Wheelbarrows of Money
If your country’s currency is hyperinflating, then how do you buy bread? You can find a wheelbarrow or use another currency. During February, 2007, with an inflation rate exceeding 50% per month, the Zimbabwean economy experienced hyperinflation. Looking for purchasing power, people avoided Zimbabwean currency and turned to the U.S. dollar, the South African rand, Botswana’s pula, and the Zambian kwacha. One researcher estimated that in Zimbabwe, by November, 2008, prices were doubling every 24.7 hours.
With Zimbabweans just one of many people using U.S. currency throughout the world, and computers making counterfeiting increasingly simple, the U.S. government just issued a new, forgery resistant $100 bill. Yes, Ben Franklin is still there. But, his shoulders were added, as you tilt the bill certain areas change color, and there is a blue 3-D “security ribbon”. On a government video, you can see the new bill. In a recent column, Floyd Norris pointed out that abroad, the $100 bill is preferred.
The Economic Life
Money has three basic characteristics. 1) It is a medium of exchange. 2) It is a unit of value. 3) It provides a store of value. Hyperinflation, the plunge in value of money, immediately affects whether money is acceptable as a medium of exchange, it diminishes the value of money, and it reduces its ability to store value.