citizens to
conduct business and acquire and use private property without heavy
oversight, regulation and taxation. And as governments struggle with their
enormous debts, the incentives to increase taxes are only increasing.
For example, in March 2013, bank customers in Cyprus with deposits
larger than €100 000 had their money confiscated to bail out the Cypriot
banks. Known as a bail-in, unsuspecting depositors had their accounts
raided in order to pay for the bank rescue – a blunt confiscation of people’s
cash.
Alarmingly, the Cyprus model has been proposed for other instances of
bank failure in other countries. In December 2013, the European Parliament
finalised a directive that allows the authorities to claim bail-ins for bank
rescues.23 The same is being introduced for British24 and United States
banks25 and is being proposed for Canadian banks.26
In June 2014, the European Central Bank instituted negative interest rates
on commercial bank deposits at the central bank. Commercial banks have to
pay the central bank to deposit money with it. The Swiss, Swedish and
Danish central banks did the same27. The central banks are trying to
incentivise banks to lend more money into already heavily indebted
economies.
Meanwhile, with many public pension schemes unable to pay out pension
benefits fully for much longer, and with limited options available,
governments are looking to change the rules. In 2011, the European Central
Bank suggested various ways to tackle the unsustainable pensions,
including ‘imposing new taxes’, levying ‘additional social contributions’
and ‘taxing previously untaxed pension benefits’.28
Historically, numerous countries that experienced similar problems
reduced benefit payouts, in the process defaulting on their contractual
obligations to pensioners. Others have turned to the assets of private
pension companies, taking them to help pay for the national pension
schemes – including recently Ireland, Poland, Hungary, Bulgaria and
Argentina.29
This happened in Zimbabwe, where the government targeted the very
large and wealthy private pension funds as a first source of funding by
forcing them to lend more to the government. The response may very well
be similar in the major indebted economies.
The land reform process in Zimbabwe, where land was forcibly taken
during the hyperinflation years, was unique and had many contributing
factors, particularly the residual political problems stemming from
colonialism. The loss of private property rights for land was a significant
contributor in obliterating the major productive sector of Zimbabwe’s
economy and played an especially damaging role in Zimbabwe’s
hyperinflation. However, the same political and economic factors that led to
money printing were at play – too much debt and political pressure to
appease disenchanted voters.
While the possibility of Zimbabwe-style land grabs may be remote in
most developed economies, another surreptitious form of land
nationalisation is taking place. As part of quantitative easing programmes,
central banks print money to purchase mortgage-backed securities. These
are, as the name suggests, ordinary mortgage loans repackaged as tradable
securities. Typically these mortgages are backed by properties as collateral.
As property owners across the United States and Europe foreclose, the
central banks that hold these mortgage-backed securities effectively acquire
the properties backing the foreclosed mortgages (through large associated
government organisations).30 In effect, quantitative easing facilitates the
nationalisation of land.

3.3 State control

Hand in hand with the growing threat of raid and plunder is the rise of state
control. In the United States, Japan, Europe and Britain, the centralisation
of power in the hands of government has put these authorities in a powerful
position to dictate globally how people use money. This is key to retaining
power should there be a loss of confidence in their currencies following a
sovereign debt crisis and a larger-scale money printing programme. We
discuss this in more detail in chapters 6 and 12.

Timing
How long will the effects of these vast money printing programmes take to
work through the global financial system? This isn’t an easy question to
answer. After Black Friday, it took 11 years for the Zimbabwe dollar to
collapse. The German mark collapsed nine years after the major printing
programme started. It would, however, be foolish to use this as a simplistic
guideline for other nations. Many hyperinflationary episodes of the past
have developed much quicker (some from as little as four years) and some
took longer to develop. Zimbabwe’s economic mismanagement and money
printing schemes can be traced back to the 1980s, even though its crisis
moment only appeared in 1997 and its final currency collapse in 2008.
There are numerous other factors that affect the timing of a
hyperinflationary spiral. The size of government debts always plays a major
role and whether those debts are denominated in local or foreign currency.
The pace and relative amount of money being printed is important, as is the
make-up of the country’s lenders – locals or foreigners. How and where
newly printed money is used is an important factor. Government regulation
can certainly worsen the effects of hyperinflation. Political systems, the
decisions of leaders, public confidence in the ruling authorities, investor
psychology and financial sector sophistication are just some of the key
factors that play a role in determining the speed and intensity with which a
country can descend into hyperinflation.
Money printing over time creates cultural changes in an economy and the
timing of these cultural responses is unique to any situation. The important
lesson from Zimbabwe and other hyperinflations is that the effects of high
indebtedness and money printing can be masked for long periods of time
while they grow in cumulative momentum, eventually producing irresistibly
negative consequences.
 Global money printing in a nugget
Like Zimbabwe, the industrialised countries are turning to money printing
to revive their ailing economies. While the amounts of new money being
printed are staggering, they have not yet been enough to spark runaway
inflation. Nonetheless, these economies are adopting dangerous policies
that history has shown are hard to reverse. High levels of government debt
and money printing to supplement government’s spending habits, if
continued unchecked, will lead to a currency crisis that either ends in a
painful debt default or in an even more painful hyperinflation.
Political leaders need to make tough choices in the years ahead – choices
that leaders in Germany after World War I, in Zimbabwe during the 1990s
and in many other nations in history failed to make. These choices entail
economic pain and will risk political leaders’ popularity. It will be the mark
of great leaders if they can make the hard choices that can avert the worst-
case outcome: a hyperinflationary disaster.
It will be easier to keep printing money. It always is.

Think about it
1. Are there similarities between your country’s economy and Zimbabwe’s, prior to its currency
collapse?
2. Does your government rely heavily on foreign lenders to fund its expenditures?
 Chapter 5: Hyperinflation 101

Continued inflation inevitably leads to catastrophe.

– Ludwig von Mises

We had just finished breakfast, and my brother told me a story that both
shocked and fascinated me. He had taken a hot-air balloon ride on his
recent trip to Egypt and was recounting how the same Egyptian tour
company had experienced a fatal crash a few months later in February
2013.
The day began routinely with 20 eager tourists climbing into the small
balloon basket to enjoy the breathtaking aerial views over the ancient
landscape. The Temple of Karnak lay in the distance, with the Valley of the
Kings in the foreground split by the winding Nile River. Luxor, an old town
700 kilometres south of Cairo, is steeped in history, and the balloon ride
was an extremely popular ‘must-see’ tourist attraction.
The balloon was returning to land after its early morning sightseeing trip.
The pilot and ground crew were navigating to the landing site when, just
two metres above the ground, one of the four gas cylinders sprung a leak
and burst into flames. The pilot, who was close to the cylinder, was doused
in the blaze and he leapt out the carriage in a state of panic.
With one fewer passenger, the balloon was suddenly lighter and the
additional heat from the fire created an upward pull, causing the balloon to
rise. Everyone was focused on the burning cylinder, and in the confusion of
the moment few noticed the increasing altitude. One alert British passenger
realised what was happening and jumped through the flames to the safety of
the ground below. With two fewer passengers and the flames burning hotter,
the balloon began to rise faster.
 As the ill-fated balloon climbed, seven people jumped out, some doing so
even at a height of 100 metres. By that time it was too late – the leaping
passengers jumped to their death. As each person jumped, the balloon had
less weight pulling it down and it accelerated into the sky.
The fire now burned searingly hot as the balloon rose to about a
kilometre above the earth. Soon the fire engulfed the full canopy of the
balloon and consumed its nylon covering. The moment the balloon lining
disintegrated, the upward pull ceased. Another gas cylinder burst, and the
remains of the balloon and carriage fell out of the sky, crashing to the
ground in a field below. On impact, the last of the gas cylinders exploded.31
When I heard this horrific story, I was documenting my research on the
events in Zimbabwe and pondering how to describe what I had discovered –
particularly how to explain hyperinflation in an analogy. As I listened to my
brother relate the story of the hot-air balloon, it occurred to me that money
printing has the same chilling consequences. This sad story powerfully
parallels the course of Zimbabwe’s hyperinflation.
Once the Zimbabwean government had given itself over to money
printing, it lost control. The fires of money printing burned and national
prices rose, leaving millions in a precarious position. Prices accelerated
upward at an extreme rate and eventually reached a point where no price
was great enough. At that moment, the currency collapsed, falling to the
ground in a blaze of hyperinflation. Ordinary Zimbabweans lost everything
and many fled the country. The start was slow – almost unnoticeable. But
the effects at the end were catastrophic.

Few people can understand hyperinflation without living through it. It isn’t
a dry topic to be studied by academics. It affected everyone. Even the taxi
drivers in Zimbabwe could tell you about the details of hyperinflation. The
issues became so obvious when you lived through it.
– Zimbabwean economic commentator

What is hyperinflation?
Hyperinflation, simply explained, is extreme price inflation. Often referred
to just as ‘inflation’, price inflation is a general increase in prices in the
economy. Hyperinflation is essentially a period of economic chaos when
confidence in the currency deteriorates markedly, leading to a rapid, chaotic
and uncontrollable rise in the prices of goods and services, and the eventual
collapse of confidence in the currency.
In formal academic literature, many economists try to pinpoint the rate of
inflation that reveals when a country has definitively entered hyperinflation,
but opinions vary wildly, from 100% to 12 874% per year.32 The specific
thresholds are arbitrary and misleading. Practically speaking, hyperinflation
isn’t a measured rate. It is a set of cultural states.
As a field for economic study, it is better to look at the critical qualitative
changes in an economy, rather than randomly selected quantitative
thresholds. These cultural changes are much more nuanced and yet have
much better usefulness in describing the path of hyperinflation and
analysing those countries that have gone down this path. Hence, this study
has focused far more on these qualitative aspects of hyperinflation.
A leading economist in Zimbabwe, Jonathan Waters, put it this way
during my interview with him:
Exact inflation becomes meaningless. Hyperinflation is more a
sense of being than specific rates. In Zimbabwe no one thought in
percentage inflation. You just got a feel for it – you knew the rate
on any day in a very intangible way. It was the topic at every
dinner table and we talked about it all the time. There were many
indicators that you could apply but none was definitive. Knowing
the true rate was more of a sensory ability.
In fact, hyperinflation is never a moment. It is a collection of many critical
points – a process. And while it has to do with prices rising, it is really the
dramatic process of an established currency losing its usefulness as money.
Each stage of this process inflicts pain on the lives of communities in
unique and debilitating ways, which together combine to form the dramatic
process of hyperinflation. Based on the numerous interviews with
Zimbabweans from all walks of life, we have built a framework to
understand these multiple hyperinflation stages.
However, to understand hyperinflation, one needs to understand inflation
first. And to understand inflation, one needs to understand prices.

Prices and inflation

Prices are crucial signals. They direct all economic activity, coordinating
the actions of millions of buyers, sellers and producers. Almost everything
you possess or use is associated with a price: your salary, the food you eat,
the place you live in. Interest rates and stock market values are prices.
Anything traded between a buyer and seller has a price. Even free stuff has
a price – someone had to pay for it!
Without prices, we wouldn’t be able to make informed trading decisions.
Prices tell us whether something is worth purchasing or not, according to
our preferences. And they send signals to suppliers of goods and services to
help them decide if something is worth supplying. All economic activity
revolves around this simple concept of prices.
Dictionary.com defines inflation as:
A persistent and substantial rise in the general level of prices,
related to an increase in the volume of money and resulting in the
loss of value of currency.
Inflation is most often caused by an increase in money in an economy. As
newly printed money made its way around Zimbabwe, people had more
money to buy the products they needed, causing prices to rise.
Some economists think that increasing the amount of money, and
therefore increasing market prices, is a good thing. The truth is that printing
money sets in motion insidious, highly destructive forces.
Pro-inflation economists argue that since additional money causes prices
to increase, a signal is sent to producers to increase the supply of goods.
People are employed, equipment is purchased and the economy is
‘stimulated’. The argument sounds compelling, yet it is greatly misleading.
 New money is always injected into a specific area of an economy. When
this happens, prices rise in those sectors, making business opportunities
there seem attractive – it makes those sectors look like they are more
profitable than they really are. Soon the new money ripples out into the rest
of the economy, and prices everywhere begin to rise. Without a continued
inflow of new money, the stimulated sectors are revealed to be no more
profitable than they were before the injection. Entrepreneurs who invested
in these sectors hoping for good profits find that many of these ventures fall
flat. Real resources have been wasted. The inflation caused by new money
printing created misleading signals. The increased prices were attractive to
suppliers, but they were tricked because costs also rose with inflation.
Supplier margins weren’t any better off.
This process of fooling suppliers into thinking they should supply more
goods to specific sectors when they are not as profitable as expected is
called misallocation of capital.33 The initial inflation stimulates certain
sectors of the economy, but without continually increasing the amount of
money to that sector (fooling suppliers on a repeated basis), a slump in
activity follows. The boom is unsustainable and false. The economy needs
to readjust and soon after the initial false boom, a depression follows.
In the early phases of money printing, the areas of the economy that
repeatedly get new money begin to grow relative to the rest of the economy.
These areas of the economy begin to experience a large and prolonged
misallocation of capital, preceding a greater and more destructive
depression and economic adjustment, which is inevitable when the flow of
new money eventually stops. This is one of the reasons that banks and
companies close to the banking sector tend to be more prosperous in
economies with central banks.

Money printing gives government great power

Both those who control money printing and those who receive that money
first are in a powerful position. If an unrestrained government decides to
use its money printing privilege as a way to pay for its expenses, it can
spend with limited direct accountability. It can manipulate how markets
naturally and organically operate. And it can purchase real goods and
services with newly printed money, acquiring more and more for itself at
the expense of those who don’t have the special privilege of printing
money.
If money is printed on an ongoing basis, inflation becomes a culturally
accepted norm. In modern society, ask anyone if they think prices will be
higher next year and you’ll get only one answer: of course.

Inflation makes people poorer

The daily expenses of those who do not receive newly printed money early
in the inflation process tend, on average, to rise faster than incomes. Money
printing may appear to increase the amount of activity in an economy, but
stealthily it makes economic conditions more difficult – most people find
themselves worse off than before. The higher the rate of money printing and
inflation, the worse off people generally are. In short, inflation makes
people poorer by stealing their purchasing power.

Inflation waterfalls: the six gorge moments of hyperinflation

A few years back, I hiked down a deep ravine cut into South Africa’s
Hottentots-Holland mountains, known locally as Suicide Gorge. It is
interspersed by a series of perilous waterfalls – you can only get down by
jumping down each waterfall. As I leapt from the top of the cliff to the first
deep pool below, I realised there was no turning back. Once you start a
journey down Suicide Gorge, you’re pretty much committed. The only way
out of the gorge is to continue through it, leaping off ever larger, surging
waterfalls into smaller and shallower pools.
In many senses, it is similar travelling down the path of hyperinflation.
Reckless money printing sends an economy floundering down a raging
ravine of hyperinflation towards economic disaster – there’s only one way
out, and that’s down the gorge. Zimbabwe had six definitive cultural
changes in its economy. We call these Gorge Moments – critical ‘waterfalls’
in the torrent of money printing that propelled the society towards ever
greater disaster.
 Gorge Moment 1: past inflation becomes future inflation
Prices, in the early stage of an inflation, usually rise by less than the
increase in the money supply, but in the later stage of an inflation always
rise by more than the increase in the money supply.
– Henry Hazlitt, What You Should Know about Inflation

In my brother’s hot-air balloon story, the passengers looked over the side of
the carriage and realised they’d lost the precious moments to jump. Their
thoughts, initially concerned about the rising altitude, may have been, Oh
no! If I had jumped then it would have been safer. Now it’s higher! They
probably reached a point where it dawned on them that the risks would be
far greater seconds later if they didn’t jump. They may have stopped
thinking about past increases in altitude and considered impending future
increases in altitude.
Once inflation becomes a culturally accepted norm, people begin
adapting their expectations of future price increases based on historic
inflation rates. Most likely, you do the same. When you get an increase in
salary, or you calculate the price increases for your products, you typically
refer to the most recent historic inflation data.
In Zimbabwe, as money was printed at an accelerating rate, many found
that they hadn’t made sufficient funds available in their budget to make
ends meet. Others found that they did not ask for big enough wage
increases. Businesses discovered that their revenues rose slower than their
expenses and that their profits began to fall.
People are not fooled forever and local Zimbabweans began to catch on,
wising up to this perpetual erosion of purchasing power. A critical culture
shift began to take place. Instead of calculating price increases on last
year’s inflation, people began to calculate price increases on what they
expected inflation to be in the future.
This was a crucial turning point. The first cycle of inflation started off
with increased amounts of money and ended with increased prices. Now
prices began to rise before new money was printed. Prices were driven
higher by expectations of future price increases, rather than by past money
printing.
As everyone increased prices, those who were in weaker positions to
raise prices or make wage demands were especially hurt in this phase.
Pensioners, for instance, were on fixed incomes whose increases were only
reviewed annually and based on past inflation rates. The companies most
affected by this were those at the end of the supply chain who couldn’t raise
prices as fast as the others – first retailers and then manufacturers. Their
costs rose much faster than their selling prices.

Gorge Moment 2: money shortages

The Reserve Bank of Zimbabwe was printing so much money but there
wasn’t enough money in the economy. They just couldn’t keep up with price
increases.
– Managing Director of a manufacturing company in Zimbabwe

After Gorge Moment 1, the economy rapidly swept towards a curious and
jolting second Gorge Moment. Inflation began to outpace the rate of new
money printing and because of the price increases, there was simply not
enough money in the economy for everyone to go on purchasing as many
goods and services as they had before. Paradoxically, as people raised
prices and wage demands, there was not enough money to satisfy these
increases. A very strange economic paradox was revealed in Gorge Moment
2: money printing led to shortages of money!
The government now faced an important decision. It could either stop
supplying more money into the economy, in which case there would have
been a much-needed but extremely painful depression as prices fell, or it
could increase the supply of money at an even faster rate than before to
match the increases in prices. Naturally, the authorities decided to increase
the supply of money.
The first of the major money shortages occurred in 2003 and led quickly
to a run on the banks: queues developed at ATMs as people everywhere
lined up to withdraw their savings. They knew there wasn’t enough money
to go around and wanted to ensure that their savings were safe. A market
quickly developed with a 30% premium being charged for cash in hand
relative to cash in the bank. The Reserve Bank of Zimbabwe responded by
instituting daily withdrawal limits, which only served to exacerbate
growing scepticism with banks.
As people’s trust in the banks withered, the money shortages had the
unusual effect of encouraging cash-based trade, which only worsened
money shortages and pressure on the banks.

Gorge Moment 3: empty shops

The shops emptied and supply chains closed down. In their place stepped
the dealers and traders. Those who could increase prices the fastest, won.
– Operations manager of a tannery in Zimbabwe

The very nature of business went through a critical change as Gorge

Moment 3 hit. Many companies found their revenues insufficient to pay for
subsequent stock purchases. Prices were rising so quickly that the cost of
replacing stock was more expensive than the revenue from previous sales.
Businesses became fundamentally unsustainable. As real business margins
evaporated and profits turned into losses, businesses started to go bankrupt.
Most stores did what they could to survive, but the difficulties experienced
by increasing inflation ensured that by 2006 practically all stores had
closed.
The ability to reduce lead times in supply became a critical competitive
advantage in business. Manufacturing processes that required time and
patience disappeared. Local production ceased and had to be replaced by
imports. Zimbabwe became a consuming economy rather than a producing
economy.
At this juncture, as businesses were shutting down, people and
companies switched whatever it was that they normally did to become
hoarders, traders and speculators – whatever it took to survive. The entire
character of business changed from serving customers to looking out for
oneself. Those in advantaged positions could still play the system, making a
quick handling fee or buying assets and foreign currency.
Gorge Moment 3 threw formal supply chains into disarray, as prices at
the point of sale did not compensate companies for the increased cost of
their later purchases. Most companies either went bankrupt or attempted to
stay afloat by moving into another line of business. The hardest hit were
retailers and manufacturers who all had lengthy delivery lead times.
Manufacturing for local customers ground to a halt, and stores everywhere
emptied as the formal distribution networks shut down. The economy
rapidly ‘deindustrialised’ as companies closed, mothballed machinery and
moved productive businesses offshore. People couldn’t get food and goods
from shops because the shelves were empty. Prices hurtled higher as a result
of an even greater scarcity of goods and services.
The winner-takes-all frenzy in hyperinflation was similar to how I once
shared a drink with my brother when we were much younger. We couldn’t
pour the soda out into separate cups, so he suggested we get two straws and
drink it at the same time.
It started out innocently enough, but when I got the feeling that he was
drinking more than his fair share, I began to suck harder. He noticed and did
the same, which only spurred me to suck even harder. What started off as a
brotherly sharing of a drink ended up in a feverish down-down competition
with soda fizzing out of our noses and enough burp for an entire afternoon!
Our soda-drinking rivalry illustrates the kind of crazed survival
competition that took place between members of society in Zimbabwe’s
hyperinflation. As personal livelihoods were at stake, trading became nasty.

Gorge Moment 4: the end of lend

Almost every hyperinflation ends with a class of borrowers who profit from
the entire currency collapse like profiteers or thieves.
– Zimbabwean-born economist based in South Africa

Following the business crisis, a banking crisis emerged: Gorge Moment 4.

This was the moment that truly ground economic activity to a halt.
 It became pointless to save money in the bank, or to lend it, because the
value of loans and bank deposits shrank with hyperinflation. Those who had
money dared not lend it. They needed to spend it on something – anything –
that held value longer than the money would.
Banks stopped lending money. They couldn’t be sure that the interest
they charged would compensate for the rate of inflation. Interest rates for
deposits went up to 8000% – those who deposited their money could
multiply it 80 times in a year … but this wasn’t nearly enough. Many didn’t
understand what was happening and, attracted by what seemed to be
exceptionally high interest rates, naively deposited their savings in the
banks. They lost everything.
At Gorge Moment 4, banks realised that the cash reserves they had been
accumulating from money printing bailouts were fast losing value with the
high levels of inflation. This was dead money for banks. Since the official
interest rates that they were forced to charge couldn’t compensate for the
loss of value of the loans from inflation, it didn’t make sense for banks to
lend money out. The banks had the power to create an amount of digital
credit money that was many times larger than the amount of physical notes
and coins they had on hand. This placed them in a powerful position. Not
only did they reduce lending and accept newly printed money as a bailout,
but they increasingly speculated by creating vast amounts of credit money
and purchasing assets that would hold their value, such as shares on the
stock exchange.
The End of Lend Gorge Moment saw banks (like all other businesses)
moving away from their normal trade of deposits and loans to one of using
their unique privilege of receiving newly printed cash and creating credit
money to speculate, trade and hoard real assets. This only served to
accelerate the growing inflation.
The government tried to force the banks to lend, regardless of whether it
was profitable or not. The politically connected became the only ones who
could get bank loans, which they exploited as a way of profiting from
hyperinflation: borrow money and immediately use it to purchase
something that would increase in price with inflation, like cars or shares on
the stock market.
With companies making significant losses and now unable to borrow,
business operations came to a standstill.

Gorge Moment 5: the flight to real value

By 2007, the value of money was eroding on a daily basis. People tried to
get rid of it as fast as they could. Money became like a searing hot coal –
what we call scorched money. When anyone received money, they ran to
buy anything they could find as fast as they could. The velocity of money –
the frequency with which it changed hands – became frenetic. The economy
at this point entered what the Austrian economist Ludwig von Mises called
Katastrophenhausse – a doomed boom. As confidence in money’s
purchasing power plummeted, everyone tried to get rid of it as fast as
possible. This meant a huge demand for goods and services that had the
appearance of a boom as prices rose rapidly. But it was actually a full-scale
economic collapse, as production collapsed and goods were rapidly
consumed, hurtling the economy towards a final disaster.34
At Gorge Moment 5, faith in the currency died. The only things keeping
the Zimbabwe dollar from outright death at this point were legal tender
laws and government force – a force that had to increase in reach and
ferocity as the value of money deteriorated. At this stage, no one wanted to
hold money – people bought goods and services just to acquire something
that would retain its value, if only for a little longer than the money did.
Even milk was a better store of value than money!
The whole economy developed a consumption hysteria. Shelves cleared.
In addition to buying things that could last (like tools and household goods),
people spent money on fleeting experiences, like a game of golf with
friends. If you had extra savings, you spent it on anything – much of which
ended up perishing. Everything that could be consumed was consumed, and
as consumption soared, production evaporated.
Gorge Moment 5 triggered a colossal inflation spiral as price increases
accelerated dramatically and the economy became gripped firmly in the
death throes of hyperinflation. From here, there was only one direction that
the currency could go and that was to an ultimate collapse two years later.

