African fable
Zimbabwe has not had its own currency since 2009, and citizens were allowed to use foreign currencies. That unusual step helped rebuild the economy
Zimbabwe is battling deflation. Prices have fallen for two months in a row. This is a far cry from the hyperinflation that wrecked its economy six years ago. The Zimbabwean central bank had to print currency notes worth 100 billion Zimbabwe dollars as prices galloped by the day. Comparisons were drawn with the German hyperinflation that eventually destroyed the credibility of the democratic Weimar Republic.
Zimbabwe finally abandoned its national currency. Citizens were allowed to use foreign currencies for their daily use. The country has not had its own currency since 2009. That unusual step helped rebuild the economy.
The sort of inflation in Zimbabwe is a rarity. Few countries with good central banks will lose complete control over prices. But there are two broad lessons even for better-run countries. First, policy credibility is essential for people to trust the value of a currency. Second, the solution to generalized inflation is eventually monetary.
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