Tag: Hanke-Krus

Zimbabwe’s Four-Year Anniversary—From Hyperinflation to Growth

In mid-November 2008, Zimbabwe recorded the world’s second-highest hyperinflation. Today, it can boast strong growth and single-digit inflation rates. In 2008, Zimbabwe’s annual real GDP growth rate was a miserable -17.6 percent and its annual inflation rate was 89.7 sextillion percent—that’s roughly 9 followed by 22 zeros.

So how did Zimbabwe go from economic ruin to an annual GDP growth rate of 9.32 percent in 2011, with estimates of relatively strong growth rates through 2013?  As I predicted in early 2008, the answer is simple: spontaneous dollarization brought an end to the horrors of hyperinflation.

In late 2008, the people of Zimbabwe spontaneously dollarized the economy. Thiers’ Law prevailed: good money drove out bad, and the government’s hands were tied. Indeed, the government was forced to officially dollarize in 2009. Since then, Zimbabwe has enjoyed positive GDP growth rates, a feat not accomplished since 2001 (see accompanying chart).

 

While these achievements are cause for celebration, there are still problems in paradise: Robert Mugabe continues to hold the reins of power; Zimbabwe’s “Ease of Doing Business” ranking is a dismal 172nd out of 185; and “change” is, in short, hard to come by. In addition, the government’s external debt is now close to $12.5 billion and lending rates between Zimbabwe’s embattled banks are as high as 25 percent. To top it off, the Zimbabwean government is attempting to force banks to buy its treasury bills at significantly discounted rates, after its debt auction flopped in early October. Talk about ruling with an iron fist.

If this isn’t bad enough, Zimbabwe’s official statistics have produced a very low signal-to-noise ratio—one that, quite frankly, leaves one listening to static. Both the quantity and quality of official data, ranging from migration statistics to trade figures, are in short supply, particularly data from the period of Zimbabwe’s 2007-08 hyperinflation.

None of this comes to a surprise to me. After all, as far as Zimbabwean officials are concerned, the country’s hyperinflation peaked in July 2008, with a monthly inflation rate of 2,600 percent. After this point, Zimbabwe stopped collecting and reporting data on price changes, throwing a shroud of secrecy over the country’s hyperinflation disaster. In reality, hyperinflation continued after July 2008, growing at an exponential rate until mid-November 2008.

Alex Kwok and I lifted the shroud on this hyperinflation in our 2009 Cato Journal article. We determined that Zimbabwe’s hyperinflation actually peaked in mid-November 2008, with a monthly rate over 30 million times higher than the final inflation rate reported by the government. In an attempt to correct the government’s lying statistics, I have contacted high officials in Zimbabwe via telephone and email. But, I have been stonewalled, given a bureaucratic runaround.

The last thing the Mugabe government seems to be interested in is an accurate account of the world’s second-highest hyperinflation. Lying statistics remain the order of the day.

The Duration of Iran’s Hyperinflation?

Since I first estimated Iran’s hyperinflation at 69.6% per month, many people have asked, how long will it last? To answer that question, I have posted my “Hanke Chart of the Day” and will let the data speak for themselves.

 

On second thought, perhaps I should offer some “tweet-able”  hyperinflation-duration takeaways:

  • The average duration of hyperinflation is roughly 12 months.
  • The longest duration of hyperinflation is 58 months (4 years and 10 months), which occurred in Nicaragua from June 1986 until March 1991.
  • The shortest duration of hyperinflation is one month (see numbers 46-57).

When it comes to Iran and the probable duration of its hyperinflation, the specter of  “a horrible end” or “a horror without end” comes to mind.

For the latest news on Iran’s hyperinflation, follow my Twitter: @Steve_Hanke

Iran’s Lying Exchange Rates

On September 24th, the Iranian government announced that it would adopt a three-tiered, multiple-exchange-rate regime. This wrong-headed attempt to exert more control over the price of domestic goods and combat inflation has failed (and will continue to fail). Since the rial began its free-fall in early September, international observers and the Iranian people have struggled to understand the implications of this exchange-rate regime.