Gorge Moment 6: when money dies

The sixth and final Gorge Moment was when the currency could not be
maintained by government force any longer, and it crashed out of use. Even
the government gave up trading in the money any longer. The final
destruction of the Zimbabwe dollar started in November 2008, a process
that eventually ended in February 2009. Money printing became so endemic
and the rise in prices so out of control that no one would use the currency
regardless of the pressure from the government.
Technically, inflation rose to infinity as the value of the currency fell to
zero. No price was high enough for people to accept payment in Zimbabwe
dollars – they just refused to take it.
This Gorge Moment was known as dollarisation because one of the
stable alternative currencies Zimbabwe adopted at the time was the United
States dollar. The British pound, South African rand and other currencies
were also acceptable as legal tender. At this stage, the Reserve Bank of
Zimbabwe surrendered its privileged right to print money.
Up to this point a number of businesses had survived by focusing on
exports. Those businesses had experienced the best of both worlds – they
received income in comparatively stable foreign currencies that appreciated
against the Zimbabwe dollar, and yet they paid expenses in a currency that
was collapsing. Before dollarisation, exporters were extremely profitable.
They were so profitable that they didn’t have to monitor their expenses (and
indeed couldn’t do so because the accounting numbers changed so quickly
with inflation).
But at the moment of dollarisation, almost all export companies
collapsed. Suddenly, they had to pay all local expenses in foreign currency.
No longer were these local expenses miniscule relative to incomes – now
companies had to pay their workers and suppliers in US dollars. Moreover,
at dollarisation, many we interviewed told how the Reserve Bank of
Zimbabwe simply expropriated most of the remaining foreign currency
owned by the exporters.
Most local businesses had shut down during hyperinflation, and now,
during dollarisation, almost all export businesses also shut down. The
economy went through its last and inevitable contraction – a money reset.
No exports meant no foreign currency, and no dollars meant no imports of
crucial supplies.
A complete turnaround occurred. People had tried to get rid of their
scorched Zimbabwe dollars by buying anything they could get their hands
on, and now those who had US dollars tried their hardest not to spend them!
There were other jolting effects of dollarisation as well. During the
hyperinflation years, there had arisen intricate community supply networks,
around which most people derived some form of trading income. The whole
barter economy had scores of dealers to facilitate it. Dollarisation caused
this entire supply network to fall away because normal distribution to stores
resumed. All those dealers who’d generated income in alternative, non-
orthodox supply channels abruptly stopped making money.
With the formal sector destroyed and most of the skilled entrepreneurs,
artisans and professionals having left during hyperinflation, most products
had to be imported at a high cost – only increasing the local cost of goods in
US dollar terms.

Other curious effects of Gorge Moment 6

The Zimbabwe dollar was dead, but inflation expectations hadn’t gone
away. People had become so used to daily price increases that this
continued for a while in US dollars. Businesses that re-emerged now had to
deal with the problem of rising prices again – but this time in US dollars.
One executive of a large company said this about dollarisation:
Hyperinflation had created terrible expectations for price
increases in everyone. After dollarisation, we used a stable
currency so we reasonably should have had a low level of
inflation. However, our staff were adamant that they needed
 proper price increases – the concept of a ‘once-yearly’ increase is
only now, after four years, beginning to be accepted.
We deadlocked in all of our negotiations with the trade unions.
They had wanted a 500% inflation increase. We eventually went
to arbitration on it, but even the arbitrators didn’t understand.
They sided with the unions. We’re now suing the arbitrators for
incompetence.
Since US dollars had to be brought in physically from the United States and
other countries, the cost of bringing in United States coins was prohibitive.
In daily trade, however, cents are typically important for small-value
transactions. Retail stores couldn’t give small change for purchases, so they
would keep a stock of small value items at the tills so that shoppers could
‘top up’ at the end of their purchases to a round number of dollars.
With the lingering culture of inflation, the economy experienced
continued shortages of dollars for some time, putting tremendous pressure
on businesses after dollarisation. US dollar notes were imported and
exchanged tens of thousands of times without going back into the US dollar
banking system, making them dirty and barely recognisable. The ruined
notes added further significant problems to the dollar shortages.
But now the government couldn’t print more money to alleviate the
money shortages temporarily. Instead, the cash shortages forced businesses
to reduce prices and workers to make lower wage demands.
The economy came to an almost complete standstill in the early stages of
dollarisation. Some economists say that between 75% and 90% of the
population were unemployed after years of money printing and the final
standstill of the economy. However, to view the transition to dollarisation as
a negative transition would be a mistake. It certainly entailed acute short-
term pain for the economy, which had become used to functioning in a
particular and very peculiar way. But it was vital and inevitable; painful but
necessary. It was the only way to get the economy back to a semblance of
normalcy and to correct the gaping market imbalances that had built up
around unstable and unsound money.
 Hyperinflation 101 in a nugget
Zimbabwe’s hyperinflation was similar to the Luxor hot-air balloon crash.
The fires of money printing pushed the rising balloon of prices ever higher,
until it eventually consumed the economy with the currency burning out
and crashing to the ground, out of use.
Hyperinflation is excessive price inflation caused by unrestrained money
printing. Prices rise as a result of this new money, which flows into
different sectors and causes a misallocation of capital. This leads to a short-
lived boom followed by a destructive depression.
Governments can use money printing to purchase real goods and services
and manipulate markets, stimulating some industries over others in the short
term. However, they have to resort to increasing money printing to delay
the inevitable consequences.
Zimbabwe experienced six Gorge Moments down its path of
hyperinflation. Perennial money printing led to a culture of inflation in
which everyone expected prices to rise in the future. A culture shift
occurred as businesses and employees started to raise prices and wage
demands respectively, based on expected future inflation rather than on
historic inflation – Gorge Moment 1. Prices then began to rise faster than
the supply of money, leading to the money shortages of Gorge Moment 2.
Gorge Moment 3 hit as profits turned into losses and businesses went
bankrupt. Shops emptied, and manufacturing for local customers stopped.
Prices rose even faster because of the shortages of real goods and services,
and the vicious cycle went around again and again, getting worse each time.
The banks stopped lending at Gorge Moment 4, except to the politically
connected elite to whom they were forced to lend.
At Gorge Moment 5, fewer and fewer people continued trading in the
currency and only did so because of legal tender laws and extreme
government force. This pushed the economy into a hyperinflation spiral and
led to a consumption of all savings.
Gorge Moment 6 came when the currency collapsed and the government
was officially and totally bankrupt. The United States dollar became the
alternative, stable currency – among other currencies, such as the South
African rand and British pound. Export companies closed and dealers went
out of business as existing supply networks changed drastically. Economic
activity came to its final and inevitable standstill as the last flames of the
inflationary mania were extinguished.
Hyperinflation in Zimbabwe was the ultimate in economic chaos and
disorder. It destroyed livelihoods and lives, and left in its path economic
ruin. Zimbabwe has been forced to rebuild its economy, and indeed its very
society, from ground zero. The toll of human suffering was immense.
Communities, neighbourhoods and families were torn apart. Living
standards plummeted. Basic services disintegrated.

It’s really hard to remember the difficult times – I’ve blocked it out. I’m not
sure I want to remember. By the end it got so bad.
– Zimbabwean now living in South Africa

Think about it
1. Is your government relying on increasing amounts of money printing to ‘fix’ the economy?
2. Do you find people working harder and harder but being able to afford fewer and fewer everyday
goods and services?
3. Do inflation-linked pay increases really compensate for the rising prices of the goods you buy?
4. How would you access money if you couldn’t withdraw it from your bank?
 Chapter 6: The politics of printed money

The way to crush the bourgeoisie is to grind them between the millstones of
taxation and inflation.
– Vladimir Lenin

The dynamics of government control in hyperinflation can be likened to a

Monopoly game.
A critical component of the game is that one of the players has to be the
banker – a player who acts like all the other players, although he is also
responsible for the ‘new’ money coming out the money box. When the
players move past GO or redeem cards, they can get money directly from
the money box. As this happens, prices of land, houses and hotels tend to
rise.
One wintry day in December, some friends gather to play the game in
downtown New York at Chete Frawd’s apartment. Chete grew up on the
shady side of the street and is a con artist supremo. He has enough grease to
keep a train running!
A serial game cheater, Chete convinces his friends that he should be
voted in as the banker because he is the host. Early in the game, he begins
to sneak money out the money box and uses it during his turn. It isn’t much
initially, and because he does it sneakily the other players don’t notice. As
the game progresses, the ones who started out strong soon begin to go
bankrupt.
Chete controls the game with the money he takes from the box. A good
friend of his, Rich Banker, colludes with Chete, and because Rich helps him
beat the others, Chete also gives him new money out the box. The game
fundamentally shifts and becomes unfair for the other players, who begin to
lose more than they win, and eventually stop winning altogether. Onist
Citsen begins to suspect that Chete is up to no good and openly accuses
him, which alerts the other players and makes them resentful.
They either want to stop playing the game or they want another banker
who would be fair with the money box. Chete realises that he’s been found
out, and since he is a bit of a bully, he throws a tantrum to intimidate the
other players. He resorts to increasing levels of manipulation to keep things
going his way. He locks the door and demands that they play the game with
him. He, and he alone, will be the banker.
By now, all the other players want to leave. Chete is faced with the
dilemma that if he still wants them to play the game, he needs to threaten
and control his friends using more and more drastic and aggressive
measures.
This is very similar to what happens when governments use the central
bank and its money printing press to cheat the system.
Central banks and commercial banks are structured to print money
continually. A key to political power lies in the control of this money
printing machine, which is why most governments have a major influence
on the policies of the central bank and heavily regulate the commercial
banks. They get to rig the game in their favour.
The government exerts control in hyperinflation with a steady increase of
new money, giving it the power to manipulate markets. It then has to set up
an intricate system of legislation, policing, price control and checks on the
black market to control daily trade and ensure that people use its printed
money.

Zimbabwe’s monopoly money

By a continuing process of inflation, government can confiscate, secretly
and unobserved, an important part of the wealth of their citizens.
– John Maynard Keynes, the most famous economist of the twentieth
century
Central banks, it is argued, should be independent institutions from
governments. The theory is that governments shouldn’t be able to interfere
with the nation’s currency and manipulate it for its own ends. In practice
this is rarely, if ever, true. All governments have at least some control over
the important levers of the central bank and usually get to appoint key staff.
In most countries commercial banks also have a strong say in how the
central bank is run and how much money it prints, although this is not
usually explicitly acknowledged. In short, the alliance between
governments and banks is fostered and managed by the central bank.
Central bank independence breaks down when governments use it to
make money cheaply available for pet projects or to print money to pay off
government debts. Typically, when highly indebted governments face a debt
crisis, central bank independence is immediately withdrawn. It is an illusory
independence – a show of a separation of roles that can be suspended when
governments decide to.
In Zimbabwe, the independence between the central bank and the
government broke down totally after the Black Friday crash of 1997. The
Reserve Bank of Zimbabwe began to operate as an arm of the government
and ended up printing whenever the government needed more money.
In an attempt to source foreign currency for the government, the Reserve
Bank forced exporters to sell a quarter of all foreign earnings to the
government in return for rapidly depreciating Zimbabwe dollars at grossly
unfavourable exchange rates. This was an effective tax.
To add to this tax on the foreign currency, when the government’s needs
demanded it, the Reserve Bank often simply took the balance of foreign
earnings from exporters when they ran out of alternatives – outright theft in
the name of ‘economic policy’.

How did money get to the streets?

As the Zimbabwean government turned to money printing to fund its
expenditures, there were a handful of ways that money made its way to the
street. It started off fairly innocuously through ‘conventional’ channels but
became more brazen and overt as time went on.
 1. ‘Ordinary’ central banking practice
In the conventional system, banks create money out of nothing (credit
money) and lend it directly to the government by buying government bonds
and simply crediting electronic digits to the government bank account. They
then use these bonds as security to get newly printed cash from the central
bank in order to have just enough in their vaults to facilitate customer cash
withdrawals and satisfy financial regulations.
As the economic crisis in Zimbabwe unfolded, it no longer made sense
for the banks to lend to the government because the government was going
bankrupt. Also, with inflation rampant, by the time bank loans had been
repaid, they had lost much of their purchasing power. Meanwhile, bank
customers, fearing that their money was becoming worthless, withdrew
their deposits. Large-scale cash withdrawals were the worst possible
scenario for the banks since they, like all modern banks the world over, had
kept only a fraction of the money recorded in their books. They were under
severe pressure from both depositors, who were withdrawing money, and
the insatiable government, which was constantly borrowing more money.
Banks needed cash desperately and appealed to the Reserve Bank for
alternative ways to get newly printed money.

2. Banks withdrawing directly from the reserve bank

The Reserve Bank of Zimbabwe therefore changed the rules. It decided to
give each bank a direct account – an effective credit card facility with the
Reserve Bank with no credit limit. They didn’t own a physical credit card,
but the facility operated in exactly the same way. Banks could withdraw as
much as they wanted at any stage, as they needed.
This process started from as early as 2001. The banks would arrive at 7
a.m. at the Reserve Bank every morning to pick up newly printed cash for
their net demands of the day. By 2007, each bank was making three
withdrawals a day at allotted times from distribution points known as ‘cash
depots’.
Realising that the Reserve Bank would make good on any cash shortages,
the banks began to speculate in the stock market with the new cash they
received, taking advantage of their ability to do real-time transfers and
quickly exploiting rising prices. Technically, this was illegal in terms of the
Banks Act, but Reserve Bank officials turned a blind eye. The authorities
were far more concerned that troubled banks responded in a ‘creative’ way
to stay afloat, even if their activities were illegal.

3. Government hunger for foreign currency – trading directly on the

street
The government demand for foreign exchange grew rapidly. It had huge
import requirements. State-owned companies needed supplies from
offshore. Robert Mugabe’s lavish trips abroad had to be funded and other
government activities needed forex, such as importing tractors or obtaining
antiretroviral drugs for those who were sick with HIV.
Foreign currency became scarce with exports dwindling. No one outside
of the country would exchange Zimbabwe dollars for foreign currency,
making it difficult to import goods. As businesses closed down, more
products had to be imported, which increased the demand for foreign
currency. Every month, the government gave the Reserve Bank a specific
‘import requirement’, and it had to find enough foreign exchange to pay for
these imports and foreign expenses.
The Reserve Bank therefore set up a system to sell its newly printed
Zimbabwe dollars on the street using people called ‘runners’. Each of these
street dealers was given massive wads of freshly printed Zimbabwe dollar
notes in bags, suitcases and trunks with instructions to buy a certain amount
of foreign currency. The Reserve Bank didn’t necessarily care what the rate
was or if the foreign currency was in cash or offshore bank transfers – the
important thing was that the runners got as much foreign currency as
possible.

They needed foreign exchange to fund the vehicles, weapons and other
imports for government. So they set up a whole network of street dealers to
buy forex. We have two ex-employees of the Reserve Bank who work for us
now. They tell us of meeting Reserve Bank officials at the bottom of the
 building. These officials had trunks full of cash notes, which the runners
took to the streets to trade.
– Financial manager at a large trading company

Later, the commercial banks entered the street market for foreign currency
as well. The value of the Zimbabwe dollar collapsed as the huge supply of
newly printed money hit the streets.
By then, few people – not even the banks – would hold Zimbabwe
dollars for any length of time since the currency was depreciating so fast.

When one of the banks went bankrupt, we went in to do an audit. The bank
had not been keeping any cash on hand. They had taken all of their cash
and converted it into ‘hard assets’, having bought pick-up trucks, bricks
and the like. This was being done across the board. Even the banks weren’t
holding on to cash … though this was crazy given that this is their role: to
hold on to other people’s money!
– An official at the Reserve Bank of Zimbabwe

Banks were forced to lend money

In an attempt to ‘support’ unskilled new farmers who had taken farmland in
the government land grabs, the Reserve Bank forced banks to lend to the
farmers and the mines. These loans, called ASPEF loans (Agricultural
Sector Productive Enhancement Facility), were mostly given to the
politically connected. They would use them to profit by purchasing US
dollars on the black market or listed shares, the price of which went through
the roof in line with inflation, making the loans repayable with ease.

Taxation gets replaced by money printing

One of the many bizarre and self-defeating effects of hyperinflation was to
wipe out the government’s tax income totally. When company tax was due
at the end of the tax year, the amount owed to the government had
depreciated in value. The time taken for companies to be charged for taxes
caused inflation to erode the purchasing power of the amount due,
becoming almost valueless. This forced the government to print more
money and confiscate more foreign currency to replace the lost tax income.
One CEO I interviewed explained it like this:
The benefit of hyperinflation is that our tax was effectively nil.
By the time the annual payment had been calculated the amount
due was negligible. The government tried many different ways of
taxing, including a ‘pay-as-you-go’ type of arrangement, but it
never worked. The government’s tax base fell to nothing. They
collected nothing from companies or individuals, and nothing on
import duties. PAYE (the employee tax) reduced significantly
because of the huge amount of unemployment.
As far as imports are concerned, the government was mainly
interested in import duties, although the duty system was run on
the official exchange rate, which was far below the market rate.
The amount that we had to pay on imports became negligible.
The government couldn’t allow their own departments to charge
anything other than the official rate – doing otherwise would have
exposed their system.
The real tax was the 25% effective levy on United States dollar
balances in the foreign currency accounts, and the inflation tax
that government had funded through printing money.

Transaction control: Chete forces his friends to play the game

[We] organised a march against the government but the police and army
drove around to the front in an armoured car, dropped the doors and had
four machine guns at the ready to fire on the crowd. It was an effective
tactic … and [we] dispersed very quickly. We had no strength as individuals
comparative to the power of the government.
– Comments by various Zimbabweans

Zimbabwe’s government became more coercive and manipulative, forcing

people to use Zimbabwe dollars and to keep prices low. Money and prices
are an integral part of daily life – there are few things in life that are not
directly connected to money and prices. As the government tried to control
the use of money and the level of prices, so it began to have complete
involvement in every area of life. It used the various tools to control the
population in this regard.

Liquidity obfuscation
Since becoming a central banker, I have learned to mumble with great
incoherence. If I seem unduly clear to you, you must have misunderstood
what I said.
– Alan Greenspan, former chairman of the United States Federal Reserve

The authorities had to gain a firm mastery of the words they used in order to
direct the way people understood their experiences of hyperinflation. Have
you ever listened to bankers or politicians and had no idea what they were
saying? Often this is intentional. People can get very confused when they
encounter fancy jargon.
You probably had the same experience with the title of this section.
Liquidity obfuscation is a complex way of saying making money printing
vague and difficult to understand. When you read it, you probably glazed
over it and allowed your mind to block it out. It’s a typical response for
most people – instead of questioning jargon, you’d rather disengage and
accept the intellectual authority of the person speaking.
This principle of linguistic relativity is popularly known as the Sapir-
Whorf hypothesis. The hypothesis suggests that language controls thought
and that specific use of language can be used to influence thought patterns
and control behaviour. It further suggests that a people-group’s worldview
and cultural understanding are deeply shaped by their language. ‘Possession
of a common language is still and will continue to be a smoother of the way
to a mutual understanding,’ Sapir said. Those who define that common
language define the understanding.
Governing authorities around the world use word gymnastics to keep
people fooled about what they are doing. In his bestselling book 1984,
George Orwell called it doublethink. Others call it doublespeak. The
purpose is to distort the meaning of words deliberately and to disguise the
nature of the truth. It was, as Orwell later said, ‘to make lies sound truthful
and murder respectable, and to give an appearance of solidity to pure wind’.
The Reserve Bank of Zimbabwe described its money printing plans using
clever phrases and terminology. When it dropped zeros from the currency, it
called it the Zero to Hero campaign, suggesting that people were heroes for
helping restore the currency to normal values. When it increased its
currency denominations to Z$50 billion notes, it named them special agro-
cheques, because the agricultural industry needed larger denominations. It
also used the name bearer cheques. There was no real distinction between
special agro-cheques, bearer cheques and previous types of currency, except
now the Reserve Bank could talk freely about printing money while still
sounding very official and sensible: ‘Increasing the number of bearer
cheques in the economy’ sounds a lot less alarming than ‘printing boat
loads of money’.
In extending the language of transaction control, when shops increased
prices the government branded the store owners as profiteers, and those
companies that withheld sales because official prices were too low were
labelled hoarders.
If a government can define words, it can control how concepts are
understood. And, if it is worried that people will reject those concepts, it
can phrase them in such complex ways that opponents will simply be too
befuddled to dispute them.
All central banks use liquidity obfuscation. The term quantitative easing
is a great example, as are the numerous other money printing schemes the
Federal Reserve announced in 2008: the Commercial Paper Funding
Facility, the Term Asset Backed Securities Loan Facility, the Primary
Dealer Credit Facility and the Term Securities Lending Facility. They all
sound so very complex and controlled, yet their meaning, which even many
experts fail to understand fully, is sending lots of newly printed money to
banks and the government so they can stay in business!
 Price control
Obscure language is one thing, but when Zimbabwe’s government began to
control prices, it intensified the economic suffering of ordinary people. This
was a radical move. Since prices and transactions are a part of everyday
life, it meant that the government got involved at every level of society.
There are many stories of the Pricing Control Commission going into stores
to confiscate goods off the shelves for breach of pricing regulations,
allowing government officials to steal goods in the process.
Mines and farms that produced key commodities were named special
industries, and the government instituted centralised buying. All resources
and farm produce had to be sold to the government directly at the official
rate. The government would sell it directly to the global market and take
any mark-up for itself – which of course just fed the den of corruption of
the politically connected. This, too, was unsustainable. Farmers had rapidly
rising input costs and the official sales prices didn’t cover these costs.
A subtle yet powerful means of price control is to fiddle with official
inflation statistics. In times of extreme money printing, governments
become craftier and more brazen in distorting official data to keep people
from turning to alternatives.35 This is exactly what happened in Zimbabwe.
If the government can make people believe inflation is lower than it really
is, it can suppress expectations of inflation and so retard the rise in some
prices. Under-reporting actual inflation also allows government to get away
with the large divergence between official prices it pays for things and the
real market prices.

Forcing people to use banks

Governments typically control transactions by monitoring and controlling
the banking system. It is nearly impossible for anyone to control what
people do with cash, but electronic bank transactions are easily monitored,
recorded and controlled.
The government therefore made it illegal to trade with big physical cash
amounts or to hold large amounts of cash, trying to force people to deposit
it with the banks. Yet those who had money in the banks still lined up to
withdraw cash at ATMs to get their money out. In response, the Reserve
Bank instituted strict withdrawal limits, which were a fraction of the
amount of money people typically had in their accounts. Eventually, the
amount of money people were allowed to withdraw per day wouldn’t even
pay for a minibus taxi ride back home.
Although draconian, these measures were practically impossible to
implement, and Zimbabwe fast became a physical cash society. A social
entrepreneur said this about how he got around the withdrawal limits:
To get cash, we rented other people’s bank cards, transferring
funds into their bank accounts electronically and then using the
card to withdraw money, leaving a small cut for them in their
account. Some people used up to 20 bank cards at the same time
to withdraw enough cash to go about their daily affairs. It took a
lot of effort but was the only way that we could get cash in hand.

