By Howard Lesser
27 June 2008
In addition to the violence and human rights violations by a repressive regime, Zimbabwe voters will take note of their economic woes as they cast ballots today in a run-off election for president. Over the past two years, inflation has escalated to a state of hyperinflation, which economists suggest can be curbed by replacing the country’s central bank with a new monetary system. That’s the finding of a new study by Johns Hopkins University economist Steve Hanke which has just been published by Washington’s Cato Institute. Professor Hanke, who is also a senior fellow at Cato, says that the Reserve Bank of Zimbabwe is an inflation-fueling money machine that should be abolished and replaced by a national currency board that restore stability and growth to the country’s economy.
“I’ve been involved in stopping hyperinflations in the 1990’s, and you can do this within 30 days. If you don’t stop the hyperinflation, you can’t have economic stability, you can’t have political stability, you can’t have any semblance of normalcy, so you obviously have to have a politician with a will to do it,” he said.
Professor Hanke argues that Zimbabwe’s central bank has been used to print money whenever the supply runs out and provide jobs for supporters of President Robert Mugabe’s government. He says the process, fostered by the regime’s determination to stay in power, continues to spiral out of control and prevent opportunities for a return to economic growth.
“It’s a terrible thing for the people who are involved because the economy completely collapses and they’re just robbed of all means to sustain themselves,” he notes.
Far from being a radical proposal akin to American attempts to abandon the gold standard of currency valuation, Hanke says that getting rid of the Zimbabwe Reserve Bank would restore Zimbabwe’s rich monetary tradition, under which a currency board system performed efficiently and circulated currency without problems.
“There’ve been in fact very few hyperinflations because the main monetary system there is historically the currency board system, which is one of the systems I’ve recommended in the Zimbabwe report and which Zimbabwe actually had from 1940 to 1956 and the thing worked beautifully. So Africa was just thoroughly covered with currency boards, and most of them were backed, by the way, by the gold standard. So you had generally stable money historically in Africa,” said Hanke.
Although the chronic economic woes have forced thousands of citizens into poverty, caused millions to emigrate, and led to radical declines in health and the average Zimbabwean’s life span, the Cato Institute senior fellow says there are no guarantees that resolving the hyperinflation will result in better government for Zimbabwe. But he says any meaningful political changes cannot be accomplished unless rampant rising costs are brought under control, and that is what has enabled other former hyperinflationary countries like Serbia and Bulgaria to take the necessary steps to overcome their crises.
“Ultimately if you get into hyperinflation, you know that its life is limited because people simply won’t support a government in which hyperinflation is raging away. So if that’s the condition that exists, the public is very much tuned into the idea that we have to get out of this death spiral that we’re in, and they’re very willing to listen to recommendations and adopt them. And most of the cases I’ve been involved in, they have adopted them very quickly,” he claims.