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Causes of Zimbabwe's Inflation

When Zimbabwe gained independence in 1980, the country adopted a new currency that was originally valued at approximately $1.25 US. The country's eventual out-of-control inflation was caused almost entirely by governmental mismanagement.

The path towards hyperinflation began in the early 1990s when President Robert Mugabe initiated a series of land redistribution programs that took land from the country's ethnically European farmers and gave the land to ethnic Zimbabweans. The sudden removal of an entrenched and experienced farmer class severely damaged the country's capacity for food production, dropping supply far below demand and raising prices as a result.

Early in the 21st century, Zimbabwe entered hyperinflation and by 2006 the country printed 21 trillion ZWD to pay off loans from the IMF. Later that year, the country again had to print money, in excess of 60 trillion, in order to pay salaries of soldiers, policemen and other civil servants. In 2007, there were extreme shortages of basic food, fuel, and medical supplies as IMF estimates for monthly inflation increased over 115,000 percent by the end of the year and the Zimbabwe government instituted a 6-month freeze on wages that September.

By April 2008, the $50 million note was equivalent to $1.20 US, while the central bank estimated that country's economy contracted over 6 percent from a year prior. The LA Times reported in July 2008 that the government ran out of paper on which to print money as European suppliers of the paper stopped supplying the country due to humanitarian concerns.

In sum, the widespread contraction of the economy, severe shortages of basic goods and serious lapses in government policy all contributed in Zimbabwe's spiral into hyperinflation.

Photo: Odd Andersen | AFP | Getty Images