Forcing institutions to hold cash and bonds

The government needed continued funding and turned to companies that
held large investments on behalf of other people – in particular, pension
funds, asset managers and insurance companies. It borrowed heavily from
these companies by forcing them to buy government bonds. As inflation
eroded the value of the bonds, these investment companies began to make
significant losses, passing on these losses to their clients. A whole
generation of people lost their pensions and life savings as their investments
were locked in a system of extensive government control.

Policing, military and surveillance agencies

Hard power is a keystone of government control. In an economic crisis, you
can be sure that the army and police will be first in line to be looked after,
even to the detriment of other important government services. Robert
Mugabe kept a firm grip on the military and police from his early days in
power. As inflation rates soared, the police and army presence in Zimbabwe
had to increase. They were paid comparatively well and were given special
privileges, such as being able to ride commuter taxis for free. On numerous
occasions, political protests against rising prices were brutally suppressed.
The regime needed to monitor people’s behaviour and movements, so it
set up numerous spying agencies. The first was the Central Intelligence
Organisation, which sought out any political dissent. It worked closely with
the Reserve Bank, which had divisions to monitor and control currency
transactions. The Pricing Control Commission was established to monitor
prices, approve price increases and set prices generally. The rather absurdly
named National Economic Conduct Inspectorate (NECI) provided further
surveillance of both local and international transactions.
These surveillance agencies targeted, among others, business leaders with
threats of imprisonment. They relied more on bully tactics than advanced
detective and monitoring techniques. Most in government had their salaries
inflating away faster than they could receive increases. With the extreme
financial pressure they were under, government officials usually did what
they could to catch people just so they could extract a bribe.

An elderly lady who worked for us part-time went to buy books for the
orphans we helped. She purchased a stack of books and paid the bookseller
in US dollars. Just then an undercover government agent pounced. We were
forced to pay a bribe. I hate bribes, but when the choice is watching an
elderly lady go to jail or paying a bribe, you pay the bribe.
– Head of a non-profit organisation

At one stage, hundreds of headmasters and headmistresses were arrested for

fee increases at their schools.

They arrested many school principals as part of a blitz against increases. I

kept a roll of toilet paper on the desk and an appropriate coat behind the
door in expectation of the moment that I would be arrested. Since we could
only wear two items of clothing in jail, the coat had to be a big one! All the
school principals in our area did the same.

– Headmistress
 Courts, judges and prisons
The justice system in Zimbabwe became corrupted as the government
replaced experienced judges with political cronies. Courts soon developed
into arms of state control, and as hyperinflation ravaged the country, the
penal system of fines and prison management completely broke down. By
the time the fines were argued in court and prosecuted, their value had
become worthless from inflation. The myriad of invasive laws made
everyone a criminal, so the prisons soon became overcrowded and were
hopelessly underfunded. Prison guards were underpaid, and corruption
flourished as justice became a matter of bribery and favours.
One CEO of a large company was caught receiving a salary in an
offshore bank account:
We were a listed company at the time. A number of politically
connected individuals used their access to newly printed money to
buy out the company in one go. We were cruising along with a
board that was deeply connected to our business and which had
secretly approved offshore salaries for its executives. In one day
the entire board was replaced with government officials. It put us
in a tough position because we knew they suspected us. We
couldn’t trust the very board that we reported to. We began to
delete any information on our computers that made reference to
illegal activities – which in itself was illegal.
Within a month, the NECI came to audit us. They were dark-
suited shady characters who wore sunglasses – how we imagined
the CIA or the FBI in America. When they arrived at our offices,
they took the executives into our boardroom and one by one
escorted each of us to our offices. They went through every email
and every document in all of our files and then proceeded to
search the toilets and other rooms in the building. They were
looking for any evidence showing that we had paid salaries in
foreign currency. The senior leaders took me aside and said,
‘Right, we know everything you have done. If you don’t own up
 to it we will put you and your wife in jail.’ It was a hair-raising
time!
The agency was there for several weeks, going through our
processes with a fine-tooth comb. Eventually they found one
email authorising the offshore transfers.
They found out earlier in the week, but only arrested us on the
Friday – bail applications were heard during weekdays so we had
to spend the weekend in jail. This was standard for the spy
agencies. It was a way of hassling people without either fining
them or putting them in prisons long term after expensive legal
proceedings.
That day, they arrested five of our executives. My wife and
friends took oranges and chickens for the guards at the cells to
ensure that we were treated okay.
As part of the bail terms, I had to report to the court every
Monday and Friday. The NECI then indefinitely delayed court
proceedings. It was the biggest headache and made my life a
misery for two years. Eventually when the court date did come,
they produced proof of the offshore account and I was told that if
I paid all my foreign funds to the government, the charges would
be dropped. I gratefully gave them everything I had.

Media and centres of influence

Control the media and you can control the message. Zimbabwe’s
government knew this all too well. It closed down media companies that
weren’t sympathetic to its interests – which were most of them! Only two
newspapers remained, The Herald and The Standard – both were state-
controlled. All foreign journalists were banned from the country and several
were arrested.
Many churches were infiltrated by spy agencies and numerous church
leaders were arrested for speaking out against the government. In the rural
areas, tribal leaders were kept under keen surveillance. Rural towns and
villages experienced violent protests in reaction to the government’s
overbearing control. But the government held firm, doing everything in its
power to control the flow of information, how it was heard and how it was
interpreted.

The politics of printed money in a nugget

How you respond to government control is a defining feature of surviving
hyperinflation. In almost every country the world over, central banks print
paper money and lend it to commercial banks. Commercial banks then
‘print’ electronic bank credit money and lend it to people like you and me.
They also lend this to the government. The government uses the central
bank and the commercial banks to create more money for itself to fund its
expenses, manipulate markets and benefit special interest groups. With an
unlimited chequebook, Zimbabwe’s government could spend as it pleased.
However, tax income fell significantly, eroded by inflation, and the
authorities had to rely more and more on newly printed money and
confiscation (theft) of foreign currency to fund their expenses.
As inflation increased and ordinary Zimbabweans lost confidence in
Zimbabwe dollars, the government resorted to extensive control measures;
it managed prices, fiddled with inflation rates, and used obscure language
that made it difficult to understand definitively what was going on or to
criticise effectively. To control the message further, a host of new laws
needed to be passed to keep control of the public, particularly to control
bank transactions and everyday trade. An important component was an
enlarged police and military presence to implement these laws; the justice
and penal systems developed into tools of state coercion. Almost everyone
became a criminal as petty laws proliferated and regulations became ways
in which the state could extract bribes and fines to try fill up its barren
coffers. Finally, the media and the local centres of influence were infiltrated
and forced to toe the government’s line.

Think about it
1. To what degree is your government increasing its control over the population?
2. Does it use word gymnastics in public comments?
3. If the government made ordinary behaviour a crime, would you disobey the laws?
 Part II

H Y P E R I N F L AT I O N : T H E P E R S O N A L E X P E R I E N C E

In the first part of this book, we examined why and how hyperinflation happens
and what it looks like economically. In discussing the economic principles of
hyperinflation, it can be easy to forget how this kind of crisis affects society in
deeply practical and personal ways. Zimbabwe gives us fascinating and sometimes
jarring insights into the daily challenges that ordinary people from all walks of life
can face during the chaos of hyperinflation. The stories in this section highlight
how ordinary people responded to the pressures of rapidly rising prices.
Take a moment to consider how prices affect your daily life. There are
thousands of prices you interact with on a daily basis. Most of us expect these
prices to stay more or less the same from one day to the next – it is something we
take for granted. What would you do if prices started to rise uncontrollably? When
prices soar, it places people under severe and sustained pressure that is probably
unlike anything you have ever experienced. This section of the book gives crucial
insight into some of those pressures, with real-life examples of how people have
responded to extraordinary and distressing circumstances.
 Chapter 7: The economics of hunger

There was no food anywhere. You couldn’t find basic supplies in any store,
not even milk … and yet there was always enough beer. I don’t recall us
ever not having beer.
– Zimbabwean expat in South Africa

It was the end of a lavish family Sunday lunch, the kind that makes your
eyelids heavy and draws you towards a long afternoon nap. We’d all
finished our meals and were waiting for Nonna Marisa, our Italian
grandmother, to be done. Her withered wrinkles told of a long life and great
wisdom. Concentrating, she reached slowly for the butter dish and spread
large lumps of it on her last remaining chunk of bread.
‘Have another piece of bread with your butter, Nonna,’ my brother joked.
She smiled a knowing smile and finished it off, bread slice and butter
chunk.
She paused to think before stretching out a knobbled finger. ‘You young
people have never known what hunger is. You have never felt the pain of it.
If you had, you would know how wonderful it is to have butter.’
Nonna grew up in the southern part of Italy in well-off circumstances.
Her family were wealthy Neapolitans who owned numerous properties in
the south of the country. She grew up without a care and had everything she
needed.
But in the dark days of World War II, the entire community experienced
food shortages unlike anything they had ever known. When the American
army arrived, the locals begged them for food. For a long time, Nonna
considered butter and olive oil as precious luxuries. She never forgot her
experience, nor did she lose her sense of gratitude for food.
 Hyperinflation forced stores to close down
The food shortages Nonna experienced were a result of war, but in
Zimbabwe they were the result of the ravages of hyperinflation. As is
normal in modern economies, most relied on stores for the provision of
daily necessities such as food, and as the stores emptied, food supply
became a critical and desperate problem. It wasn’t just grocery stores that
emptied; it was all stores. People could no longer get ordinary retail goods
from the shops. If you wanted something, you had to find alternative ways
to get it.
Hyperinflation pushed retailers to bankruptcy. As store owners raised
prices to stay in business, the government fought back in warlike fashion
with price controls. The Price Control Commission was set up to regulate
prices. Hundreds of store owners were arrested for trying to stay in
business, being accused of ‘profiteering’. Price control agents confiscated
shops’ entire stock as a penalty for raising prices. It became a formalised
means of looting. Agents made off with flat-screen TVs, foods of all kinds
and other goods.
Price controls caused shop owners to stop supplying goods to the public.
In their zeal to control prices, the government ended up making the
shortages far worse, which only served to force the market price of goods
even higher.
Further compounding the folly, the government made it illegal to cease
supplying. It tried to force the retailers to continue providing goods, but this
only achieved one thing: worse shortages and closure of entire industries.
Large retailers had to stay open and keep their staff, even though the shops
were practically bare. They always seemed to find at least one item to keep
on the shelves – a loose toilet roll or a bottle of jam placed on the odd shelf
in otherwise naked aisles.

Understandably, we went bankrupt. Who can continue profitably in such

circumstances? When we were confronted by Pricing Control, we blamed
our lack of supply on the manufacturers who had increased their prices.
 The PC agents then went, with large mobs of rioting youth, to the various
factories to force them to reduce prices.

The manufacturers couldn’t decrease their prices either without going out of
business – they had input prices set by world markets. Quickly, the whole
supply chain shut down. By the middle of 2006, there weren’t any stores that
had any goods in them. It was an absolute tragedy.
– CEO of a retail company

Hyperinflation caused mass hunger

Desperation set in. Suddenly, towns, cities and rural areas that had come to
rely heavily on sophisticated ‘just-in-time’ supply systems were highly
exposed. The smaller towns in the rural areas were particularly vulnerable.
Everyone living in these places had lived their lives on the assumptions that
goods would be delivered to stores that were close to them. When this
stopped, the entire make-up of these urban areas changed. As hyperinflation
destroyed the economy, it left families frantically searching for their next
meal.
When we went into the supermarkets, all the people who worked
there were just standing around. The shelves were empty and
there was no food to be found anywhere. It was bloody scary.
One executive I interviewed told us in heart-rending terms how it affected
his factory workers:
Our staff were all very thin and it became a great problem for our
business. We had instances of staff fainting from hunger.
Eventually we paid them out in food boxes when we had access
to them.
Another interviewee said:
With the massive shutdown of industry, millions were left without
jobs and without access to food. I don’t know how they survived.
Each time a grain truck passed through rural areas, a steady queue of
mothers carrying children on their backs sprang up seemingly from
nowhere. They were waiting to pick up the few kernels of grain that fell
onto the side of the road. Hunger was such a major problem in these parts
that desperate people even ate bark from trees.

If the shops can’t get us food, the government must!

Food became a hot political issue. The ruling political party began to supply
grain and food to rural communities, which became a useful way of
ensuring political support as well as punishing lack of support. In addition
to oppressive policing and army control, food supply was a useful way to
maintain the party’s hold on power.
The opposition party cottoned on to this strategy and also began
supplying food to communities. In response, the government made it illegal
for anyone to transport large quantities of food without a government
licence. If someone wanted to get food aid into a particular area they would
have to pay bribes to police along the highway, just to help starving
communities. Not only were shops emptying, but individuals couldn’t even
supply food to their own families in the smaller towns without government
approval. This politicisation of food set the scene for major political
violence in the rural areas, particularly as food became scarcer and the
people more desperate.
As food shortages worsened, and as government food distribution
became more corrupt, starvation in the rural areas grew to be endemic. The
Zimbabwean government covered up and suppressed information about this
tragic episode, so the statistics are unavailable – but those Zimbabweans we
interviewed generally estimated that hundreds of thousands of people ended
up starving to death, particularly outside the main cities.
Possibly the most gut-wrenching quote on the desperation of
hyperinflation comes from Adam Fergusson’s gripping account of
Germany’s hyperinflation in his book When Money Dies.
In war, boots; in flight, a place in a boat or a seat on a lorry may
be the most vital thing in the world, more desirable than untold
 millions. In hyperinflation, a kilo of potatoes was worth, to some,
more than the family silver; a side of pork more than the grand
piano. A prostitute in the family was better than an infant corpse;
theft was preferable to starvation; warmth was finer than honour;
clothing more essential than democracy; food more needed than
freedom.

If not from shops or government, where else do we get food?

The government was not involved in supplying food to city and suburban
areas, and as a result people turned to the only way they could live in these
circumstances: community support. Those who survived developed
sophisticated barter systems of trade. Communities drew closer. Everyone
had to develop relational connections for the supply of some form of food –
if you didn’t plug into relational networks, your chances of surviving were
slim. Quickly, formal distribution networks morphed into crude but
effective relational supply chains.
Most people who had lived all their lives relying on their local
supermarkets and cafés to supply them with their daily food and lifestyle
needs suddenly had to make alternative plans or go without. Apart from the
politically connected few who had access to government stores of food, the
shortages were universal. All people in Zimbabwe had this problem, from
the wealthiest to the poorest of the poor.

Meat matters
My husband and I did not eat meat for a full year. It was scarce up to that
point, but by 2008 we just couldn’t get it anywhere – we were both high-
level professionals in our various industries and yet it was too expensive for
us.
– Woman based in Harare

As the wave of farmland invasions swept across Zimbabwe, farmers were

left with no choice but to slaughter and sell entire herds before their land
was taken. Prices for meat had been rising in shops, but suddenly a day
came when meat prices dropped as the glut hit the market. As the price fell,
it forced other uncertain farmers to slaughter their cattle as well for fear that
prices might keep falling. Suddenly, Zimbabweans everywhere could buy as
much meat as they wanted at affordable prices. The joy was short-lived
though. The glut was followed by chronic shortages after the commercial
livestock throughout the country was consumed. Meat all but disappeared,
and meat prices rocketed. People could only get it through their barter
networks.
Meat was one of the hardest commodities to trade. Live cows couldn’t be
transported because of government restrictions, but once a cow had been
slaughtered, the meat would perish quickly. Power cuts caused freezers full
of frozen goods to defrost within a day without electricity. Fresh meat
eventually could only be sourced very selectively on the black market.

One night, my brother called me on my cell phone. ‘I’ve found some meat,’
he whispered barely audibly. ‘Meet me at the back of the train station in
half an hour.’ We shot through straight away and met him in the dark of
night. In the boot of his car our shining torches revealed half a bloodied ox
on a plastic lining. Right then and there, with an old axe and large cutting
knife, we chopped it into pieces. And out of the night came the customers.
We sold the entire boot’s contents by the end of the evening!
– Father of three based in Harare

Other food shortages

It wasn’t just meat that was in short supply – even bread was scarce. People
had to queue many long hours when it was available. An enterprising
woman I interviewed managed to get hold of dough to make bread. In her
story we can appreciate the lighter side of hyperinflation.
While there was a control on the price of bread, there was no
control on the price of dough. I had heard that there was a
supplier of dough in Bulawayo and I was going down there on
business. I bought three lots of dough in little packets. Because of
the fuel shortage, we couldn’t turn on our air conditioner since the
 car would use more fuel. The drive back from Bulawayo was
really hot and I had left the dough on the back seat. In the heat,
the dough began to rise.
It grew out of the bowl on the floor and spread out all over the
back seats, eventually rising all the way up past the level of the
windows – there obviously was quite a bit of yeast in it. As I was
driving I saw this hideous growth in the back of my car and
panicked! I stretched back to grab at it and it popped and flopped
all over the floor. It had spoiled and there was nothing I could do.
Shortages of ground maize became acute. Known locally as sadza, it is the
staple diet of most Zimbabweans. Deprived of staple foods, people in rural
areas turned to hunting. Wild game that used to be abundant in the
wilderness areas was all but eradicated.

We had both cats and dogs. It was difficult to get ordinary food for us, but
next to impossible to find any pet food. We fed the dogs with sadza but the
cats wouldn’t touch it. Instead, my husband would shoot pigeons to feed
them!
– Counsellor and mother of two

Shopping alternatives
Those who had foreign currency would often ‘pop over the border for their
monthly shop’, which became good business for retailers in neighbouring
South Africa and Botswana. It was the last source of quality retail goods
that most city dwellers had become so accustomed to.
In Woodmead, Johannesburg, a large retail discount store called Makro
saw the opportunity and set up an entire section of its store for Zimbabwean
shoppers. It was hugely successful, selling Zimbabweans specially stacked
pallets of bulk goods. Back in Zimbabwe, this option became so popular
that business deals were often quoted in Woodmead Makro Pallets, the
equivalent of a standard pallet of goods from the store.
 Once goods had been purchased and stacked on a pallet, they needed to
be transported. A transport network developed with numerous couriers
specialising in moving Makro pallets across the border.
This developed into an online system where Zimbabweans could order
directly on the Internet, pay in foreign currency and have delivery made to
their houses. However, this option was only available to those who had
offshore bank accounts denominated in South African rand.

Bartering
Those who didn’t have access to food from abroad had to source locally
from others within their community. Most of this was by barter. Each
individual had to become a specialist provider of a particular food or good
in his or her community.
Since we had to source food through our relational networks,
there was simply no access to luxuries such as soft drinks, chips
or other fast food. Sugar was so precious that few people
consumed it in unhealthy quantities.
Apart from the politicians who were all tubby, we had few
overweight people about.
The only food we could get was locally grown vegetables that
were absolutely organic and grown in backyards – no one had
money for fertilisers or pesticides; and certainly no one could get
expensive genetically engineered seeds.
Most people in the developed world don’t have the first clue about how to
kill, de-feather and gut a chicken, let alone slaughter, skin, gut and quarter a
cow. How many people would then have the stomach to eat the animals
they’ve just killed? During hyperinflation, these questions become more
than just hypothetical!

How do you get clean without soap?

You are most probably used to having access to numerous everyday goods
that you can buy from the store. It’s what adds to your quality of life. If you
need something, anything, you just pop into the nearby mall outlet to get it,
often paying by card. These simple conveniences disappeared during
hyperinflation and for those who had lived their lives based on supermarket
supply chains, life became much more difficult.
Toilet paper was extremely hard to get hold of. Have you ever considered
what alternatives you would use for toilet paper? Tissues perhaps. Wet
wipes maybe. Newspaper? Handkerchiefs? Store shelves were emptying, so
none of these alternatives were readily available either.
What about other sanitation needs? What would you do without soap,
toothpaste and other cleaning materials? When they aren’t available, what
would your alternative be? Some people made their own soap. Some went
without. Others got it through connections in their network. Many
purchased these items in other countries.
These are examples of the lifestyle pressures ordinary Zimbabweans
were under as the goods they’d come to rely on became rare finds in the
ordinary course of life. It applied to all goods in the shops – light bulbs,
candles, clothing, deodorant, make-up and hair products, TVs, computers
and all other merchandise. As inflation ravaged the country, the formal
retail sector effectively closed down and people had to get their goods
through other means. Most learned to be thrifty with what they had and
made do without. Living standards fell constantly as the value of the
currency plummeted.

Fuel: the energy of an economy

Fuel was one of the more difficult commodities to obtain. The fuel
shortages started early in 2000, but as the fires of inflation raged, it became
almost impossible to get any. Fuel is a crucial commodity that everyone
needs every day in both direct and indirect ways, for transport of people and
things. Fuel became the source of electricity for many who were using
generators when electricity was cut.
Fuel stations continually had long queues of cars winding from their
forecourts. Many people slept in their vehicles while waiting successive
days to fill their tanks. When fuel eventually arrived, usually only those at
the front of the queue received it. One interviewee had this to say:
Our friends who worked at the BP and Shell stations would let us
know if a truck was coming. The news travelled quickly and
queues formed immediately. It took so much time away from our
business, so we paid drivers to queue for fuel for us. The idle
queues became quite festive – since there was little to do during
the time and everyone had to sit and wait, the time turned into
great social events that crossed every cultural and ethnic barrier.
We met many people during that time.

Other personal goods

It’s not just a shortage of food or cleaning materials that is of concern in
times of hyperinflation. Think of all the personal items you use on a daily
basis that bring you creature comforts.
One transparent waitress had this to say:
Finding tampons was another task, all told. You couldn’t readily
get them in the shops. The only way I could find any was to get
from my network – it’s funny to talk about it now. We were all
going through the same thing so it wasn’t embarrassing; it was
just one of those vulnerable things you did. I’d tell the ladies in
the most surreptitious way, ‘Hey … it’s my time.’ We all
understood and somehow the community would get you what you
needed. Eventually, an eco-friendly silicone Mooncup became
available from the UK. These reusable devices were an instant hit
in Zimbabwe. For those who had children I can’t even imagine
how difficult it must have been to get baby goodies.
Make-up and hair products were luxuries that most did without. In many
ways, people went back to more primitive living.

The economics of hunger in a nugget

Lofty economic terms such as hyperinflation and velocity of money had
very real implications for the quality of life of everyone on the ground.
Stores emptied as the real effects of money printing hit home. Food,
sanitation and other products and services people had taken for granted
became extremely difficult to find, and sourcing them often took hours of
time and effort. Mass hunger became acute and many thousands of people
died of starvation.
In a few very short years, people’s needs became so basic. They worked
for food, a toilet roll or a bar of soap – simple goods that made a profound
difference in everyday comfort levels. In short, the consumption-frenzied
economy made normal goods incredibly scarce, and people succumbed to
ever-encroaching poverty, living for their day-to-day survival and unsure of
where their next meal was going to come from.

Think about it
1. If the shops emptied, how would you get your food and basic necessities?
2. How easy is it for you to produce your own food?
3. Do you have strong enough community relationships to build reliable relational supply networks?
4. Would you be able to kill an animal for food?
 Chapter 8: Government shutdown

All basic government services gradually disappeared … All except the

police.
– Bus driver

It had been a 14-hour ride from Johannesburg to Harare, and I was feeling
grimy in a way that only a long bus trip can make you feel. It was my latest
fact-finding trip to Zimbabwe and I was relieved to see my host, Steve, as
he arrived to pick me up.
‘Gosh, I can’t wait for a hot shower to clean off,’ I said.
Perhaps it was the travel weariness, but I didn’t notice the awkward
silence.
His home was large and spacious, and on arrival the domestic helper,
Aunty, ushered me through to my room. After a brief conversation with
Steve, she indicated that I could have a bath. Not being the bathing type, I
politely declined and asked for a shower instead. Only when I got to the
bathroom did I understand. There in the unused shower was a hand-held tub
filled with lukewarm water and next to it, a neatly folded washcloth. The
water came from numerous containers around Steve’s house that Aunty had
stove-heated using a generator. My ‘bath’ consisted of me soaping and
rinsing myself from the tub using a wet cloth. As I hunkered there, wiping
myself down, hyperinflation became real in a way I hadn’t understood
before.
That wasn’t the end of it either. They had no running water to flush the
toilets. I couldn’t even have a decent shave. I’ve spent most of my life in
suburban Johannesburg, where a daily shower and multiple bathroom visits
are an absolute minimum for any form of sanity. Like stable prices, when
these things you take for granted disappear, quality of life plummets
instantly.