Iran has a history of implementing a variety of multiple-exchange-rate regimes – with mixed results, to say the least. Indeed, at its peak of currency confusion, the Iranian government set seven different official exchange rates. As the accompanying chart illustrates, the story of Iran’s hyperinflation has been one of divergence between the official and black-market (read: free-market) exchange rates.

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This divergence is a product of the declining value of the rial – freely traded on the black market. In consequence, prices are rising dramatically in Iran – by almost 70% per month, according to my estimates. That said, in order to make sense of this phenomenon, it is necessary to understand the system whose failure we are witnessing.

Currently, Iran has three exchange rates:

  • The Official Exchange Rate: 12,260 IRR/USD
  • The “Non-Reference” Rate: 25,480 IRR/USD
    • Purportedly 2% lower than the black-market rate
    • Available to importers of important, but non-essential goods, such as livestock, metals and minerals
  • The Black-Market Exchange Rate: Approximately 35,000  IRR/USD
    •  The last freely-reported black-market rate was 35,000 IRR/USD (2 October 2012). The most recent anecdotal reports confirm this number as the current exchange rate.
    • The Iranian government (read: police) has recently cracked down on currency traders and has also censored websites that report black-market IRR/USD exchange rates.

This complex currency system results in lying prices that distort economic activity. By offering different exchange rates for different types of imports, the Iranian government is, in effect, subsidizing certain goods – distorting their true price. In consequence, any fluctuations in the black-market exchange rate – and, accordingly, in the price level – will be amplified to different degrees for different goods. The end result for Iranian consumers is confusion and mistrust, which, as we have seen, are feeding the panic that has been driving the collapse of the rial and Iran’s hyperinflation.

For the latest news on Iran’s hyperinflation, follow my Twitter: @Steve_Hanke

The Iran Hyperinflation Fact Sheet

For months, I have been following the collapse of the Iranian rial, tracking black-market (free-market) exchange-rate data from foreign-exchange bazaars in Tehran. Using the most recent data, I now estimate that Iran is experiencing hyperinflation – a price-level increase of over 50%, per month.

In recent days, Iranians have taken to the streets in protest over the collapse of the rial. In response, the Iranian government has cracked down on the protestors and shuttered Tehran’s foreign-exchange black market.  Moreover, it has effectively cut off the supply of reliable economic information. Indeed, the signal-to-noise ratio in the Iranian economic sphere, which is normally quite low, is now even lower than usual.

To address this, I have prepared a fact sheet of the top 10 things you should know about Iran’s hyperinflation.

  1. Iran is experiencing an implied monthly inflation rate of 69.6%.
    • For comparison, in the month before the sanctions took effect (June 2010), the monthly inflation rate was 0.698%.
  2. Iran is experiencing an implied annual inflation rate of 196%.
    • For comparison, in June 2010, the annual (year-over-year) inflation rate was 8.25%.
  3. The current monthly inflation rate implies a price-doubling time of 39.8 days.
  4. The current inflation rate implies an equivalent daily inflation rate of 1.78%.
    • Compare that to the United States, whose annual inflation rate is 1.69%.
  5. Since hyperinflation broke out, Iran’s estimated Hanke Misery Index score has skyrocketed from 106 (September 10th) to 231 (October 2nd).
    • See the accompanying chart.

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  6. Iran is the first country in the Middle East to experience hyperinflation.
  7. Iran’s Hyperinflation is the third hyperinflation episode of the 21st century.
  8. Since the sanctions first took effect, in July 2010, the rial has depreciated by 71.4%.
  9. At the current monthly inflation rate, Iran’s hyperinflation ranks as the 48th worst case of hyperinflation in history.
  10. The Iranian Rial is now the least-valued currency in the world (in nominal terms).
    • In September 2012, the rial passed the Vietnamese dong, which currently has an exchange rate of 20,845 VND/USD.