A Secret Plan to Fight Inflation

January 20, 2009

The government of Zimbabwe announced last week that it will issue a Z$100 trillion note, necessary because annual inflation is above 200 million percent.  This is an almost incomprehensible number:  it means that in a single day, prices can increase by more than 1,000%.   It’s almost impossible to have a functioning economy under these circumstances.  And it’s very difficult to stop the spiral of hyperinflation because it hinges on people beginning to regain faith in the value of the currency, and not demanding exponentially more notes for every simple business transaction.  To put it bluntly, they have to believe that a Zimbabwe dollar is worth more than say, a bubble-gum wrapper.   Or more precisely 100 trillion bubble gum wrappers.  And they have to accept these nearly worthless notes as a currency of exchange, rather than demanding dollars or bubble-gum wrappers.

Brazil, which suffered from hyperinflation throughout the late 1980s and early 90s, tried a series of failed plans to fight inflation: the Cruzado Plan (1986), the Bresser Plan (1987), the Summer Plan (1989) and several others plans that faded into anonymity without names that can be written in upper-case letters.   The government finally managed to turn around the economy with the Real Plan of 1994, bringing down inflation from nearly 2,000% to less than 10% in several months.  Fighting hyper-inflation is a bit like winning a fight when your outnumbered – it’s unclear exactly how you win but you definately don’t come out unscathed.

In fact, it’s so difficult to fight hyperinflation that you almost need a “secret plan” to do it.  At least that’s what Josh Lyman, Deputy Chief of Staff for the imaginary Bartlet Administration, found out.  And while President Bartlet wasn’t crazy about the plan, it sounds like just the sort of conspirational thing that Mugabe would be into. ..

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