During hyperinflation, government departments and municipal services are

the least likely to survive. Almost all of Zimbabwe’s municipal services
collapsed. No one could depend on even the most basic of comforts, such as
access to clean running water.
If well-organised businesses were folding, you can imagine how quickly
inefficient municipal services collapsed. Costs soared, yet municipal pricing
and billing structures were slow, bureaucratic and couldn’t keep pace with
inflation. Inputs and components that had to be imported were priced in
foreign currencies, but municipalities had to charge for services in
Zimbabwe dollars. By the time these municipalities received payments for
their already under-priced services, the payments were worth much less in
real terms. This crippled municipal cash flow and not even government
bailouts could prevent deterioration in the quality of their services.
The painstaking bureaucracy of wage setting and trade union negotiations
meant municipalities couldn’t raise salaries fast enough, and since they
were forbidden to pay their staff in foreign currency, the purchasing power
of municipal wages plunged. Most skilled staff emigrated in droves. People
in municipal salaried positions often had to subsidise their salaries either by
trading on the side or through corrupt means.
David Matthee, a small-business owner in Harare, highlighted the
dilemma well:
In my business, if I didn’t find alternative currencies to trade in I
would have gone bankrupt. It was all highly illegal and if I got
caught, the penalty would have been severe. But I had to do so to
feed my family. You can imagine though that no one working in a
bureaucratic position in government would be willing to take the
risk. No government worker would risk a jail sentence for the
sake of his department.
 The government forced civil services to accept cheque payments
and bank transfers. We readily used cheques to pay our municipal
expenses because by the time they cleared, the amounts paid from
our bank accounts were a fraction of the initial purchasing power
value.
In the excesses of hyperinflation, municipalities became unviable. The
government tried to keep facilities going – it even made newly printed
money directly available to state entities – but it could not keep up, and
inevitably, most municipal departments went bankrupt.

Water and sewerage

I went for over eight months without any municipal water and got so very
depressed. It was the lack of water that got me down. You can live without
electricity but you can’t live without water.
– Widowed mother

What would you do if you couldn’t get running water? Throughout

Zimbabwe, water treatment facilities fell into disrepair. Water supply was
intermittent at best, and the standard of purification was dreadful. Water
treatment chemicals were expensive and, like equipment and spare parts,
had to be imported. Water engineers resigned, leaving less skilled staff to
apply purifying chemicals. The result was untrustworthy water quality. It is
rumoured that at one stage the staff at the water department, who had
almost no skills or training, got the chemicals confused and almost put
arsenic in the water.
Dams and piping networks fell to pieces. Frequent water cuts meant air
regularly got into the piping system, causing parts of it to rust and break.
Water in underground pipes seeped away silently, and burst pipes gushed
their wasted contents down the streets.
David Matthee continued:
They couldn’t charge us anywhere near what was appropriate.
Their billing systems always ran a month or two behind and by
 the time we paid the bill, it was small relative to price increases.
Electricity and water payments were such miniscule amounts, it’s
a wonder that the services continued for as long as they did. I
have no idea how those departments lasted so long.
Sewerage treatment plants had the same problems. In high-density areas,
sewage flowed openly in the streets and ran into rivers. In some places,
sewerage pipes leaked into the water pipes, giving rise to regular cholera
outbreaks.
Zimbabweans’ responses to water shortages were very resourceful. Many
houses had access to boreholes – sophisticated wells tapped into
underground lakes. The water table in Zimbabwe has historically been quite
high, so this was an easy solution for many people. An active black market
developed for water. People who had borehole water tapped it into large
tanks and sold it to those who didn’t have their own water sources.
Some were extremely successful in finding solutions to problems
concerning domestic water supply. A number of smart, inventive people
developed their houses to be as free from municipal supply dependence as
possible, using innovative home-made engineering solutions, creating mini-
dams filled by various drainage systems. Many bought large water tanks,
which they would fill with borehole water and with municipal water when it
was flowing. Those who had swimming pools were at an advantage since
these were the largest water tanks of the lot.
But even with elaborate systems, people had to be highly conscious of
their water usage. Some used leftover bath water for the toilets. Self-
rationing was non-negotiable.

Electricity: the power behind all we do

What did Zimbabweans have before candles? We had electricity!
– Zimbabwean joke

Next on the list of critical shortages was electricity. The Zimbabwe

Electricity Supply Authority (ZESA), the state-owned electricity supplier,
suffered all the same problems as other municipal and state-run services.
 Not only did ZESA find it difficult to source inputs and to fund
escalating costs, but it was also burdened with massive theft problems.
Copper cables and transformers that provided electricity to entire districts
were stolen on a regular basis. Copper was something that could readily be
exchanged for goods or cash in the milieu of economic devastation, and so
widespread cable theft became a significant problem for ZESA – it was too
easy an option for desperate people.
Turbines at the power stations needed ongoing maintenance, and without
it they finally broke down. Zimbabwe could, in times past, generate so
much electricity that it supplied neighbouring countries, but eventually
most of the country’s electricity needs had to be imported from South
Africa.

To compensate, we got the ‘Rolls-Royce’ of generators. It made such a

noise and the smell was awful. We never got used to that. Every night when
we turned it off, a burden lifted from our shoulders as the night air returned
to silence.

We’d often use the camping equipment – candles, gas lamps and
rechargeable LED lights that lasted for 25 hours.

I installed a large battery inverter system. As soon as the power cut off, it
would kick in. The charge was not enough for everything, just for the
computers and what we really needed.

Fridges, stoves and other heavy electrical consumption equipment had to be

turned off. You can imagine how difficult it was to keep food fresh. We had a
rule that no one could open the freezer during the blackout times.

The blackouts forced us to become less reliant on computers, so much of

our business was done with pen or pencil.
– Various Zimbabweans on their responses to the electricity shortages
Most people didn’t have the money to purchase a generator, and if they did
buy one, few could find the fuel to run it. So to stay warm in winter, many
burned wood in fireplaces or drums, and cooked over an open flame.
Countless free-standing trees in public spaces were cut down to be used as
fuel.
How would you survive if you didn’t have any electricity? You use
dozens of household items that require electrical inputs. If those couldn’t be
used any more, what would you do? How would your quality of life be
affected if you couldn’t use, for instance, washing machines, tumble dryers,
dishwashers, fridges, microwaves and stoves, hairdryers, geysers,
computers or rechargeable cell phones? In Zimbabwe, these modern
necessities became obsolete without access to electricity.

Other municipal services

The municipalities stopped providing all forms of infrastructure
maintenance and refuse removal. The whole structure and support network
for dams, roads and schools fell apart. Street and traffic lights stopped
working, so many intersections became fourway stops. Roads were lined
with litter. Prison systems collapsed and thousands of prisoners died as
penitentiaries couldn’t provide basic food and water to inmates.
Government hospitals ground to a halt. Deteriorating health conditions
affected poor people the most. They could no longer get proper care. Local
medical aid companies went bankrupt, putting affordable health care out of
reach for most Zimbabweans. It became difficult to get even the most basic
of medicines, such as antibiotics, anti-inflammatories and asthma pumps.
People couldn’t go across the border and purchase medicine, like they could
for other goods. Neighbouring countries typically restricted the purchase of
drugs without a local doctor’s prescription. All hospitals stopped providing
major treatments, including cancer care. Power would often go off in the
middle of operations, which made surgery risky. With water cuts, hospitals
couldn’t clean properly, and disposal of medical waste was haphazard. The
once pristine, world-class hospitals became derelict and hazardous, and
doctors and specialists flooded out of the country.
 Schooling also fell apart.

I attended school at Plumtree High School, which was once ‘the Eton of
Zimbabwe’. When I returned recently, they had no beds in the boarding
school. The scholars slept on mats. They had no tables and no equipment.
Their textbooks were all photocopied – if the photocopiers could be
repaired. The schools all went to rack and ruin.
– Politician who served in public education

The two government services that were sustained were the police and the
military. The government knew well enough that these were the key to its
continued power and so did what it could to keep these two departments
funded and operational, even at the cost of the other services.

Government shutdown in a nugget

In Zimbabwe, municipalities couldn’t continue supplying critical services
as they went bankrupt. The cost of inputs increased faster than customer
tariffs. Critical staff departed in droves. Systems broke down and vital
equipment fell into disrepair. Whatever municipal services remained in
operation were mostly wasted as distribution networks broke down.
In particular, water services were heavily disrupted, as were electricity
and telecommunications. Hospitals, prisons, public schools and general
infrastructure became derelict. The police and military were the only
government services that survived this difficult period, but these quickly
ceased to be public services and came to serve the political ends of the
ruling elites.

Think about it
1. To what extent do you rely on government services for your quality of life? If these services were
removed, would you be able to survive?
2. How reliant are you on municipal electricity supply, and what would you do without it?
3. Do you have alternative options for water supply?
 Chapter 9: Strength in community

It was the best of times, it was the worst of times, it was the age of wisdom,
it was the age of foolishness, it was the epoch of belief, it was the epoch of
incredulity, it was the season of Light, it was the season of Darkness, it was
the spring of hope, it was the winter of despair, we had everything before
us, we had nothing before us …
– Charles Dickens, A Tale of Two Cities

Andrew, our milk supplier, owned a few cows, which he milked daily by
hand. An accountant by trade, he had lost his job soon after the crash.
When his wife had fallen ill, he bought the cows to help with expenses.
Our milk rendezvous point was always at the back of the golf club late on
Saturday afternoons in the shadows of the parking lot. Buying milk this way
was highly illegal so we never arrived in groups bigger than three or four.
We’d always see him arriving from afar in an old Toyota, hitched with a
rickety trailer carrying three big black dustbins – treasure hidden from the
prying eyes of the police. The bins were called ‘chigubs’ – a local name
derived from the scooping sound made when a jug passed through the milk.
Cheegoooop!
The tubs opened to reveal a fortune – thick fresh milk full of cream, mixed
in with a few tiny floating blades of grass in a rich lather. Some days we
would arrive late, only to get the very last of the tub; like diluted tea, it was
thin and watery pale blue. The chigubs were washed with bleach so the milk
always had a tinge of ammonia to the taste, particularly the milk from the
bottom of the barrel. We tried not to notice; it was always just so lovely to
have milk.
 In return, our gift would be a jerrycan of fuel, chopped wood or anything
else we had of value at the time. It was a total barter arrangement. We
never paid with money – except if we had foreign exchange, which was
rare.
– Susan Barber

We were so desperate and our needs so basic, and yet the sense of
community was a well supplied by deep waters. Everyone was in the same
boat and each of us had an understanding of our responsibility to help one
another. It was the grapevine that saved us …
– Susan Barber’s daughter-in-law

As described earlier in this book, there was only one way to survive
hyperinflation in Zimbabwe, and that was in community. As formal supply
chains broke down, an intricate network of community supply evolved
throughout the country. Instead of purchasing goods in shops, you had to
rely on relationships with people who had access to the food and personal
services you needed. In this way, the community developed a bartering
network that was practically impossible for the government to control or
regulate.
Likewise, as government market manipulation and control increased, so
people within the community had to depend on one another for protection
and support. The sense of togetherness grew in the trial. Business leaders
did what they could to pay their staff salary increases as fast as possible.
Customers paid in kind.
Most queues took a number of hours to get through – and sometimes
days, in the case of the fuel queues, which sprang up everywhere as fuel
became increasingly scarce. The only thing to do in these queues was to sit
… wait … and socialise! The queues became connection points for great
parties, with people from all walks of life and diverse backgrounds bonding
with their common problem. In the fuel queues, it wasn’t uncommon for
people to have an impromptu braai (a southern African term for a barbeque)
out of the trunk of a car on the roadside, inviting others to join. The queues
were festive occasions with great camaraderie.
As businesses closed early, it gave more people time to exercise. Fuel
shortages meant people weren’t using their cars as much, so they walked a
lot more. If anyone had fuel, they gave lifts generously. Many of those we
interviewed described how deeply bonding this process was and still speak
of it with fondness and nostalgia. In the midst of the darkness, there was
tremendous positivity among the people. It was the bright moon in the night
of economic collapse.
The daily, personal pressure that everyone was under brought them
together in a way they’d never experienced before. While the government
tried hard to emphasise various tribal/racial differences throughout the
period, the extreme pressures of day-to-day living drove people closer.

Crime, theft and the breakdown of civil order

During every great inflation there is a striking decline in both public and
private morality.
– Henry Hazlitt, The Inflation Crisis and How to Resolve It

In my research, one of my main points of interest revolved around the

criminal response to hyperinflation. I figured that there must have been a
breakdown in civil-social order, since there was such widespread lack of
basic necessities and failure of the formal supply sector. Surely, I reasoned,
if people couldn’t get basics such as food and water, they would resort to
wholesale theft and violence.
I was amazed at what I found in Zimbabwe. In the midst of economic
turmoil, there was relative social peace. The only real violent crime in the
country was politically driven.
Diana Blatter, an expert in sociology in Zimbabwe, highlighted this in
my interview with her:
We studied social aspects of development and aid, and one of the
questions we asked was, ‘Why do some countries descend into
 chaos, like Somalia or Afghanistan, and why do others not – like
Zimbabwe?’ Hyperinflation had the most painful effect on
society, and yet Zimbabweans still stuck together, waited
patiently in queues, and had a respect for law and order
throughout the time.
Our conclusions on the matter were that the more fragmented the
people in terms of tribes and cultures, the more fragmented they
become under extreme pressure like hyperinflation. In Zimbabwe,
despite the tribal differences, there are strong associations with
being Zimbabwean that transcend tribal allegiances. In other
nations, tribal, economic and social allegiances rank higher than a
sense of communalism.
Blatter further found that the deep value system shared across the cultures
preserved the rule of law. Most Zimbabweans held Christian convictions
that guided them to respect the authority of the law, shunning personal
aggression and respecting private property, basic social order and contracts.
Business was done relationally rather than at arm’s length. ‘There was a
gentleness to Zimbabweans,’ Blatter noted, ‘that held them together rather
than split them apart.’
Most people obeyed the government and the police until the laws became
extremely petty. The incidence of muggings at ATMs was very low. Even at
the height of the food crises in 1997 and 2003, when food ‘riots’ broke out,
the marches never turned violent and rarely did participants resort to
aggression.
In most cases, people respected one another and understood that those
who got to the front of the queues first were entitled to receive first. The
only substantial shop looting that took place was done by the price control
officers, who would confiscate store contents because of price law
‘contraventions’.
Zimbabweans are not a violent people, but another reason for the lack of
violence was the effectiveness of the police and the army in putting down
violent activity. The government ensured that these divisions were well
looked after – given fuel and maize meal rations, along with extra status in
society. The riot police, or ‘Rovai’ as they are known – meaning beat up or
hit in Shona – would brutally maintain crowd control. Violent crime and
uprisings were constrained by the threat of severe penalties.

The paradox of the culture and the deterioration of values

Hyperinflation made everyone a criminal because you had to break the law
to survive. We are a nation of law-breakers, forced on us by hyperinflation.
– CEO of a manufacturing company

Zimbabwean society was a paradox. There was tremendous violence and

thievery perpetrated in the name of political power, and yet there was
respect and relative peace between individuals and communities of different
cultures.
The government, in an attempt to maintain control, stirred violence in the
rural areas and townships. Opposition party members were brutally
oppressed, while those supporting the ruling party were given special
favour. There was violent land occupation in the name of land reform and
access to food became a political tool. Increased government surveillance
and control resulted in great acts of terror.
Yet, in stark contrast, people felt safe to walk home at night without fear
of assault.
Instead of the government fostering order through justice, it used the
justice system as a tool to oppress and restrict. Ordinary citizens became
accustomed to breaking the myriad of new laws that were issued in an
attempt to control the population. Slowly, the formal justice system broke
down. Respect for authority deteriorated, and the values held dear within
the culture slowly began to erode.
Despite the peaceful culture, hyperinflation wore away at people’s ethical
resolve over time. As millions were impoverished and government control
increased, the only way to survive was through bribery, corruption and
illegal activities. To continue about their everyday, peaceful lives,
Zimbabweans had to break these laws. The paying and taking of bribes
became an accepted norm.
Instead of obedience to the law, people had to use their own personal
values and sensibilities in relationships as a guideline for what was wrong
or right. Paying someone in US dollars, for example, wasn’t considered
wrong by most people even though it was illegal, while stealing bread was
considered wrong.
Yet, slowly values deteriorated with the heightening levels of
desperation, and petty theft became frequent. Whatever could be stolen in
public spaces disappeared. Anything that was made of wood was used for
fire. Any movable metal was taken and sold as scrap. At one stage, all the
road signs disappeared, many to be used as rudimentary funnels as barter in
fuel increased.
Petty theft grew to be a big problem. There are stories of entire automatic
gates being stolen (but very rarely would the thieves then go on to break
into the house). Businesses struggled with inventory theft because staff just
didn’t earn enough money to make ends meet. Truck drivers would siphon
off fuel from truck tanks. Farmers’ crops and livestock were often stolen –
particularly the livestock, which would typically disappear during the night.
In summary, theft revolved around stock shrinkage and theft of public
property. Violent and aggressive disrespect for private property, muggings
and house break-ins only started becoming a problem once hyperinflation
had completely destroyed the economy and social values had deteriorated
considerably.

The exodus
As the living conditions in Zimbabwe deteriorated, countless Zimbabweans
solved their economic problems by migrating. Neighbouring countries, as
well as countries on the other side of the world, received millions of fleeing
Zimbabweans, not into refugee camps, but by absorbing them into society.
Approximately 3 million Zimbabweans moved to South Africa and many
others went to the UK, Canada, Australia, New Zealand, Botswana and
Zambia. They are currently known as the Zimbabwe diaspora.
 While it is very difficult to get accurate statistics on the diaspora
indications are that one-quarter to one-third of Zimbabweans left the
country, with over 4 million moving abroad.
The social effects of the mass migration were profound. One pastor we
interviewed said this:
It was very hard to pastor a congregation – people were tired of
farewell parties and it was difficult to build our church. The
people in my congregation stopped connecting in relationships
because it was too painful to have to say goodbye continually.
A headmaster had this to say:
It put a huge strain on marriages. Approximately 45% of the
children at school had one or more absent parents. Often both
parents were out of the country working and the children were left
with grandparents or older siblings. One eight-year-old girl we
knew, who was being looked after by her 18-year-old cousin, was
in a car accident while both parents were overseas.
Another teacher said:
The exodus impacted the schools as they lost a lot of students. A
quarter of our daughter’s class left each year. As a teenager, she
thought the world was going to end. We had big arguments
between those who were going and those who were staying.
Those who left were just so negative.
If anyone could get jobs outside the country, they generally left.
This caused a huge loss of knowledge and skills in the economy
and businesses suffered – those who stayed behind didn’t have the
opportunity to leave. They generally were unskilled and had no
alternative.

Zimbabwe’s diaspora: supply from the scattered ones

The diaspora became a critical component of survival for those who stayed
in the country. With up to one-third of the population living overseas, the
influx of donations became a significant source of income for Zimbabweans
– particularly donations in foreign currency, which was in scarce supply.
A host of businesses developed around this external support. Foreign
exchange dealers set up offices in London and Johannesburg to facilitate
transfers of money to locals. Family members sent food packs and basic
necessities back home. An intricate network of distribution agents emerged.
This was the saving grace for Zimbabwe. With the need for imports far
outstripping the country’s capability to export, remittances of money and
goods from the diaspora to their relatives was a critical source of foreign
exchange, and made life more bearable. Without it, the ravages of
hyperinflation would have been felt far sooner and more acutely than they
were.

Pensioners: the generation who lost everything

One pensioner had to move into a tree house. He was very bright but a little
bit bent. He’d climb the ladder to get to his house, but kept his books below
the tree in a big plastic covering. His books were eventually eaten by ants.
No one knows what came of him.
– Social worker who dedicated her life to supporting the elderly

A discussion of the social effects of hyperinflation wouldn’t be complete

without referring to what happened to the elderly and retired. Over the
course of a few years, the entire generation of elderly Zimbabweans was
impoverished.
Hyperinflation destroyed pension savings. Those who had saved all their
lives, diligently putting money into various pensions and long-term
insurance schemes, lost it all. This isn’t the story of one mistake of one old
person; it is the story of an entire generation. The slate was wiped clean and
most elderly people lost everything.
Dramatic pension losses for the elderly weren’t unique to Zimbabwe’s
hyperinflation – this happens in hyperinflations generally. As prices
accelerate higher, fixed incomes can buy less and less. By the time rampant
hyperinflation arrived in Zimbabwe, a savings of Z$10 million, which was a
substantial amount for a pension prior to hyperinflation, couldn’t even buy a
matchstick.
Old Mutual, the largest pension company in Zimbabwe, ended up gaining
most of the assets that were originally allocated to pensioners. Practically,
Old Mutual did everything within the law. However, the terrible effects of
hyperinflation made pension assets available to the company and
simultaneously impoverished a generation of elderly people.
The company now owns large amounts of Zimbabwe’s commercial
property, despite the fact that it doesn’t owe anything on the pension
obligations it had prior to the crisis. While many point fingers at the
pension companies, the practical reality is that it was hyperinflation that
caused this great injustice. Despite this, pension companies are a source of
great resentment among Zimbabwean retirees.36
Most pensioners feel they were given a raw deal from Old Mutual and the
other pension companies. If hyperinflation ever comes to South Africa, the
UK or other countries, pensioners there can know what to expect – they can
forget about any of their pension savings.

My dad’s friend was a partner at a legal firm, having worked there for 50
years. For that entire period he had invested his retirement savings with
Old Mutual. With hyperinflation, his retirement savings were decimated.
Old Mutual sent him a letter saying it wasn’t worth paying him monthly so
they paid out the entire amount. With that payment – his entire life’s pension
– he bought a jerrycan of fuel.

They eventually had to sell their house, which kept them alive for three
years. After that, he and his wife became destitute and had to move to South
Africa to live with their son. Two years later, they both died.

Their lives petered out to a withered end. They couldn’t get any medication,
food or water, and few understood why their money couldn’t buy anything.
There were many stories of pensioners dying in their homes and many
 elderly couples quietly ending their lives together as they reached rock
bottom.

Once, my friend gave an elderly couple a bag of 20 kilogram maize meal.

At that moment, the elderly husband burst into tears. They hadn’t eaten in
days.
– Various comments by those interviewed

Strength in community in a nugget

Hyperinflation in Zimbabwe had immense social effects. One of the most
notable was that it brought people together in community. Bartering,
support networks and relational business thrived. Relationships were a
crucial protection in the chaos of economic collapse. However,
hyperinflation also slowly eroded the value system of Zimbabweans and,
with it, basic trust in the society at large.
The extreme hardships of inflation caused millions to leave. Zimbabwe’s
scattered population – the diaspora – sent money and resources home and
became a saving grace to those living in Zimbabwe.
While petty theft became much more common, violent crime was rare
and mostly confined to state brutality. However, the relative lack of violent
crime experienced in Zimbabwe may not necessarily be indicative of all
instances of hyperinflation. In another context, violent crime may be a
severe threat to survival, as it has been in other historical episodes of
hyperinflation.
Lastly, while hyperinflation affected all people in society, pensioners
were particularly affected. Life savings were totally destroyed, and it left
millions destitute and without help. In fact, people who had diligently saved
throughout their lives lost it all.

