Friday, 27 March 2009

Good money drives out bad

This report from the BBC says
Prices in Zimbabwe have begun to fall after years of galloping inflation, according to figures from the state Central Statistical Office (CSO).

Prices of goods bought in US dollars, Zimbabwe's new official currency, fell by up to 3% in January and February.

They were the first official figures since the country's recent adoption of the US dollar.
The US dollar was adopted by Zimbabwe's government following the inauguration of the unity government between the MDC and President Mugabe's Zanu-PF.
and adds
The Zimbabwean dollar has disappeared from the streets since it was dumped as official currency.
The move to the US dollar is to be welcomed as it will help with the fight against the hyperinflation which Zimbabwe has suffered from in recent years. Hopefully it also signals that more rational economic policies, in general, will be followed in Zimbabwe from now on. Dollarisation was one of the options that Steve Hanke put forward when writing about How to kill Zimbabwe’s hyperinflation.

Peter Draper and Andreas Freytag point out that dollarisation is not without its dangers, however
The currency board or “dollarisation” option is closely associated with US scholar Steve Hanke (2008). In Zimbabwe’s case, he refers approvingly to the currency board Southern Rhodesia operated in the 1940s. However, the preconditions were very dissimilar to Zimbabwe today. Regardless of Rhodesian governments’ other failings, their administrative capacity, and therefore the credibility of any new institutions, was far more developed, whilst trade and capital markets were far less integrated than today. Mr Mugabe and his Zanu PF party not only destroyed the economy thereby creating hyperinflation, poverty and starvation– they also eradicated a workable administration. The latest manifestation is the cholera crisis, now reportedly affecting 80,000 people and spreading rapidly into neighbouring countries. Critically, all kinds of economic institutions necessary for a country to develop are now lacking.
This seems a fair point, its hard to believe that there is much in the way of workable government (or private) institutions left in Zimbabwe. So it will be interesting to see how things progress. Hopefully the new government can rebuild the needed institutions. At least now there is reason for a small amount of hope for Zimbabwe.

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