Think about it
1. Do you have a community to rely on in a time of crisis?
2. What would be the criminal response in your country to mass shortages of crucial supplies?
3. Do you rely on pension and insurance institutions to invest your money for you, and are these
savings protected from high inflation or hyperinflation?
 Chapter 10: The death of the Zimbabwe dollar

For a few years, you could find notes floating along the streets. Even the
beggars didn’t pick them up. They wanted clothes and food. You know your
money is worthless when you see it lying on the ground.
– CEO of a manufacturing company

Making simple payments for goods and services during hyperinflation was
like catching fleeing mice with chopsticks. Prices kept scampering away.
Try as you might, you just couldn’t pin them down.
In Zimbabwe prices rose incessantly, many times even while people
stood in queues in stores to pay. Payments that would normally be a cinch
to calculate became complex brain-teasers, and unique and unusual
problems arose in day-to-day transactions.

Pricing predicaments
We used to sell our sand and equipment in quadrillions of Zimbabwe
dollars. No one practically knows how much a quadrillion really is. Have
you ever heard of such a number? That is 15 zeros … 15 ZEROS! How can
you make a profit when inflation is so high? It all becomes meaningless.
– CEO of an industrial sand business

With the huge number of zeros, it became a conundrum trying to calculate

even the most basic purchases. If, for instance, you purchased six eggs, and
each egg cost Z$23 000 000 000 000, how many notes would you need if
you had denominations of Z$750 000 000 000 and Z$500 000 000? Not
easy!
In particular, children and older people struggled with the calculations.
Throughout my interviews, I heard stories of pensioners being unable to
calculate payment from the money they had. Often, the elderly didn’t have
the right denominations – but only found out when they got to the front of
the queues. In confusion and desperation, many would give up and leave
the stores empty-handed, if another person in the queue didn’t help them.
Ordinarily simple sums, which children could calculate at lower
denominations, became very complex. Many had to shop with calculators.
Eventually the basic calculators weren’t good enough – they didn’t have
enough space to record all the zeros. The same applied to accounting
systems. Daily transactions couldn’t be recorded electronically.
I interviewed one business owner who used an accounting system that
‘could handle transactions the size of the Russian economy’. Even then, it
couldn’t cope with the number of zeros. When the accounting systems ran
out of space for the zeros, people had to give up accounting. Many
converted their records into units of billions or trillions. But as prices
accelerated every month, it became impossible to compare monthly
accounts. No one budgeted any longer since budgets relied on a certain
value of the currency, which changed daily. Some companies turned to
recording their transactions based on an alternative metric – but those
caught doing this would be jailed.
It became impossible to write out cheques properly because the space for
writing was too small. The problems were the same for price tagging –
often shops would leave out a zero on the price tags of various products.
Astute shoppers would look for goods that were priced one zero short and
quickly purchase them.
The shops had further dilemmas. Till registers couldn’t calculate the
transactions so the bill always had to be worked out by hand. And then each
denomination of the money paid had to be counted using automated money
counters. This slowed the process of trading, and queues grew longer still.
Cashiers eventually stopped using tills altogether. The number of notes
coming in was far too great to be housed in tills. Instead, the money was
dumped into large boxes or dustbin bags kept on the ground beside the
cashiers. Interestingly, we heard of no stories of these boxes ever being
pinched. Money had lost its value as a target for thieves.
 The Reserve Bank of Zimbabwe responded the way central banks around
the world respond during periods of hyperinflation – when the number of
zeros grew too great, it eventually removed these zeros from the currency. It
did this three times throughout the hyperinflation, removing 25 zeros in
total. To put this into context, a Z$1 note at the end of hyperinflation would
have been a Z$10 000 000 000 000 000 000 000 000 note (10 septillion or
10 trillion trillion) had they not removed the zeros.
‘Hey, why try to calculate in trillions? Rather, remove the zeros to make
it easier for everyone.’ But, while this approach solved the problems posed
by large denominations, it also added multiple complexities to daily
transactions and accounting. It was exceptionally difficult to record
transactions or have any comparable set of accounts. In one month, you
may have been earning Z$1 000. And in the next month it was Z$1. In
economic terms, the value was the same because all prices were also reset
lower by a factor of 1 000, but it became very difficult to compare records.
How does a business perform cash reconciliations with those changes? How
do you work out what price is appropriate for your goods if the yardstick
moves so much? First prices increase with inflation, and then prices
radically fall with the zeros being removed. It put tremendous pressure on
traders, which only added more fuel to the inflationary fire.
With zeros being removed, it became tremendously confusing as to
which notes were applicable and which weren’t, since the old money no
longer applied. To combat this and to ensure a continued demand for newly
printed money, the government began to put expiry dates on the notes. This
made trade even more confusing for those who held expired notes. Does a
note of money stop being money from one day to the next purely because it
has expired? These notes continued to be traded for a while, which added to
the confusion.
With inflation raging out of control, people stopped using notes and
began trading in wads of cash known as bricks. Each brick had an
approximate number of currency units in the wad, and the test for whether
there were enough notes in a brick became ‘if it feels right’. The value of
the bricks themselves couldn’t buy more than a loaf of bread or two, and
eventually even these bricks became worthless. The value of the currency
fell so far that the pulp value of the paper bricks became more valuable than
the denominations themselves.
Fairly early on in the process, from around 2003, people dispensed with
using wallets or money purses, which couldn’t hold the amounts of money
required. Some carried their money in big brown paper bags. Others used
suitcases and backpacks. For larger transactions, most used large black
metal trunks.
By this stage, the Reserve Bank was printing notes around the clock – up
to 3 million notes a day. It had been sourcing paper for its notes from the
German minting company Giesecke & Devrient, the same company that
provided the notes to Germany during its hyperinflation episode in the
1920s. However, with sanctions against Zimbabwe, the company had to
cease its supply, and the Reserve Bank turned to locally sourced paper, the
quality of which was very poor. The falling quality of the paper only made
people want to get rid of the money faster.
With the major problems in using the currency, the tide of culture began
to turn against the Zimbabwe dollar and people started to use alternatives
for paying and saving.

Three alternatives to government fiat money: food, fuel and foreign

currency
How can you take money that is losing its value? You can’t. The government
was forcing us to use the paper money. It was too difficult to use Zimbabwe
dollars.
– Taxi driver from Harare

As the Zimbabwe dollar became less useful to trade with, people found
substitutes. The government had banned the use of foreign currency, at pain
of arrest, and made it illegal to record transactions in anything other than
Zimbabwe dollars. Despite this, many continued to receive foreign currency
from their offshore relatives.
 The economy quickly became centred illegally on a mixture of foreign
currency-based trade and barter. Those who traded arrived at deal areas
with their own articles of value, swapping milk for grain, or wood for water.
Most of these transactions were illegal, but, out of necessity, people did it
anyway.
Barter, however, can be notoriously difficult.37 What was the swap value
for each product? How much milk is needed to buy a kilogram of maize?
You also had to find someone who had a product you wanted and who
wanted your product at the same time.
As these barter networks became more sophisticated, a few commodities
emerged as being most needed by all, and they became yardsticks in most
transactions because of their high marketability. Gradually, in the most
natural market-oriented way, these products morphed into alternative
‘currencies’ in the marketplace.
Three alternative forms of currency gained acceptance throughout the
country.

1. Food money
The pantry was kept under lock and key because food was our equivalent
currency; it was our investment and savings! We could pay for anything
with our food – labour, sugar, rice, fuel, etc. It was our money.
– Zimbabwean mother

Since everyone wants food on a daily basis it quickly became a highly

tradable barter currency. Due to food’s perishability and variable type and
quality, there isn’t a well-known standard of worth for ‘food’ as such.
Nonetheless, long-lasting canned food and raw agricultural commodities
were quite effective as currencies. One farmer I interviewed kept all his
savings in grain and used it whenever he needed to transact with others. His
barnyard was, as he called it, his food bank.
Businesses received food in exchange for goods and services, and lower-
level staff were paid in food boxes. These food boxes became fairly
standardised, comprising eight different items of food and basic necessities.
 But with its limitations as barter currency, few large transactions were
denominated in food. People had to look to more stable and uniform
currency alternatives.

2. Liquid money: fuel and fuel coupons

I even paid my rent in fuel – it was a ‘litre-per-square-metre’ arrangement!
– Translator and teacher based in Harare

In hyperinflationary Zimbabwe, fuel was scarce because of rising demand

and because it had to be imported with limited foreign currency. Electricity
cuts forced many to get generators, which ran on diesel. Because of the
universal demand for fuel, it was valuable both as a barter item and as a
store of value. People regularly carried jerrycans of petrol to barter with,
measuring out amounts and using them in trade. Very soon, other goods
were priced in litres of petrol. One interviewee said it this way:
This is similar to what happens when you travel abroad and are
faced with prices based in another currency. Initially, you convert
prices in your head to a currency you know. But as time goes on,
you get used to the local currency, and a natural switch takes
place. You begin to price goods and services in the local currency.
Zimbabweans started ‘thinking in fuel’.
Fuel had major advantages. It was fairly uniform, and most people needed it
on a daily basis to go about life and commerce. This gave fuel a unique
characteristic: the government couldn’t restrict it as they could foreign
currency or gold, because doing so would have collapsed the economy
immediately.
The government had to do something to maintain the country’s fuel
supply and protect the economy from instant collapse. Under great pressure,
it gave a special reprieve to the fuel companies, allowing them to receive
foreign currencies in exchange for fuel.
Redan Petroleum, a local fuel retailer, responded with an innovative plan.
They invited people to pay for petrol and diesel in foreign currency and in
return, issued a receipt known as a fuel coupon. Each fuel coupon promised
to deliver at a later date 5, 10 or 20 litres of fuel.
After receiving the foreign currency, Redan sent tankers across the border
to purchase fuel from neighbouring countries. When these tankers returned,
people could then claim their fuel by handing in the fuel coupon at the
station.
The plan was an instant success. Redan was inundated by fuel orders, and
the other fuel stations quickly set up their own fuel coupon systems. With
this system, the diaspora offshore could support their families by
transferring foreign currency to Redan’s offshore bank accounts. They
would buy fuel in whatever currency they wished, and their families could
access the fuel coupons. It was a smart way to send ‘money’ to people on
the ground in Zimbabwe and avoid government regulations on dealing in
foreign exchange.
While no one was allowed to hold US dollars, they were allowed to carry
fuel coupons, which in the last year of inflation became a functioning
alternative currency.

Petrol coupons were the means of currency exchange. They had a fixed
value. Our legal firm was meticulous about keeping to the law. And since
we couldn’t use US dollars at all, we turned to receiving fuel coupons. By
the end, people would bring in wads of fuel coupons as payment for our
various services.
– Partner at a large legal firm in Harare

In a way, fuel companies became the new bankers. They issued ‘paper
money’ – claims to real fuel – and became a place for people to deposit
their foreign currency. None of the banking laws applied to fuel companies,
which gave them considerable freedom, and by the end of hyperinflation
the economy was unofficially denominated in fuel coupons.
The fuel companies were in a powerful position. People paid them in
foreign currencies and in return they issued paper coupons with a promise
to deliver fuel at a later date. However, since these fuel coupons were
regarded as money and were being used in everyday payments and savings,
a decreasing percentage of them were actually being redeemed for fuel.
The physical quality of the fuel coupons was poor. Many couldn’t be
redeemed because they became damaged or worn out. Shrewdly, the fuel
companies began to add expiry dates to the coupons – if they weren’t
redeemed in time, they would expire. This became a source of great profit
for these fuel companies since fewer coupons were being redeemed than
were being issued.
Some of those interviewed said that the fuel companies increased the
amount of fuel coupons relative to the amount of fuel they acquired. They’d
receive foreign currency and issue coupons, but then fraudulently not
purchase fuel with their foreign currency. In other words, they were
deceitfully increasing the number of fuel coupons being issued. One
economist I interviewed put it this way:
Fiat paper currency – the currency we use today – and the current
global banking system originated from a similar process. Gold
used to be the most widely used form of money. However, the
risk of theft was so significant that people gave their gold to
goldsmiths for safekeeping in secure vaults. In return, the
goldsmiths issued paper IOUs, which became like the tradable
paper money that you and I know today. The goldsmiths started to
increase the paper IOUs that were in issue, relative to the amount
of gold that they had on hand – just like the fuel companies did in
Zimbabwe. Very simply, this practice continued to the point
where the goldsmiths (now the modern-day central and
commercial banks) stopped holding any gold at all.
Instead, the banks now take deposits of paper money. The same
cycle repeats itself now, only that banks increase the number of
electronic claims against this paper money, relative to the amount
of paper money they hold. It highlights well the fundamental
weaknesses of deposit banking: the bankers who hold money on
 your behalf have a perverse incentive to increase the number of
claims against that money.
By the end of hyperinflation, with the increase in fuel coupons relative to
the amount of fuel that the fuel companies had on hand, the exchange value
of fuel coupons had fallen by around 20%. The fraudulent increase in fuel
coupons, like money printing, had caused inflation in prices denominated in
fuel coupons!
Despite the benefits of fuel coupons, they had limitations as currency. As
with paper currencies, the coupons were actively counterfeited. The
problem got so bad that fuel companies had to introduce security measures
such as holograms and unique coupon numbering. Fuel stations even
resorted to taking down the personal details of everyone redeeming
coupons. Fuel coupons also couldn’t be used offshore. No one outside
Zimbabwe would accept them in trade, so no imports could be paid for with
fuel coupons. Fuel and fuel coupons were therefore a mid-tier currency
used for most everyday transactions, but not for very large transactions or
for imports.

3. ‘Stable’ foreign currencies

She hid the US dollars, South African rand and British pounds in the
panelling of the door of our Isuzu truck as we crossed the border … We then
discretely smuggled them across the market square in old paint tins to our
rendezvous point …
– Part-time foreign exchange dealer

Large transactions were denominated in stable foreign currencies, typically

by a transfer from one offshore bank account to another. Compared to
Zimbabwe dollars, all other national currencies were stable and useful for
trading. Yet people had to open offshore bank accounts for this, which
created a host of problems, not least of which was compliance with many
money laundering and banking regulations in those countries. Fortunately,
Zimbabwean authorities couldn’t monitor Internet transactions, so people
transferred offshore bank amounts without concerns of government
snooping.
In Zimbabwe’s second-largest city, Bulawayo, an informal street market
for foreign currencies developed and became rather amusingly known as
the World Bank. Numerous illicit currency dealers gathered alongside the
taxi ranks. Obviously highly illegal, traders only dealt with those they
knew. If you wanted to purchase foreign currency, you had to get your ‘own
dealer’ through relational networks; most people had two or three they dealt
with.
As black market trade in foreign currencies developed, the police tried to
shut it down, regularly posing as dealers to catch the despised ‘criminals’.

The way we did business was our downfall. We felt that using the black
market rate was wrong because it was illegal. We were guided by our
Christian faith, obeying the law and went with the existing system – not
using foreign currencies at all. Later, I did a biblical study on the issue of
unjust weights and measures and it changed my view on things. But that
wasn’t until our whole business was destroyed. We had no cash flow and
couldn’t import and therefore couldn’t sell products. If we had used foreign
currencies, our business may have survived.
– Owner of a large print company in Harare

Foreign currencies were the most important substitute for large trades. For
international transactions, there were no alternatives.

Tampon money and other barter currencies

While food, fuel and foreign currency were the most important substitutes
for the Zimbabwe dollar, in truth, anything that was easily tradable was
useful as a form of currency to some degree.
In the women’s prisons, there were shortages of tampons and sanitary
pads. The demand for these was higher than for US dollars, and sanitary
products soon circulated as a medium of exchange in these prisons.
 People purchased cars with large cash balances just to get hold of
something that could retain its value and be resellable. Demand for new
cars soared, though these cars sat idle because of fuel shortages and because
they were bought to resell in good condition.
Toilet paper and cleaning equipment was also universally needed.
Cellphone prepaid cards were used by some. Whiskey held its value –
particularly the good-quality whiskey. Others traded with old coins that
retained the value of the underlying metal content.
Postage stamps were useful. They had the highest value relative to their
weight, making them beneficial when transferring a large amount of value
across the border. A rare stamp, the Penny Black, traded at a hefty premium
in Zimbabwe, purely for its usefulness in transporting high value.

Gold and precious metals

As with other foreign currencies, gold and precious metals were heavily
regulated by the government, and anyone caught holding gold in fairly large
amounts was arrested. All exports of any mineral ore had to be sold to the
government directly at an official rate, which was hopelessly below the
global market price. The black market for gold, as with all other
commodities, developed around informal trading networks.
Zimbabwe has exceptionally high-quality gold reserves, and many local
miners had rudimentary operations to mine for surface gold. Known locally
as the skorro koza, these local gold panners supplied wholesale dealers,
who distributed it across the borders. Ultimately, the black-market
operations were based around politically connected bosses who kept the
police from interfering. While gold demand was high in these networks,
gold was a means to obtaining foreign currencies more than a medium of
exchange in itself.38
One dealer told of clandestine gold deliveries to Europe:
There were many people who traded gold in the underground
market. I had friends who were gold couriers, carrying gold in
suitcases through the airports to deliver directly to the Swiss
banks. Agents from the banks would meet them directly at the
 Swiss airport to receive delivery. There was a 10% commission
for the courier service. High but justifiable given that they could
get arrested at any time.

The death of the Zimbabwe dollar in a nugget

Hyperinflation made it very difficult to trade in Zimbabwe dollars. The rate
of increase in prices and the size of the denominations created multiple
complexities in everyday transactions. The complexities were compounded
by the periodic removal of zeros from the currency.
The more people tried to get rid of their scorched Zimbabwe dollars, the
more these difficulties increased. They had to find alternative ways to trade.
The three most popular were food, fuel – and the associated fuel coupons –
and foreign currency, each with its own set of benefits, limitations and legal
sidestepping.
Other useful barter commodities were tampons, cars, toilet paper,
cellphone prepaid cards, whiskey and postage stamps. Gold and precious
metals played a small and limited part in trade, mostly being useful as a
medium to acquire foreign exchange, or as a store of value hoarded in
foreign countries or in a safe place free from government confiscation.

Think about it
1. If you couldn’t use the local currency in your country, what alternatives could you use?
2. How reliant are you on your national currency to perform everyday trades?
3. What would you barter with if you didn’t have money?
 Part III

GLOBAL STORM A’ BREWING

In Part I, we explained the big picture of hyperinflation as it was seen in

Zimbabwe’s economy. Part II then looked at the practical effects of hyperinflation
in the everyday lives of people in Zimbabwe and how they survived.
In Part III, we apply the principles learned from Zimbabwe to a global context.
Governments of the world’s major economies are highly indebted and are
increasingly making the political move to print money on a large scale to fund
expenditure. Building on Chapter 4, we identify the warning signs of potential
currency crises and hyperinflation in the world’s most developed economies,
particularly in the global financial hub, the United States. We end by looking at
ways to prepare and respond constructively to such potential threats.
 Chapter 11: Dollar supremacy

Let me issue and control a nation’s money and I care not who writes the
laws.
– Mayer Amschel Rothschild

As of 2015, the United States dollar is the global reserve currency. What
does that mean? In short, it means that most countries in the world opt to
keep a large portion of their savings in US dollars and to conduct
international trade with US dollars. But how did the United States get such
an important role in global trade?

1944–1971 Bretton Woods

America emerged from World War II as the global superpower with most of
the world’s gold reserves. In 1944, towards the end of the war, the Allied
forces met to establish a financial system that became known as the Bretton
Woods System. In essence, America would keep the vast majority of the
world’s gold – the internationally accepted money at the time – and the rest
of the world would trade in US dollars as a substitute for gold. If any
foreign government ever wanted to redeem gold with the US dollars it held,
it could do so in New York with the Federal Reserve at US$35 per ounce. It
was agreed that the Federal Reserve would always keep sufficient gold in
its vaults to facilitate the redemption of paper dollars. In other words, dollar
notes were actual ownership certificates for real gold vaulted in the US. In
addition, all other countries agreed to keep a roughly fixed amount of their
own currencies relative to the number of dollars they held, in order to
maintain fixed exchange rates.
 With the major trading powers all using the United States dollar, it
became the standard currency for most of the Western world. It was used as
the basis for trade between countries, and if countries had cash surpluses,
they would store them in US dollars by reinvesting into America, keeping
them in ‘reserve’. Although these reserves were investments in the United
States, most countries believed that they were indirect claims to real gold.
This put America in a tremendously advantageous position. Similar to
how the Zimbabwean fuel companies had the ability to create fuel coupons
during Zimbabwe’s hyperinflation, America over time increased the number
of US dollars relative to the amount of gold it held. By the late 1960s,
America was in a costly war in Vietnam and government welfare
expenditures were swelling. The Federal Reserve and the United States
banks began to print dollars to pay for these expenses. Countries that
exported products to America had to make real goods and services with
inputs of labour and materials, and in return they were paid in money that
was created out of nothing. This started off slowly at first but gathered
momentum throughout the 1960s.
By the early 1970s, a few countries began to realise that there were more
US dollars in circulation than gold held by the United States – if all the
major Bretton Woods members decided to claim gold from the Federal
Reserve with their US dollars, there would not be enough gold for the
number of dollars that were in circulation. France and Switzerland in
particular began to get in line to sell large numbers of dollars for gold. What
started off as a few gold redemptions at the Federal Reserve gathered pace.
If the countries of the world realised that the dollar was no longer ‘as good
as gold’, perhaps they would stop holding it as reserve currency. America’s
global financial influence would be dealt a severe blow. As far as America
was concerned, something had to be done urgently.

1971–1981 The Nixon bomb: the gold window closes

And so came the fateful day on 15 August 1971 when President Richard
Nixon announced that the United States would no longer convert dollars
into gold. Foreign countries that held dollars now couldn’t legally claim
their gold, and America could print money without worrying about losing
‘America’s’ gold reserves.
Since paper dollars, under the Bretton Woods System, had been
ownership certificates to real gold in the vaults of the Federal Reserve,
Nixon’s closing of the gold window amounted to a major default by
America on its international obligations.
With no fixed backing, the value of the US dollar began to plummet. By
the end of 1972, the gold price had doubled, from US$35 per ounce to
US$70 per ounce, meaning the value of the dollar had halved in just one
year. With the dollar’s value in free fall, prices rose higher and higher all
over the world. Inflation was accelerating, and trust in the US dollar was
waning fast.
For the previous 27 years, the world had given America the right to print
money in return for real goods and services. Now America faced the risk
that this right could be taken away, with predictably painful consequences.
Control over the levers of international trade and finance was at stake, and
pressure was mounting. Global markets were building up to a decisive
moment. Then, in January 1973, the United States stock market crashed.
The precursors to hyperinflation that we studied in Part I were
unmistakable. The United States had been overspending on wars and
welfare initiatives. The closing of the gold window and the subsequent
stock market crash were various ‘Black Friday’ turning points as formerly
complacent investors began pulling back their loans and investments. The
signs were pointing towards a hyperinflationary spiral and America
desperately needed to find ways to keep the world using its currency.
Facing potential economic turmoil, at the end of 1973 Nixon’s
administration struck deals with Saudi Arabia and other nearby oil-
producing states of the Middle East to sell oil exclusively in exchange for
US dollars and to invest their excess dollar profits back into America by
lending to the United States government.39
In return, these countries would get a steady supply of the latest US
weapons and US military protection for their oil fields from potential
invaders like the Soviet Union. By 1975 most of the other major oil-
producing countries had also agreed to this plan.
The arrangement created a triangular flow of investment that gave the
United States a powerful double subsidy. Those purchasing oil had to
purchase US dollars first. The oil-selling country then had to reinvest those
dollars in the United States.
From an American perspective, the plan was a political and economic
master stroke. Since everyone needed oil, countries that saved surpluses in
US dollars could then fund oil purchases. The dollar remained a paper
currency with no tangible backing, yet demand for it was strengthened by
the global oil trade, which was growing rapidly. This arrangement gave rise
to the name petrodollars, which described the intimate link between the
dollar and oil. It took a few years for countries around the world to gain
confidence in the dollar again, but by 1981 the petrodollar system, as it
became unofficially known, had helped firmly re-establish the United States
dollar as the global reserve currency.40

1981–1999 Dollar dominance

The petrodollar system spread beyond the realm of oil. Since everyone now
needed US dollars, other international transactions became denominated in
US dollars. Everyone who wanted to trade between countries first had to
accumulate United States currency, keeping these US dollars invested and
easily accessible. The most accessible way was to lend them to the United
States government by purchasing US bonds. With so many available
investors, the American government had the ability to run up immense
debts.
Economists call this arrangement America’s ‘exorbitant privilege’, and
it’s hard to find a better description for the financial sweet-spot America
found itself in.41 After the tumultuous 1970s, the US dollar reclaimed its
global financial supremacy, allowing Americans to buy imported goods at a
huge discount and to consume well in excess of their means.
The entire global banking system became structured around the United
States dollar. In time, the Federal Reserve, the IMF and the World Bank
became established as the chief regulators of the system.42 Since most
international loan transactions were denominated in US dollars, these three
organisations could, and did, come to control international finance.

1999–? Dollar under threat

About trade settlement, we have decided to use our own currencies …
– Vladimir Putin, Russian president discussing Russian-Chinese trade

Despite support for the petrodollar system, the European Union (EU) also
wanted the exorbitant privilege of a reserve currency. EU leaders began to
look for ways to create a centralised European currency that could compete
with the United States dollar for global trade and reserves.
The discussion evolved into a reality, culminating in what became known
as the Euro Project. In January 1999, the euro as a currency was introduced,
and it quickly increased in status. Countries in and around Europe began
saving in euros, and trade with the EU came to be denominated in euros
instead of US dollars Euros began to compete with the United States dollar
as a global reserve currency.
With the euro’s increased status, demand for the currency grew, and there
was rapid growth of investment into Europe. Since the ultimate goal of the
Euro Project would be to rival the United States dollar in the oil trade, the
main oil-producing countries began discussions with Europe over a
potential petroeuro project. In November 2000, Iraqi President Saddam
Hussein began selling oil to Europe in euros,43 and in 2002 the
Organization of the Petroleum Exporting Countries (OPEC) speculated:
It is quite possible that as … trade increases between the Middle
East and the European Union, it could be feasible to price oil in
euros, considering Europe is the main economic partner of that
region.44
Later, Syria overtly rejected the dollar as a reserve currency and began to
trade in euros,45 while some Eastern European countries, including Russia,
began to hold larger euro reserves than dollar reserves.
 If other currencies were to be used in payment for oil, demand for US
dollars could fall. The exorbitant privilege America had enjoyed over the
years with its money as the global reserve currency would disappear if its
currency monopoly ended.

Petrodollar wars
We gradually stopped using Zimbabwe dollars. The only way they could
keep us using it was by force – gently massaging us with the barrel of a gun.
– CEO of a Zimbabwe fabrics factory

The petrodollar system, and particularly the vested interests in sustaining it,
is probably the critical issue in global geopolitics today. Said simply,
America has everything to lose if nations of the world use other currencies
in trade. These are powerful vested interests to protect. Viewed through this
lens, recent global events take on a new light.

Petrodollar wars – Iraq

The United States invasion of Iraq was ostensibly about disarming the
Saddam Hussein regime of its weapons of mass destruction. No such
weapons were ever discovered, and many commentators have suggested
that America was actually interested in Iraqi oil supplies. Yet, buying oil
peacefully from Iraq would have been a much easier and cheaper way to get
oil.
Until November 2000, no oil-producing country had dared violate the
petrodollar pricing arrangement, and while the United States dollar
remained the strongest currency in the world, there was little reason to
challenge the system.
In late 2000, the EU, spearheaded by France, convinced the Iraqi leader,
Saddam Hussein, to denominate the sale of Iraq’s oil in euros rather than
US dollars. This opened the discussion for many other countries to consider
doing the same. Russia and Iran were both very interested in this option.
Finally, in April 2002, a representative of OPEC’s oil cartel met with the
EU to discuss how at some point they could sell oil to the EU denominated
in euros. American ‘concerns’ regarding weapons of mass destruction in
Iraq coincided with these petroeuro talks. Just under a year later, the United
States invaded Iraq.
The German and French governments were vociferous in their opposition
to the invasion – they knew the consequences of euro-denominated oil
trade. Sure enough, shortly after the invasion, the United States quickly re-
established the dollar pricing rule for Iraq’s oil sales.

Petrodollar wars – Iran

Very similar dynamics have been at play with Iran. Talks to investigate
currency alternatives to the United States dollar in exchange for its oil
started shortly after the creation of the euro currency, and by 2005 the
Iranian government announced its intent to develop an Iran Oil Bourse – an
oil-trading platform that would allow anyone to purchase oil in a number of
alternative currencies, other than the United States dollar.
It was an important project since there were no internationally recognised
exchanges that provided competitive euro-based oil pricing. Conventional
exchanges, such as the Norway Brent Crude or the West Texas exchanges,
dominated global oil sales – each with dollar pricing.
By the end of 2007, shortly before the opening of the exchange, Iran had
met with the largest Japanese and Chinese oil purchasers and had secured
their involvement in purchasing with alternative currencies.46 The trading
platform was moving ahead, despite United States resistance, and officially
opened in February 2008.
In the years that followed, America increased its pressure on Iran,
ultimately instituting sanctions against the country in 2010 for its supposed
development of nuclear weapons. The United States was so vociferous in its
sanctions pressure that it threatened any country or bank trading with Iran
with total exclusion from the global banking system if they were caught
facilitating purchases of Iranian oil.47
The threats were exceptionally effective and global trade with Iran fell
dramatically. The effect on Iran was crippling. Its government turned to
money printing to continue funding its expenses, leading the country down
the path towards a currency crisis and potential hyperinflation.

Petrodollar wars – Libya

Libya has the largest proven oil reserves in Africa. Its eccentric leader,
Muammar Gaddafi, was against what he termed ‘United States imperialism’
and became interested in aspects of the Murabitun World Movement, a
discussion relating to the reintroduction of the gold dinar, the currency of
the Muslim world until the collapse of the Ottoman Empire in 1924. He
began to lobby for a ‘gold-for-oil’ programme with which to trade Libyan
oil on global markets, in particular between other Arab and African
countries.
The Guardian, on the subsequent Libyan civil war, reported:
… he initiated a movement to refuse the dollar and the euro, and
called on Arab and African nations to use a new currency instead,
the gold dinar. Gaddafi suggested establishing a united African
continent, with its … people using this single currency. During
the past year, the idea was approved by many Arab countries and
most African countries. The only opponents were the Republic of
South Africa and the head of the League of Arab States. The
initiative was viewed negatively by the United States and the
European Union, with French President Nicolas Sarkozy calling
Libya a threat to the financial security of mankind; but Gaddafi
was not swayed and continued his push for the creation of a
united Africa.48
The country had 100 tons of existing gold reserves with which Gaddafi was
going to trade. He didn’t get to implement his plan, however. In 2011, an
anti-Gaddafi uprising broke out. The rebel forces, funded and militarily
backed by America, the chief power behind the NATO invasion, took over
the country and killed Gaddafi.
NATO had declared a ‘no-fly zone’ over the country to stop Libyan
bombings of rebel strongholds, which United States Defence Secretary
Robert Gates described in his speech to a United States House
Appropriations Committee:
A no-fly zone begins with an attack on Libya to destroy the air
defences. That’s the way you do a no-fly zone, and then you can
fly planes around the country and not worry about our guys being
shot down.49
The US-led offensive was particularly brutal, bombing most of the Libyan
defence infrastructure and Gaddafi’s private dwellings, as well as inflicting
extensive collateral damage in the capital city of Tripoli. The United States
and European governments seized Libyan national overseas investments
and supplied weapons to the rebel forces.
Then, one month after the start of protests, the rebel groups announced
the creation of ‘the Central Bank of Benghazi as a monetary authority
competent in monetary policies in Libya and appointment of a Governor to
the Central Bank of Libya, with a temporary headquarters in Benghazi’.50
That was quick. When last did rebel groups made up of mercenaries,
farmers, teachers and other civilians set up a fully functioning central bank
while fighting for their lives in a civil war – and that within one month of
the start of the conflict?
A week after the announcement, the United States declared that it would
accept the sale of oil from rebel leaders only, despite official sanctions
against the country. Through the newly controlled oil companies and central
bank, the oil sales gave the rebels a much-needed US$100 million and,
more importantly, ensured Libyan compliance in the petrodollar system.51
The evident protection of the various vested interests was instrumental in
the overthrow of the government and subsequent assassination of Muammar
Gaddafi. It maintained the denomination of Libya’s oil sales in US dollars
and the recycling of Libyan dollar profits back into the United States.

Other petrodollar pressure points

The recent global diplomatic pressure on Russia regarding Ukraine appears
to be influenced by these same petrodollar vested interests – Russia has
been openly talking about de-dollarising its trade and instituting the Russian
ruble as an alternative, particularly in its gas trade with its European
customers.52
China, too, has ambitions for global reserve currency status, and it has
launched a trading platform to allow countries to purchase oil in Chinese
yuan.53 China is a major military power, which makes it difficult for
America to restrict its currency ambitions through military force.
China and Russia in particular have led the anti-dollar agenda, creating in
2010 the first yuan trading platform outside China and Hong Kong on the
Moscow Interbank Currency Exchange and announcing that bilateral trade
between the two countries would be settled in Russian rubles or Chinese
yuan, not US dollars.54 China has made similar strides with Japan, one of its
largest trading partners.
Since at least 2008, China has been taking ever more active steps to
‘internationalise’ the Chinese yuan. The People’s Bank of China, China’s
central bank, has signed a host of bilateral currency swap agreements with
foreign central banks. The purpose of these agreements is to reduce the
United States dollar-denominated trade between China and other countries,
using yuan and other currencies instead. It is part of China’s strategy to
encourage its trading partners to hold more yuan in reserve to pay for goods
from China.
China has made bilateral currency swap agreements with the likes of
South Korea, Malaysia, New Zealand, Australia, Turkey, the United Arab
Emirates (UAE), Brazil, the United Kingdom and the EU.55
Meanwhile, Brazil, Russia, India, China and South Africa, collectively
known as the BRICS, have openly pledged to work towards building a
BRICS development bank to perform the traditional roles of the IMF or
World Bank, except that it would extend financial assistance in currencies
other than the United States dollar.56
It is not surprising to see American antagonism towards Russia escalating
to the point of sanctions, ostensibly over territorial sovereignty disputes
thousands of miles away from Washington. Expect ongoing tension
between the United States and Russia as the latter further tries to cut the
dollar out of international trade and financial relations.
Reserve currency ambitions aren’t new. Even small regional powers such
as South Africa try to influence their surrounding countries to use their
currencies as benchmarks, in the hope of obtaining special money printing
privileges.
America’s number one geopolitical imperative is maintaining its
exorbitant monetary privilege. The same goes for the Eurozone. As these
currencies are printed on a large scale, they have had to resort to increasing
force and control to maintain their reserve currency status.

Dollar supremacy in a nugget

In 1944, the United States dollar became the main currency to be used in
trade by the Western world, under an arrangement known as the Bretton
Woods System. It envisaged a fixed peg of dollars against gold and all other
currencies against the dollar. By 1971, the number of dollars in the system
had increased beyond what America could possibly facilitate if countries
redeemed their dollars for gold, and Nixon had to close the gold window.
This amounted to a major default by the United States. The United States
government worked in tandem with oil-producing countries to establish the
petrodollar system – global oil trade based in US dollars – which
maintained the dollar as global reserve currency despite no gold backing.
This put America in a powerful position of exorbitant privilege. The United
States has a tremendous amount to lose if this privilege is challenged. To
compete for global transactions, the EU created the euro currency, while
China also desires reserve currency status for its currency, the yuan.
Reserve currency vested interests are massive. At stake is America’s
exorbitant privilege to print its money, knowing that others will take printed
money in exchange for real goods and services.
As in Zimbabwe, when a government has made the political decision to
print money on a large scale, it has to increase its control over the
population to get them to continue using that money. Petrodollar wars – the
recent wars in Iraq and Libya, and the sanctions against Iran and Russia –
are potential examples of this on an international scale. Nations around the
world are scrutinising the United States dollar’s status as global reserve
currency and are placing increased pressure on the petrodollar system.
Where this pressure leads to will be a defining characteristic of global
geopolitics over the next several years.

Think about it
1. Why do you use the money you use? What makes you ascribe value to it?
2. What is the real difference between counterfeit pieces of paper that pose as money and real pieces
of paper that circulate as money? Why does the one have value and the other doesn’t?
 Chapter 12: Total transaction control

No one believes more firmly than Comrade Napoleon that all animals are
equal. He would be only too happy to let you make your decisions for
yourselves. But sometimes you might make the wrong decisions, comrades,
and then where should we be?
– George Orwell, Animal Farm

Power tends to corrupt and absolute power corrupts absolutely.

– Lord Acton, 1887

For decades now, governments of the United States, Japan, Britain,

continental Europe and many others have gorged themselves on debt. Since
the banking crisis of 2008, these countries have spun into a vicious debt
spiral not very different from the early stages of Zimbabwe’s financial
malaise.
They’ve all made the political decision to print money to continue
funding their excesses. To delay the negative effects of money printing for
as long as possible, they’ve had to increase control over financial systems –
commonly known as financial repression – institute trade restrictions and
compel the population to use the money and keep prices low – what we
know as transaction control. There is a grave risk that transaction control
will lead to totalitarianism and the associated loss of freedom for ordinary
citizens.
We focus in this chapter on the United States, since the United States
dollar is the global reserve currency. However, these trends are common in
other countries as well.

Alphabet surveillance
The more a society monitors, controls, and observes its citizens, the less free
it is.
– Benjamin Franklin

A government can control people’s transactions only to the extent of its

surveillance and intelligence gathering capacity. In Zimbabwe, the relative
lack of sophistication in its government surveillance techniques limited its
ability to control. The opposite is the case in America. The federal
government is bent on acquiring as much information as possible through a
programme originally coined Total Information Awareness,57 which started
from as early as 2001. Because the dollar is effectively the world’s
currency, as US-based money printing increases, America needs to exert
transaction control globally, not just over its own citizens.
Over the years, it has created 16 ‘alphabet soup’ agencies from seven
different United States departments that form the Intelligence Community.
These include the CIA, DIA, NSA, NGA, NRO, AFISRA, INSCOM,
MCIA, ONI, OICI, I&A, CGI, FBI, DEA/ONSI, INR and the TFI.58 Those
are a lot of agencies trying to track your information, and they have the
tools they need to do it.
Recently, the Intelligence Community opened a vast data warehouse in
Utah called the Intelligence Community Comprehensive National
Cybersecurity Initiative Data Centre that can storeover a yotabyte of data (a
thousand trillion gigabytes). It sweeps most of the world’s Internet data
from undersea cables and the servers of majormultinational Internet
companies. The goal is to store all worldwide electronic information flow
comprehensively for further data analysis.
On top of this, the programs X-Keyscore and Fairview focus on
accumulating international information, searching, analysing and storing
Internet data and the mobile phone metadata of foreign nationals. Cellphone
metadata includes your geographic movements and details of all the phone
calls you’ve made, as well as all your text messages. In addition, in specific
countries under surveillance, it records all phone calls.
 The Intelligence Community has further developed a computer virus
known as Magic Lantern that logs all your keystrokes, allowing the FBI to
decrypt your communications, passwords and other sensitive information. It
also has a program that can perform instant wiretaps on any
telecommunications device located in the United States. A program,
Boundless Informant, gathers other Internet data. Almost 3 billion data
units from the United States were recorded in March 2013 alone.59
Together these programs capture the important telecommunications and
computer data of all the citizens in every country in the world. That
includes you. They do this by working in conjunction with other foreign
intelligence agencies and through multinational telecommunication
agreements.

The NSA partners with a large United States telecommunications company,

the identity of which is currently unknown, and that United States company
then partners with telecoms in the foreign countries. Those partnerships
allow the United States company access to those countries’
telecommunications systems, and that access is then exploited to direct
traffic to the NSA’s repositories.
– Glenn Greenwald, journalist for The Guardian60

Private companies get in on the act

The data-sweeping programs have legal jurisdiction over the major
privately owned Internet companies, with access to much of their
information. These companies – Microsoft, Apple, Dropbox, Google, AOL,
Facebook, Amazon, Twitter and Yahoo – effectively control global access
to the Internet, including access to online VoIP services, cellphone
operating systems, cloud-based services, Internet searching, map analysis
and a host of other critical Internet applications.
Add the various telecommunications companies, and combined together,
the close relationship they have with the United States and other
governments gives the Intelligence Community sweeping, nearly total
access to information about you and your transactions.
 Other intelligence gathering
Information gathering is increasing in pace. Alarmingly, a Biometric
Optical Surveillance System (BOSS)61 has been developed that recognises
faces on photographs and can identify individuals in a crowd. Now, all
CCTV recordings of you anywhere, together with all your public photos,
can be scanned by supercomputers and stored electronically.
The Intelligence Community also has an encryption breaking program
known as Bullrun. Reporting on it, The Guardian said:
Those methods include covert measures to ensure NSA control
over setting of international encryption standards, the use of
supercomputers to break encryption with ‘brute force’, and – the
most closely guarded secret of all – collaboration with technology
companies and internet service providers themselves.62
Even your encrypted information is no longer private.
The deep intrusion on personal privacy isn’t unique to America. The
Intelligence Community works closely with Australia, Canada, New
Zealand and the UK in an intelligence-sharing agreement known as the Five
Eyes. The UK can, for example, spy on American citizens and make that
information available to the United States government on its enormous,
NSA-operated spy cloud.63 The German intelligence service is said to be
targeting the same level of surveillance as its American counterparts.64
These many different spy programs are using all surveillance means
possible to gain total information awareness. You can be assured in the
knowledge that almost all of your movements and social interactions are
being recorded.65

Regulatory overload
Those who are capable of tyranny, are capable of perjury to sustain it.
– Lysander Spooner, nineteenth-century philosopher

In Zimbabwe, the government passed a labyrinth of laws designed to

increase the reach of the state into everyday private life.
 And as with Zimbabwe, the quantity of American laws, rules and
regulations has been quite simply exploding. CNN reported that 40 000 new
laws would take effect in 2014 alone in the United States.66 There are about
80 000 pages of detailed government regulations in the Federal Register,
which excludes by-laws, departments, agencies and regulations at the state
and local levels, up a staggering 300% since 1970.67
Since the 2008 financial crisis, legislative bills have ballooned in size.
The Dodd-Frank financial regulation bill, signed into law in 2010, was a
gargantuan 850 pages long, generating by 2014 just over 14 000 additional
pages of rules and regulations, written by six federal agencies, pertaining to
its implementation.68 Another example is the Patient Protection and
Affordable Care Act, also known as Obamacare, which is nearly 1 000
pages long and had by 2014 generated over 11 000 pages of implementation
rules.69 In January 2014 the United States Congress passed a government
spending bill that was 1 600 pages long – a bill that most legislators admit
to not even having read in full.70
In a world of increasing transaction control, there is – as in Zimbabwe – a
proliferation of laws giving governments the power to rule by decree.

Financial totalitarianism
Control of the financial system is an important part of any transaction
control programme. The United States has almost complete worldwide
control over currency and global banking. For example, the same threat that
was effective in forcing sanctions against Iran was just as effective against
Wikileaks. After the organisation leaked numerous classified documents,
the United States cut off Wikileaks’ access to banking services. No one
could transfer any money to Wikileaks via conventional banking channels.
The Intelligence Community has access to vast amounts of global
financial information. The United States Treasury collects and analyses
financial transactions in conjunction with another intelligence program that
accesses the global clearing house of international transactions: the SWIFT
database.
 The major credit card companies are all based in America: Visa,
MasterCard, American Express and Discover (which owns Diners Club).
Combined, they cover almost all global credit card transactions.
Cell phone companies are quickly moving into the credit card space with
Apple leading the way with its Apple Watch and iPhone payment systems.
Cellphone companies and the various banks are partnering to provide
mobile money alternatives, which are rapidly accelarating aroudn the world.
Further, the various credit card and banking companies are all introducing
smartphone payment apps.. Since every phone delivers a constant tracking
signal via the cellular data networks, this convergence of payment and
cellular provides a unique tracking technology that monitors both your
payments and your geographic location.

Mechanisation of control
The Homeland Security Department wants to buy more than 1.6 billion
rounds of ammunition in the next four or five years … about the equivalent
of five cartridges for every person in the United States.
– The Denver Post, February 2013

For a government to control transactions at home and around the world, it

needs to exert ever greater levels of military and police control – just as
Zimbabwe did. In the United States, the police are arming up. Homeland
Security is purchasing all forms of military-style armoured vehicles and
tanks for local law enforcement. The same goes for most other developed
countries. Here are just some of the latest unclassified weapons available to
the United States government.

High-energy beams
The Vehicle-Mounted Active Denial System71 is a supposed ‘non-lethal’
beam with a range of 700 yards and can render any group of resisters
powerless within milliseconds. It works using microwave technology that
causes its victims to feel excruciating pain all over their skin. Overexposure
leads to severe burns. It also superheats any metals within range, making it
impossible for you to hold on to any metallic equipment during exposure to
the ray.

Drones and creepers

Most countries are fast developing their own drone technologies. More than
57 countries have developed various unmanned aerial vehicles (drones);
from 2013 onwards, each of these countries has been engaging in an
international robotics arms race. America is currently winning the race with
its drones and unmanned ground vehicles (creepers).
In addition to the well-known Predator-type drones, the United States
military has developed a host of mini surveillance drones that match
nature’s flying birds and insects, one such being the RoboBee.72 Further
research is being conducted into arming these miniature robots with the
latest chemical and biological weapons. The US military has developed
advanced systems to automate these flying robots in swarms, which defy
the best anti-aircraft weaponry available.73 There are also large blimp-type
drones that can ‘see in 360 degrees over a 340 mile distance’74
When it comes to creeper technologies, there are some bizarre and
frightful advances. The Big Dog is a four-legged rough-terrain robot that
walks, runs, climbs and carries heavy loads. And then there is the Sandflea
(which jumps over 30-foot walls), the RiSE (which climbs vertical surfaces)
and, perhaps most alarmingly, a terminator-style walking humanoid known
as the Atlas.75 These are a handful of thousands of different robotic
applications currently under development. Robotics has come a long way
but the technologies will advance much further in power, stealth,
surveillance and firepower over the next few years. In the shadow of all
this, your guns are … well … so 1980s.
Drones may provide authorities with powerful additional surveillance
options to monitor the movements of everyone, in addition to enforcement
options. Linked in with cellphone and payment convergence, the
technology is available for each person to be constantly monitored, watched
and controlled. It is not hard to imagine that as governments print money
excessively, cell phone, credit card, biometric identification and drone
technologies could converge into one technology that enables government
to enforce total transaction control.

Total transaction control in a nugget

If a government is printing money on a large scale, it needs to control its
population simultaneously to ensure that the money it is printing is used and
that prices are kept low, which we call total transaction control. This is
achieved through total information awareness, increased policing, advanced
military technology, extensive surveillance and legislative reach – which
have all made total transaction control imminently achievable and
something money printing governments can resort to.

Think about it
1. Do you have the technology to communicate securely and privately?
2. How could you transact efficiently yet without being monitored?
3. If demanded, is it wrong to refuse to hand over your private information to the government?
 Chapter 13: Get prepared

I was now resolved to do everything in my power to defeat the system.

– Oskar Schindler

My uncle was concerned about the money printing in the country so he

researched other hyperinflations in South America. With this information,
he developed innovative strategies that made him financially very
successful. His business did very well because of his research.
– Young Zimbabwean waitress

How would you protect and provide for yourself and your family during
hyperinflation?
In a money printing world, this book should be fuel to the fire of your
own research, education and sense of responsibility. The Internet is rich
with good material, from further explanations of the economic risks we face
to practical survival strategies during a breakdown of trade and social order.
In researching the experience of Zimbabweans, we learned some critical
insights that we share below.

Get out while you can

We missed Zimbabwe terribly. But life changed so quickly for us and for the
better when we left. A lot of people battled with the final decision of
leaving. But we were so glad when we left. We should have done it much
earlier. We were nomads away from our home country but were much safer
than if we had stayed …
– Zimbabwean father of three based in Botswana
The best way to survive hyperinflation, without a doubt, is to avoid it
completely. For the roughly 4 million who left Zimbabwe, life improved in
an instant. No longer were there extreme shortages of everything, and
political, financial and social pressures were relieved. We know that this
isn’t something that can be advocated for all people, but based on the
responses of Zimbabweans we interviewed, it is certainly an important
consideration if hyperinflation ever becomes a serious risk in your country.
Do you have an emigration plan? Have you considered getting a second
or third passport or contacting emigration specialists for advice? It isn’t
easy to uproot and leave family and community networks. Emigrants tend
to struggle financially and lack social support structures, but, as many
Zimbabweans have highlighted, this pales in comparison to the hardship of
living through hyperinflation.
Leaving may also be restricted by the government. Monitoring and
restricting movement at border posts would likely increase during times of
acute economic crisis. The Zimbabwean government didn’t have much
ability to stop those fleeing, but if it could have, it probably would have.

Relational wealth
We stayed – it just wasn’t easy to uproot. We had to look after each other.
We all had a tremendous sense of gratitude and open-heartedness for the
support that each person gave.
– Zimbabwean family

If you decided to stay, the only way that you would survive hyperinflation
would be through relationships and community. Zimbabweans became
more dependent on one another under the pressure of food shortages and
crime. If you were a loner, your chances of survival were slim.
You may consider doing a lifestyle audit to assess which goods are most
important and how you would source these. The best solution during
hyperinflation is to engage with your community to barter for the goods you
need. Existing social organisations have an advantage. In Zimbabwe, as the
pressure on society increased, country clubs, alumni organisations, churches
and charity clubs quickly became centres of support and trade. Access to
supplies was based purely on relationships, and trust was a crucial
alternative to money.
In addition to supplying key goods, community also offers protection.
What would it look like in your own country if shops emptied, water
supplies dried up and prices soared? As social safety decreases, there is
increased protection in close communities.
Zimbabweans benefitted from the large diaspora that helped them by
sending home goods and stable currencies. This community abroad was a
critical component of survival.
During hyperinflation, as your ability to rely on money disappears, a
deep and connected community around you is a key survival strategy. You
would have to seek this out as a deliberate focus. Who would you be able to
trust in dark times?

Think about the morality of law

If he was a virtuous, honest guy, no one in a corrupt, greedy system like the
SS would accept him … Schindler used corrupt ways, creativity and
ingenuity against the monster machine dedicated to death.
– Zev Kedem about his World War II saviour

In Part II we referenced a Christian woman who felt obliged to obey the law
because of her faith, even in the face of extreme injustice.76 She faced a
moral dilemma. Although she disagreed with the laws that brought her to
poverty, she felt a moral obligation to obey them. This would be a terrible
dilemma for any of us. When the laws of the land become corrupt, coercive
and inhibit our ability to survive, very often breaking them is the only
sensible option to take, despite the risk of penalty. Which laws remain good
and which are corrupt? With some laws, it’s easy to tell, but with others the
line is blurred.
In Zimbabwe, the government became increasingly despotic as money
printing spiralled out of control. The law became centred on furthering the
government’s selfish interests and its control – very different from any
sense of just morals and ethics. By the end of hyperinflation, trust in the
justice of the law had evaporated.
To survive, you would need to separate the two concepts of legality and
justice. Nelson Mandela and Mahatma Gandhi were both great leaders in
resistance movements against corrupt and totalitarian government regimes.
They taught people not to comply with unjust laws. Ultimately, these are
profoundly personal decisions that each person living under hyperinflation
needs to make.
Some Zimbabweans we interviewed had this to say:
Hyperinflation is a hideous scenario because it brings out the
worst level of government control and manipulation and the
depravity of human nature is exposed.
If you stay in your country, you need to come to terms with the
moral dilemmas embedded in a system that is geared towards
deep and fundamental corruption. This is no ordinary decision.
Would you live in a system that is inherently structured to reward
the corrupt and penalise the just? If you choose to stay living in
such an awful scenario, you would have to consider whether you
have the ability, with integrity, to get politically connected.
There are hundreds of politically connected elite in Zimbabwe
who have to live with the reality that millions live in poverty (and
indeed many people died) because of their prosperity.

Learn how to listen

Governments use confusing language and rhetoric as a powerful tool of
control. You should learn how to understand statements made by the
authorities. Learn what they are saying and specifically what they are not
saying. Practically, most things aren’t too complicated for the average
person to understand, despite what many governments (and economists)
would have you think. A useful rule of thumb is this: if you don’t
understand what they are saying, it probably means they don’t want you to
understand.
 Business techniques in hyperinflation
The primary purpose of this book isn’t to highlight business strategies in
hyperinflation.77 At a very high level, however, there are some important
principles to consider in relation to the changing business environment
during hyperinflation.

Managing assets, not earnings

In Chapter 5 we described what happens to businesses during
hyperinflation. The challenges for companies are manifold, including
soaring input costs, price controls, restrictions on foreign currency
ownership, difficulties in paying staff, dealing with failing municipal
services and coping with falling demand for products and services as people
become poorer or leave the country.
In such adverse operating conditions, businesses must change how they
think, away from a customer-oriented paradigm to a survival paradigm. In
this process, conventional profits diminish in importance. Instead,
companies must focus far more on owning tangible assets and tradable
goods that are durable and marketable enough to act as stores of value. A
good way to do this would be to evolve from providing a particular good or
service to managing assets or becoming a trader.
Key considerations here include trying to anticipate the risk of the
government taking the assets you hold and trying to keep abreast of a
rapidly evolving and tightening regulatory environment. For this reason,
owning assets in foreign countries that respect property rights could be a
sound strategy. Companies would more than likely have to make tough
choices around tough questions. Would you break petty regulatory rules to
survive? Would you engage in black market trade?

Alternatives to banking and money

As money becomes less useful, you would need to find alternatives. As a
government prints lots of money, it would likely try as hard as possible to
restrict any currency other than the state-sanctioned currency. Money has a
few important uses. It is a store of value, a medium of exchange and a
mechanism to invest/lend. It is also a measure for people to be able to
record transactions. You would need to find alternatives for each of these
core functions of money.

1. Store of value
As much as you can, you should consider, during a period of very high
inflation or hyperinflation, allocating a proportion of your savings offshore
and denominated in stable currencies and assets. With many countries in the
process of printing money, it isn’t all that clear which currencies are
preferable. You would need to assess which countries have more or less risk
compared to your own. Since all governments have the ability to print paper
currencies, the best alternatives are likely metallic or commodity forms of
money. Gold, silver and fuel are currencies that cannot be ‘printed’ or
increased on a large scale.

2. Medium of exchange
How would you pay for goods and services without using your national
currency? There are a number of gold transaction platforms available that
have some attractive transaction services. However, if the government
controls the Internet and payment networks, your options may become
limited. Internet security may also be an issue with online payment
platforms. The same applies to investments and lending. Cryptocurrencies
(encrypted online digital currencies) such as Bitcoin may offer sufficiently
secure, anonymous and convenient ways to transact. These technologies are
evolving quickly, and it would be important to keep abreast of the latest
advances and innovations in these electronic currencies. These technologies
are in their infancy – like computers were in the 1970’s – and may well
fashion the future of money and banking as existing payment systems
deteriorate with large-scale money printing programs.

3. Unit of account

If you can’t benchmark, how can you possibly know what your margins are?
 – CEO of a large Zimbabwean importing firm
In a hyperinflationary environment, those who run businesses would need
to find a way to record transactions based on a stable measurement. They
would need to find a yardstick of value. It must be a relatively stable
benchmark for recording transactions and ideally be used by other
businesses as well. In Zimbabwe, people used all kinds of yardsticks, from
fuel to food parcels, and gold to US dollars. One economist, Jonathan
Waters, even developed the ‘hard-boiled egg index’ to obtain a more
accurate measure of inflation and the exchange rate than what was reported
in official statistics. This index became quite popular, even in banking and
financial circles.

Pensions
Hyperinflation reduces almost all pension savings to nothing, even large
amounts saved in the pension funds. Expect that your pension investments
would either be reduced to nothing or nationalised.
A financial advisor in Zimbabwe had this to say:
If I was advising Zimbabwean pensioners prior to the country’s
currency collapse, I would have said the following: cash in your
pension policies. If you are on a pension, move it into something
worthwhile. Pension schemes will not remedy themselves – if you
have any fixed income positions they will reduce to nothing in
hyperinflation. You need to go against all Western views of
savings and storing money in cash and bonds. Convert all of your
cash and savings into things that store value and into things that
you will need to survive. Both government and private pensions
will not save you.

Exports denominated in a stable currency

The premium placed on foreign currency during hyperinflation makes
export industries relatively profitable. There are numerous aspects to
consider in exporting effectively in a depreciating currency, but the most
important is to ensure that your exports are denominated in a stable foreign
currency – a currency that isn’t losing value rapidly, which is widely trusted
and which operates within a banking system that facilitates international
transfers. During hyperinflation, governments typically try to expropriate
foreign earnings so you would need to consider the numerous ways to get
around that risk, possibly by holding most funds offshore and only
repatriating the minimum amount needed to operate.

Debt
Debts denominated in a hyperinflating currency quickly become worth next
to nothing. Borrowers are usually able to pay back debts with ease while
lenders are paid back in money with a lower purchasing power than it had
when they lent it. Typically, interest rates can never appropriately
compensate for hyperinflation, so those who get access to loans (and who
can make the repayments) benefit tremendously.
However, you should consider the personal ethics of borrowing during
hyperinflation. If you borrowed from banks, you would be aiding the
inflation process by acquiring loans of newly created credit money. You
would be complicit in the destructive effects of money printing and no
longer be able to clearly distinguish yourself from the system that created
the problem in the first place. You’d be an integral part of the problem.
If you borrowed from people or businesses outside the banking system,
you would be faced with another challenging question: is it right to borrow
from others, expecting they would be ruined by hyperinflation? Is it an
honourable, fair trade to make? Would you borrow from a relative or friend
in this way?
A common issue pertaining to the dilemma around law and ethics
highlighted earlier in this chapter is deciding whether or not to disobey the
law. But equally, there are times when you may have to assess whether you
should refrain from doing something you are permitted to do. Borrowing
money in expectation of hyperinflation may be one such case.
Borrowing and lending in a stable currency could continue and indeed
thrive. For example, it might be that you could get a loan denominated in
gold, fuel or food. In Zimbabwe, this happened often with fuel and foreign
currency (it’s how the fuel coupon system became more widely used).
Lending in stable currencies protects the lender so the borrower can borrow
with a clear conscience.

Cash
If hyperinflation became an imminent risk, you would need to consider
whether to take your money out the bank. Once you had the cash in hand,
you would have to try buying something that would last and could be easily
traded in the near or distant future – for example, foreign currencies, gold
and silver coins, fuel or durable food. Very high bank deposit interest rates
during hyperinflation create the impression that your money in the bank is
‘growing’. This is an illusion. The real purchasing power of cash in the
bank falls rapidly towards zero. At this point, cash is neither a reliable unit
of account nor a safe store of value – it is only a medium of exchange and
therefore should only be held for very brief periods to facilitate trade.

Save and invest now

If you took your funds out of the formal investment sector, you would still
be faced with the question of where and how to save. This is a complex
question that we cannot deal with sufficiently here. It is clear that going into
hyperinflation with no savings in real assets or stable alternative currencies
is a major disadvantage. Being diversified in your savings is important.
Traditionally, during times of high inflation or hyperinflation, people sought
protection in things as diverse as company stocks, precious metals,
property, rare collectors’ items and trusted foreign currencies. However you
choose to save, each asset should be assessed based on its proven ability to
store value, how easy it would be to sell in a time of great need, how costly
it is to transport, protect and maintain, and how safe it is from government
confiscation and a crashing economy.
If you try to avoid debt, have you considered ways to buy expensive
assets without debt, such as saving first in affordable assets that will hold
their value during inflation, or finding partners who can co-own assets with
you? Consider spending time and effort, seeking advice, deciding whether
you save enough and planning how and where you want to save.
Are you investing your time and energy in building strong relationships
with friends and family? Your networks and relationships become
invaluable ‘savings’ during an economic crisis.

Get prepared in a nugget

You need to be sober about the risks of hyperinflation and take ownership
of the responsibility to protect yourself and your family. The easiest
survival technique in hyperinflation is to leave. You would need to consider
the impact of hyperinflation on all aspects of your life if you decided to stay
or weren’t able to leave, including food, goods, water supply, and municipal
and corporate services. You would also need to find alternative
commodities to trade in.
From a business perspective, you would have to consider building a
good-quality base of durable, marketable assets. This includes getting your
money offshore in stable currencies and commodities such as gold and
silver, purchasing ‘hard assets’ and benchmarking your business against
stable yardsticks. Look to export and get out of any loans you’ve made.
Make sure you don’t hold more cash than is absolutely necessary to make
certain important transactions.

Think about it
1. What level of government coercion or economic mismanagement would cause you to consider
leaving your own country?
2. What would your response be if you were faced with the moral dilemma of obeying the law or
breaking it to feed your family?
 Chapter 14: Your opportunity

The Chinese use two brush strokes to write the word ‘crisis’.
One brush stroke stands for danger; the other for opportunity.
– John F Kennedy

The only thing more daunting than an economic crisis is coming out of the
crisis having learned nothing, doomed to repeat the mistakes of the past.
Sadly, the problems in Zimbabwe teach us that life doesn’t get much better
after an economic crisis unless corruption and government control are
flushed out and society is reorganised justly. Years after the end of
hyperinflation in the country, it is still languishing in economic malaise and
poverty.

Reset is the word. Hyperinflation was terrifying before the currency reset.
But things changed greatly on the other side of it. Life and systems looked
different. We had to look at our relationships and community structures all
over again.
They changed. You need to know what it is that you are changing to and
how you will make those changes.
– Zimbabwean political commentator

What does it look like after a currency has gone through hyperinflation and
finally collapsed? The answer depends on the choices that a society and its
leaders make to influence their country towards a positive reset.

Solutions for fixing the system

Those from among you will rebuild the ancient ruins; You will raise up the
age-old foundations; And you will be called the Repairer of the Breach …
 – Isaiah 58:2

While it is important to find solutions to problems found during

hyperinflation, our first task is to understand their root causes, which has
been the goal of this book.
Often when we understand what causes the problem in the first place, the
essence of the solution becomes self-evident. For example, if deficit
spending and money printing ruin economies, we should establish a system
that removes the state’s ability to go into debt and to control and print
money. In the unnecessary complexity of modern economic jargon, the
obvious problems with money printing and excessive debt have become
blurred in society’s consciousness. This is the reason we have focused so
much on this problem in this book – to highlight the simple cause and effect
of poor decisions and the political structures that allow them.
The historical evidence is clear. For any country to correct itself from
currency collapse, both deficit spending and money printing need to end. It
is the pressure placed on government by excessive debt obligations that
ultimately drives money printing. However, the knowledge that it can
simply print money also emboldens government to spend and borrow too
much. Government debt and money printing are self-perpetuating twin
injustices that lead to economic ruin – both need to be ended. This was
highlighted in a definitive paper written by Nobel Prize-winning economist
Thomas Sargent, where he analysed the outcomes of four large inflations in
the early twentieth century.78
Powerful vested interests benefit from money printing and debt-fuelled
consumption, largely because of society’s ignorance. Yet, as these injustices
are laid bare to ordinary people, there is a critical window period for
learning and reform.
What, then, are the best structures to facilitate a sound and just money
system?
We strongly advocate that as a foundation, people must have freedom to
choose whatever money they wish to use in trade. This means that legal
tender laws that ‘lock’ people in to using only one currency controlled by
the government should be repealed. Money and different money alternatives
should be services offered by competing enterprises, in the process
decentralising the power and privilege associated with money and its
creation. When the government has monopoly control over the money
supply, there are few checks on its power to increase the amount of money
in the system fraudulently. We therefore advocate allowing the markets to
define currency naturally, and legal structures that let people trade in
whatever money they choose.
The only standard needs to be one of justice. If an organisation says that
the money it issues has a certain backing, such as oil or gold, it must
actually have that backing. The money must be what it says it is. At its
basic root, this is about trading honestly. The full extent of government
involvement in money should only be to ensure that issuers of currency
maintain honest money – money that is what it says it is.
In order to allow people the freedom to choose their own money, banking
and financial structures need comprehensive reform. A system of privately
produced competing currencies should be subject only to ordinary
commercial law – there would be no need for a central bank or any other
authority with the power to exact monopoly control over money production.
Banks in turn would no longer have the privilege of accessing newly
printed money in the form of central bank loans and bailouts. They would
have to run their businesses responsibly, and if they incurred losses, they
would have to look to private shareholders for bailouts, or declare
bankruptcy – just like any ordinary business. Banks would have to focus on
finding people willing to save money with them by building trust and a
sound business track record, rather than accessing special money printing
privileges.
Likewise, clearing houses for payments between banks (which in our
current day are facilitated and controlled by the central banks) should be
privatised, and based on the prepayment of reserves – with interbank
clearing transactions based on known existing money stores held within the
clearing house.
 Many national currencies are linked to vulnerable reserve currencies,
such as the United States dollar. Unless these links are severed, they will
share the fate of those reserve currencies. In the 1920s, Austria, Hungary
and Poland failed to de-link their currencies sufficiently from the collapsing
German mark and got pulled into their own hyperinflation crises. National
paper currencies need to be linked to a sound backing, such as gold and
silver, have legal tender monopoly removed and be opened up to face
competing currencies.
The underlying cause of hyperinflation is excessive government spending
that precedes money printing. Governments should therefore have strict
constitutional limitations on their ability to tax, spend and borrow. Those
who pay tax should be allowed to do so in any of the major private
currencies in use.
It’s not just about respecting private property rights in money, but all
private property rights. Hyperinflationary crises fundamentally change the
character of society and relationships. Family, friends and community
structures are crucial to stable social order, particularly in times of societal
reform. We advocate the importance of private property and land ownership
within families and communities instead of putting these things into the
hands of government. Private property ownership, particularly as it relates
to money, has been shown to be a pillar on which to build successful,
ordered communities.

Opportunity
Economic crises are usually associated with great wealth transfers and new
opportunities. In Zimbabwe, those who were prepared for what was to come
were able to protect their wealth and build upon new opportunities.
Collapsing municipal services provide opportunities for smart entrepreneurs
to supply those services privately. Society’s shifting values in a time of
crisis place much more emphasis on certain products and services than
others, creating new business opportunities in a host of products, services,
sectors and industries. Tremendous opportunities exist in helping facilitate
trade. Obtaining access to productive farm land, fresh water sources or fuel
supply channels can also lead to significant opportunity as demand for basic
necessities skyrockets. Harnessing smart, affordable energy solutions that
reduce or eradicate reliance on the municipal grids can become a major
business opportunity.
Technology can also be a game changer. Online cryptocurrencies and
related services can provide tremendous benefit as paper currencies
collapse. Specialist mobile apps that create solutions to people’s everyday
problems are a huge untapped opportunity, such as allowing community
networks to connect, communicate and coordinate transactions and supply
logistics, or helping people work out and pay for goods and services in high
and fluctuating complex currency denominations. The potential
technological solutions in a time of great crisis are practically endless.

The lessons from Zimbabwe’s struggles are clear. When nations enact
irresponsible economic policies and then print money to fix their problems,
the inevitable result is economic ruin. This pattern has been repeated over
and over in history, always with the same results.
It requires maturity to face risks honestly and to respond with clear
purpose, rather than to recoil in fear. In many senses, the good news is that
you now know the bad news! You have the ability to respond to the
challenges only when you understand them. The opportunity you have is to
help bring about constructive change, and that starts in your own life, then
in your family, your community, your work environment and beyond. This
is your opportunity.

When money destroys nations: nugget o’ nuggets

Since the financial crisis of 2008, the major governments of the world have
resorted to printing large amounts of money to pay national debts and bail
out banks. The warning signs are clear, and Zimbabwe’s experience of
rampant money printing is a useful guide to what lies in store if urgent and
painful reform is not enacted. Prior to its hyperinflation, Zimbabwe was
loaded with economic potential. It had abundant infrastructure and trade
was booming – yet the country marched towards hyperinflation with a
series of poor economic decisions.
For years Zimbabwe’s government borrowed excessively to pay for war
and welfare entitlements, culminating in the Black Friday crash in 1997.
International lenders withdrew funding, forcing Zimbabwe into a debt
spiral. The government responded by printing money to pay its debts,
pushing Zimbabwe down a perilous inflation gorge.
As inflation accelerated, the Zimbabwean government had to increase its
control over the population to monitor transactions and to plunder the
nation’s assets. It fiddled with inflation statistics and used obscure language
to conceal the true nature and extent of its money printing. A host of new
laws were enacted, particularly in controlling bank transactions, prices and
everyday trade. The state increased the police and military presence, and the
justice and penal systems were skewed heavily in favour of the ruling party.
The media and local centres of influence were infiltrated and controlled.
Finally, in 2008, 11 years after the Black Friday crash, the Zimbabwe
dollar collapsed in a heap of worthless paper.
What is hyperinflation? It is the dramatic process of an established
currency losing its usefulness as money. Prices rise rapidly and
uncontrollably as a result of excessive money printing and a loss of
confidence in the currency.
Money printing causes a rise in prices known as inflation, which over
time creates a culture of inflation. As money printing accelerates, so do
rates of inflation. People expect prices to rise at an increasing rate and begin
to seek refuge from rapidly rising prices by getting rid of money as fast as
they can and buying real things that hold value.
At this stage, people don’t want to trade in the currency and only do so
under the compulsion of legal tender laws and government force. Most
local businesses go under. A time comes when no one, not even the
government, wants to use the currency any longer, and it collapses. The
economy goes through its final and inevitable contraction. At this point,
people turn to alternative, stable currencies, and the country is forced to
rebuild its economy and society from ground zero.
 Hyperinflation is the ultimate in economic chaos and disorder, leaving in
its path economic ruin. The toll of human suffering in Zimbabwe was
immense. Living standards plummeted. Basic services disintegrated. Stores
emptied. Food, water and other necessities that people took for granted
became incredibly difficult to find. Government services collapsed and
municipalities went bankrupt. Experienced and skilled staff left in droves.
Systems broke down and important equipment deteriorated.
Hyperinflation forced communities closer. Bartering, support networks
and relational business helped people survive. However, the extreme
economic injustices meant desperation set in, slowly eroding the deep
integrity of the Zimbabwean people and, with it, their trust in the
community. The elderly suffered terribly. Their savings were destroyed and
they were left destitute.
Millions left Zimbabwe with little hope of ever returning. They sent
money and resources home to those who stayed during the worst period of
hyperinflation, and some continue to support those friends and loved ones
even to this day.
Violent crime, except that perpetrated in the name of politics, never
became a major problem during hyperinflation. This is a great testimony to
the patience and peacefulness of Zimbabweans.
It was a colossal challenge to trade in Zimbabwe dollars, with the rate of
price increases and the size of the transactions creating brain-shuddering
complexities in everyday affairs. People found currency substitutes, the
most useful of which were food, fuel and foreign exchange. These evolved
into unique currencies with different strengths, weaknesses and functions.
Other useful barter commodities were tampons, cars, toilet paper, airtime,
whiskey and postage stamps. Gold and precious metals played a small but
limited part in trade, mostly being useful as a medium to acquire foreign
exchange. As always happens during chronic currency debasement, gold
and silver were driven out of circulation as people hoarded these valuable
metals in an attempt to store wealth.
Zimbabwe contains lessons for the global economy. The United States
dollar is the global reserve currency resting on the back of the petrodollar
system. There are deep-rooted and enormously powerful vested interests
keeping people trading with US dollars – yet today, numerous other powers
are threatening to diversify trade away from dollars to reduce this currency
hegemony. At stake is America’s exorbitant privilege – its ability to print
money out of nothing in exchange for real goods and services from the rest
of the world. Like Zimbabwe, the American government has made the
political decision to print money on a large scale, meaning it likely will
have to increase its control over the population to keep them using that
money. Total transaction control is a tremendous risk to personal economic
freedom as governments print money.
Money printing and the collapse of confidence in your nation’s currency
may be the greatest risk – and the greatest opportunity – you could face in
your life. You can learn from those who’ve gone before.
Make sure you are prepared.
 Endnotes

1 http://www.businessweek.com/articles/2013-09-12/hank-paulson-this-is-what-it-was-like-to-face-
the-financial-crisis#p4
2 http://www.businessweek.com/articles/2013-09-12/nancy-pelosi-on-getting-the-tarp-votes-to-save-
the-economy
http://www.independent.co.uk/news/business/news/paulson-was-down-on-one-knee-begging-for-a-
deal-944046.xhtml
3 Technically, quantitative easing and other money printing programmes don’t actually print physical
money. While money printing is a part of the process of increasing the money supply, the vast
majority of money is ‘created’ by digital accounting. This reflects on bank accounts but there is no
physical underlying money – it is, in essence, electronic money. The money in banks is mostly
numbers on a computer. The effect, however, is exactly the same as printing money. Using its
unique and special legal privilege, the Federal Reserve creates money out of nothing and purchases
government bonds and mortgage-backed securities, many of which have no value. The result is
basically the same as giving it to the banks directly.
By buying United States government bonds the Federal Reserve, in an indirect but very real
way, gives the government newly printed money to fund its expenses.
Central banks aren’t the only ones to print new money. When commercial banks get money
from the central bank, they multiply that amount of money, not by printing but by lending out
much more than they actually have on hand. They do this by simply recording on your bank
statement that you have the money deposited with them when they lend it to you. When people
like you and I get a loan from the bank, the bank doesn’t actually have most of the money. The
bank has essentially ‘created’ electronic money through loans which exceed their actual cash
holding. A common term for this kind of money is ‘bank credit money’.
This process has, in its current form, been going on since 1971 as part of the flexibility that
banks and central banks have in the post-gold-standard system. However, with the massive bank
debts and government financing required, quantitative easing has accelerated this process and
has resulted in large increases in money printing.
4 http://data.worldbank.org/indicator/CM.MKT.LCAP.CD
5 http://object.cato.org/sites/cato.org/files/pubs/pdf/workingpaper-8.pdf
6 In its colonial days, Zimbabwe was known as Southern Rhodesia and subsequently the Republic of
Rhodesia after the Unilateral Declaration of Independence of 1965. For a brief six-month period
from June 1979 it was named Zimbabwe-Rhodesia. The end of the peace treaty in December 1979
saw it revert to the pre-UDI name of Southern Rhodesia until the country was finally named the
Republic of Zimbabwe after independence in 1980.
7 For further reading on the causes of other hyperinflationary episodes, read the paper ‘The Ends of
Four Big Inflations’ written by Thomas Sargent in 1982.
8 http://www.imf.org/external/pubs/ft/wp/2013/wp13266.pdf
9 Raftopoulos, Brian and Mlambo, Alois (eds). Becoming Zimbabwe: A History from the Pre-
colonial Period to 2008. Johannesburg: Jacana Media, 2009.
10 http://mises.org/journals/qjae/pdf/qjae14_3_3.pdf
11 Dollarisation was the moment of the collapse of the Zimbabwe dollar and the acceptance of other
currencies as alternatives. It occurred between November 2008 and February 2009. In November,
the government gave numerous shops special licences to trade in US dollars. By the end of
January, other currencies had obtained legal tender status, and by 3 February 2009, anyone could
legally refuse to accept Zimbabwe dollars. Within a few days, Zimbabwe’s currency was dead.
12 2012 Mid-term Monetary Policy Statement by the Reserve Bank of Zimbabwe Governor Dr. G.
Gono: http://www.rbz.co.zw/pdfs/2012%20MPS/Mid%20Term%20MPS%20July%202012.pdf
13 http://www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/28_1.pdf
14 http://www.ssa.gov/budget/
http://www.ssa.gov/policy/docs/statcomps/supplement/index.xhtml
http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-Returns
15 http://www.federalreserve.gov/releases/z1/current/
16 http://www.iea.org.uk/publications/research/a-bankruptcy-foretold-2010-post-financial-crisis-
update-web-publication
http://www.ecb.europa.eu/pub/pdf/scpops/ecbocp132.pdf
http://www.ncpa.org/pdfs/st319.pdf
http://www.bis.org/ifc/events/2011_dublin_111_06_hagino.pdf
17 St Louis Federal Reserve, Federal Reserve Economic Database
18 http://www.bloomberg.com/news/2013-11-20/pboc-says-no-longer-in-china-s-favor-to-boost-
record-reserves.xhtml
19 The increase in M1 money supply (which is made up of notes and coins in the hands of the public
and demand deposits – digital money – in bank accounts) in Zimbabwe from 1990 was much more
than the major economies after the banking crisis of 2008. This is a key factor in delaying the loss
of confidence in the major currencies currencies and subsequent high inflation.
20 http://www.mckinsey.com/insights/economic_studies/debt_and_not_much_deleveraging
21 United States Department of the Treasury: Financial Management Service
22 The United States Federal Reserve expanded its balance sheet assets (a measure related to the
money supply) by nearly 40% in 2013 and by 350% since 2008. The Bank of Japan also grew its
balance sheet by 40% in 2013 and has doubled it since the financial crisis. The Bank of England
has expanded its balance sheet by 300% and the European Central Bank balance sheet grew by
50% since 2008.
23 http://www.europarl.europa.eu/news/en/news-room/content/20131212IPR30702/html/Deal-
reached-on-bank-%E2%80%9Cbail-in-directive%E2%80%9D
24 http://recoveryandresolutionplans.wordpress.com/2013/10/03/banking-reform-bill-bulks-up/
25 http://larouchepac.com/dodd-frank
26 http://www.budget.gc.ca/2013/doc/plan/budget2013-eng.pdf (pp 144–145)
27 http://finance.yahoo.com/news/banks-in-europe-are-charging-to-hold-deposits--could-it-happen-
here-195532627.html
28 http://www.ecb.europa.eu/pub/pdf/scpops/ecbocp132.pdf
29 http://www.bloomberg.com/news/2010-11-25/hungary-follows-argentina-in-pension-fund-
ultimatum-nightmare-for-some.xhtml
http://pensionsandsavings.com/pensions/pole-axed-pensions-politicians-raiding-pensions-again/
30 http://investmentwatchblog.com/the-feds-us-land-grab-hidden-within-purchase-of-mortgage-
backed-securities/
31 The final moments of the burning balloon and subsequent crash were caught on a mobile phone
camera by a nearby tourist, and the video went viral on YouTube.
32 In 1956, the economist Phillip Cagan wrote ‘The Monetary Dynamics of Hyperinflation’. His
definition of the moment hyperinflation starts is in the month that the monthly inflation rate
exceeds 50%; it ends when the monthly inflation rate drops below 50%, and stays that way for at
least a year. Annualised, this is 12 874% per year. By his own admission, the 50% threshold is
arbitrary. However, this is the figure that most of the academic community embrace as a definitive
moment when a country enters hyperinflation.
The International Accounting Standards Board makes reference to a rate but also lists factors
that indicate the existence of hyperinflation:

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;
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 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; and
The cumulative inflation rate over three years approaches or exceeds
100%.

33 Many scholars also call this malinvestment.

34 Some economists translate Mises’ German phrase Katastrophenhausse as the crack-up boom.
35 See the Cato Institute’s Troubled Currencies Project (http://www.cato.org/research/troubled-
currencies-project) for the difference between the black market and the official exchange rates
reported by government – evidence of how governments understate the extent of currency
depreciation during a currency crisis.
36 This was the general view of those we interviewed. We contacted the Africa division of Old
Mutual in Johannesburg to highlight our findings and give them a chance to respond – they
declined to comment.
37 The main issues with barter are:
 Double coincidence of wants: It is rare that both people want what
the other has. Adam Smith, the so-called father of modern
economics, described the problem of barter as the ‘double
coincidence of wants’;
Absence of common measure of value: It is difficult to know what
the exact exchange amount for each barter transaction is. Normally
we denominate transactions in one common currency. In barter,
there is no standard denomination;
Indivisibility of certain goods: Sometimes a person only has a large
indivisible item to barter (such as a house or a car) and can’t barter
for the smaller value of another good;
Difficulties in debt: Because there is no standard denomination, it is
difficult to handle deferred payments or loan transactions; and
Difficulty in storing wealth: Very often, barter transactions are done
with things that are perishable – such as grain or milk.

38 Gresham’s Law states that people will hoard good money and get rid of bad money by trading
with it. This was certainly the case in Zimbabwe. Gold and other precious metals were not used in
exchange but instead were hoarded as a store of wealth and value, to be sold only if necessary to
survive.
39 In practice, Saudi Arabia invested any excess profits in United States Treasury bonds, notes and
bills. In other words, this increased loans to the United States government. This became known as
dollar recycling, and as this new system became entrenched, the recycled dollars were made
available to United States banks and the World Bank. The history to this is discussed in detail in
the book Petrodollar Warfare by William Clarke.
40 After the petrodollar system was established, global investors remained sceptical that the dollar
could survive unbacked by gold. They continued to sell dollars for gold in the late 1970s, and the
gold price soared. By 1981, a decade after ‘The Nixon Bomb’, the gold price had rushed to $800
per ounce. In just 10 years of being unbacked by gold, the dollar had lost 95% of its value.
In the final act of America’s dollar restoration plan, Federal Reserve Chairman Paul
Volcker drastically slowed the supply of new money by raising short-term interest rates to
almost 20%. This did three important things. First, it made it more expensive to borrow
from American banks, so bank lending, and hence bank money printing, slowed down.
Second, it encouraged Americans to save money because they earned more interest on
their savings. More savings were therefore made available to fund investment projects
that began to make America more productive. Third, it made it much more attractive for
foreign countries to invest their cash surpluses in United States government bonds
because they earned more interest doing so.
 It had the desired effect. The dollar stabilised and then began strengthening. The gold
price fell rapidly. America had convinced the world to use a dollar unbacked by gold.
41 The term privilège exorbitant was first coined by Valéry Giscard d’Estaing, the French finance
minister in the 1960s, referring to America’s ability to finance its trade deficit using its own
currency.
42 IMF was set up under the Bretton Woods System. It served as a global policeman, ‘helping’
member countries keep fixed exchange rates by giving them short-term dollar loans to manage
exchange rates.
From there, the World Bank was established. It mainly took deposits from the United States and
lent them to countries needing long-term loans, denominated primarily in US dollars. As the
petrodollar system grew, the World Bank took in recycled dollars from oil-producing countries.
These two organisations have been pivotal in establishing global dollar supremacy.
43 http://www.rferl.org/content/article/1095057.xhtml
44 OPEC is a cartel of oil-producing countries that operate together to influence prices and limit the
supply of oil in the market. You can find the discussion to use the euro as petrocurrency here:
http://www.opec.org/opec_web/static_files_project/media/downloads/publications/OB042002.pdf
45 http://news.bbc.co.uk/2/hi/business/4713622.stm
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=axsVayf83Ow4
46 http://www.nytimes.com/2007/03/27/business/worldbusiness/27iht-euros.1.5042807.xhtml?_r=0
47 By this stage, the United States had almost complete control over the global banking system:
credit card networks, the SWIFT international payments system, and the Bank of International
Settlements.
48 http://www.theguardian.com/commentisfree/cifamerica/2011/apr/21/libya-muammargaddafi
49 http://www.cnn.com/2011/US/03/02/libya.military.options/index.xhtml?_s=PM:U.S.
50 http://www.thenewamerican.com/world-news/africa/item/8318-libyan-rebels-create-central-bank-
oil-company
51 http://www.reuters.com/article/2011/03/28/us-libya-oil-rebels-idUSTRE72R6X620110328
52 http://www.vestifinance.ru/articles/42686
53 http://www.examiner.com/article/dollar-no-longer-primary-oil-currency-as-china-begins-to-sell-
oil-using-yuan
54 http://www.chinadaily.com.cn/china/2010-11/24/content_11599087.htm
55 http://www.bloomberg.com/news/2013-10-10/ecb-sets-currency-swap-line-with-pboc-aseuro-
china-trade-rises.xhtml
http://en.wikipedia.org/wiki/Internationalization_of_the_renminbi
http://www.forbes.com/sites/jackperkowski/2012/06/26/china-busy-signing-currency-deals/
56 http://www.reuters.com/article/2013/09/05/us-mp-g20-brics-idUSBRE9840E020130905
57 The Electronic Privacy Information Centre gives an in-depth discussion regarding the Total
Information Awareness programme at http://epic.org/privacy/profiling/tia/. The comments are from
March 2005.
58 As of 2014, the 16 intelligence agencies that are part of the United States Intelligence Community
are:

1. Independent agencies
1.1 Central Intelligence Agency (CIA)
 2. United States Department of Defense
2.1 Defense Intelligence Agency (DIA)
2.2 National Security Agency (NSA)
2.3 National Geospatial-Intelligence Agency (NGA)
2.4 National Reconnaissance Office (NRO)
2.5 Air Force Intelligence, Surveillance and Reconnaissance Agency (AFISRA)
2.6 Army Intelligence and Security Command (INSCOM)
2.7 Marine Corps Intelligence Activity (MCIA)
2.8 Office of Naval Intelligence (ONI)
3. United States Department of Energy
3.1 Office of Intelligence and Counterintelligence (OICI)
4. United States Department of Homeland Security
4.1 Office of Intelligence and Analysis (I&A)
4.2 Coast Guard Intelligence (CGI)
5. United States Department of Justice
5.1 Federal Bureau of Investigation (FBI)
5.2 Drug Enforcement Administration, Office of National Security Intelligence
(DEA/ONSI)
6. United States Department of State
6.1 Bureau of Intelligence and Research (INR)
7. United States Department of the Treasury
7.1 Office of Terrorism and Financial Intelligence (TFI)
59 http://www.theguardian.com/world/2013/jun/08/nsa-boundless-informant-global-datamining
60 http://www.theguardian.com/commentisfree/2013/jul/07/nsa-brazilians-globo-spying
61 http://www.nytimes.com/2013/08/21/us/facial-scanning-is-making-gains-in-surveillance.xhtml?
pagewanted=all&_r=0
62 http://www.theguardian.com/world/2013/sep/05/nsa-gchq-encryption-codes-security
63 http://www.theguardian.com/commentisfree/2013/jun/13/prism-utah-data-center-surveillance
64 http://www.theguardian.com/commentisfree/2013/oct/04/german-intelligency-service-nsa-
internet-laws
www.stiftung-nv.de/mstream.ashx?
g=111327&a=1&ts=635169356871880160&s=&r=-1&id=152076&lp=635162174190900000
65 Glenn Greenwald has written a detailed book revealing the scope of NSA surveillance. Published
in 2014, it is called No Place to Hide: Edward Snowden, the NSA, and the U.S. Surveillance State
and is published by Metropolitan Books.
66 http://thelead.blogs.cnn.com/2013/12/31/40000-new-laws-take-effect-in-2014/
67 https://www.federalregister.gov/uploads/2013/05/FR-Pages-published.pdf
68 http://www.davispolkportal.com/infographic/july2013infographic.xhtml
69 http://obamacarefacts.com/obamacarebill.pdf
70 http://rules.house.gov/bill/113/hr-3547-sa
71 http://www.globalsecurity.org/military/systems/ground/v-mads.htm
72 http://motherboard.vice.com/blog/the-worlds-smallest-robot-is-a-drone
73 http://rt.com/news/us-drones-swarms-274/
74 http://www.cnbc.com/id/102303444#.
75 http://www.bostondynamics.com
76 Gary North deals with the Christian ethics of money printing and banking in his excellent book,
Honest Money. Further details can be found at our website: WhenMoneyDestroys.com.
77 We provide personalised advisory services to support and develop businesses as they deal with the
risks and opportunities faced in hyperinflation. If you are looking for strategies to profit in
hyperinflation or to protect your business, investments or pensions, go to
WhenMoneyDestroys.com for further information.
78 http://www.nber.org/chapters/c11452.pdf
 List of acronyms

AFISRA
Air Force Intelligence, Surveillance and Reconnaissance Agency
AIG
American International Group
ASPEF
Agricultural Sector Productive Enhancement Facility
ATMs
Automated Teller Machines
BOSS
Biometric Optical Surveillance System
BRICS
Brazil, Russia, India, China, South Africa
CCTV
Closed-Circuit Television
CEO
Chief Executive Officer
CGI
Coast Guard Intelligence
CIA
Central Intelligence Agency
CNBC
Consumer News and Business Channel
CNN
Cable News Network
DEA
Drug Enforcement Administration
DIA
Defence Intelligence Agency
DRC
 Democratic Republic of Congo
EU
European Union
FBI
Federal Bureau of Investigation
GDP
Gross Domestic Product
I&A
Office of Intelligence and Analysis
IMF
International Monetary Fund
INR
Bureau of Intelligence and Research
INSCOM
Army Intelligence and Security Command
LED
Light-Emitting Diode
M1
Money Supply
MCIA
Marine Corps Intelligence Activity
NATO
North Atlantic Treaty Organisation
NECI
National Economic Conduct Inspectorate
NGA
National Geospatial-Intelligence Agency
NGO
Non-Governmental Organisation
NRO
National Reconnaissance Office
NSA
National Security Agency
OICI
Office of Intelligence and Counterintelligence
ONI
Office of Naval Intelligence
ONSI
Office of National Security Intelligence
OPEC
Organisation of the Petroleum Exporting Countries
PAYE
Pay As You Earn
QE
quantitive easing
RBZ
Reserve Bank of Zimbabwe
SWIFT
Society for Worldwide Interbank Financial Telecommunication
TARP
Troubled Asset Relief Program
TFI
Office of Terrorism and Financial Intelligence
UAE
United Arab Emirates
UDI
Unilateral Declaration of Independence
UK
United Kingdom
US
United States
ZESA
Zimbabwe Electricity Supply Authority
List of big numbers
 Disclaimer

Although the authors have made every effort to ensure that the information
in this book was correct at the time of going to press, the authors do not
assume and hereby disclaim any liability to any party for any loss, damage,
or disruption caused by errors or omissions, whether such errors or
omissions result from negligence, accident or any other cause.
The information provided in this book should not be interpreted as legal,
financial or any other professional advice. The authors do not make any
representations or warranties of any kind relating to the content and will not
be liable to any person with respect to any loss, caused, or alleged to have
been caused, directly or indirectly, by the use of the information contained
herein. Every person is different and the information contained herein may
not apply to your situation. The services of a professional advisor should be
sought before making investment decisions.
References are provided for informational purposes only and do not
constitute an endorsement of any websites or other sources. Readers should
be aware that the websites listed in this book may change. Some names and
identifying details have been changed to protect the privacy of individuals.
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 Acknowledgements

Philip Haslam
Many thanks to those who have come alongside and helped me make this
book a reality. Russ Lamberti, you have been a pillar of strength. What a
great journey this has been. Thank you for your friendship. To the many
people I interviewed whose heartfelt stories made this book come true,
thank you. To my other co-labourers, Jason Goldberg and Cheryl-lyn
Selman: you have helped me more than you know. To those who helped
with my trip – Tim and Di, the Mhlangas, Phil S, Carmen and Hazel R,
thank you. To those who reviewed the book: Lauren S, Tandi H and Simon
Watson. To Frans Nortje for the generous gift of a computer. To my Sinergi
support. Joe A and Tandi H: thank you for the office. To Riaan Stoman and
all at Pepperoni Pictures – your promo video rocks! To all those who
provided strong and solid support along the way – Monique Mathys, Rich
Wolfe, James Arthur, Grant Flaum, Neels Claasen, Dave ‘the legend’ Sales,
Pedro de Jesus Ferreira, David Stone, Bron, Baggers, Bash, Schladers,
JayZ, Fitz and MC, and Dad and Fran. My gorgeous, amazing, lovely wife,
Bron. And finally, to my Heavenly Father. I’m humbled by all you have
done.

Russell Lamberti
Thank you, Lord, for planting in my heart the desire for monetary justice.
Pam, thank you for being you, and for being 100% behind this project. You
are my life partner in liberty. To Amber and Skyler – you both embody why
I care about the future and want to help ensure it is a just, peaceful and
prosperous one. Also, thanks for constantly reminding me about what’s
truly important in life. To Dad, Ma, Nev, Amanda, Owen, Holly, Lisa,
Chris, Tim, Paul, Dave, Delia, Jonty, Matt, Jen and Katherine – you all
know why you matter so much. Chris Becks, I have one thing to say: vry.
Thanks to George, Quin and ETM for everything you have done and will
continue to do. To the New Creation family – I’ve learned so much from
you all that finds expression in this book. And last but not least, to Phil
Haslam. Well done, my friend. Thanks for opening the door to me on this
project and leading it in dignity, humility and honour.
 About the Authors

Philip Haslam
Philip Haslam is an economic advisor, writer and speaker. Trained as a
chartered accountant in South Africa, he furthered his career in finance and
economics. As a speaker, he regularly presents to a variety of audiences on
money, banking and the international financial system. His latest research
into the Zimbabwe hyperinflation provides groundbreaking clues to the
consequences of money printing. His goal is to influence multinational
monetary policy with sound economic reform. Philip has lived in both
Europe and America, and currently stays with his wife in his hometown of
Johannesburg, South Africa.

Russell Lamberti
Russell Lamberti is chief strategist at an investment strategy consulting firm
in South Africa. He consults to professional investors on economic policy,
the money and banking system, international finance, business cycles and
asset allocation. He is co-founder of the Ludwig von Mises Institute of
South Africa, which promotes the market economy, private property, sound
money, and peaceful international relations. Russell participates in
roundtable discussion forums with senior monetary policy officials of the
South African Reserve Bank. He is published in major news and financial
publications and makes frequent television and radio appearances to discuss
key topics on economics and financial markets. He has been a visiting
lecturer to the Gordon Institute of Business Science MBA programme on
fiscal and monetary policy. Russell lives with his wife and their children in
Johannesburg, South Africa.
 ***

More about the Authors

Russell and Philip started the Monetary Justice Project, which promotes
monetary justice through advisory, advocacy, education, solution-building
and networking.
For further information about the services Russell and Philip offer, go to
WhenMoneyDestroys.com. There, you’ll be able to sign up to their regular
mailer, find out the latest about global money printing and access other
services.
To schedule a speaking engagement, obtain macroeconomic consulting
advice or to discuss any other query, consult the website.
Follow the authors on Twitter: @HaslamPhilip and @RussLamberti and
@moneydestroys
Like their Facebook page: www.facebook.com/whenmoneydestroys
 THE BEGINNING
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Series 1 – 1980–1994 (4 notes)
Series 2 – 1994–2003 (8 notes)
Series 3 – 1 Aug 2006–31 July 2008
Series 4 – 1 Aug 2008–2 Feb 2009
Series 5 – 2 Feb 2009–9 Feb 2009