Zimbabwe is going through one of the worst humanitarian crisis that the world has ever seen, and the economy has all, but collapsed.
The inflation rate exceeds 2 million percent per annum, and that means Zimbabwe is issuing some banknotes with – a very very high value. In fact you can pay – 15 USD ,and buy a – 100 billion dollar Zimbabwe – bank note from Ebay.
Would you buy a 100 billion dollar Zimbabwe banknote for 15 dollars?
I asked this question to a few friends, and they said – maybe four months ago; not now.
Which brings me to my next question –
Should we let the GDP contract?
To calculate GDP, one needs to sum up:
C + I + E + G
Consumption + Investments + Net Exports + Government Spending
By not buying a 100 billion dollar banknote, which has no utility whatsoever, you are in fact, contributing to the contraction of the economy. Since the – C – in the above equation reduces, as we spend less.
Ordinarily, what you don’t consume, you – Save, and the savings in your bank – ultimately form capital for entrepreneurs and businessmen, and translate into – Investments. So even if you consume less, it should eventually translate into Investments.
The key word here is – eventually. So while today the economy may contract, tomorrow the savings will help it to bounce back.
A lot of wasteful spending characterizes any boom, and during recessionary times – people are more thrifty and careful. That just goes to show that if an economy contracts – it contracts for a reason, and artificially propping it up will do more harm than good.
I don’t know the right answer to the question of allowing the GDP to contract, but I’ve always felt that – what is good for a person is good for the country, and if you use that train of thought; the answer is obvious.
What are the various factors that govern the volume of bank notes to be printed for a given financial period and how does it become part of the circulation?
I think you just created a Futures market for the 100 billion dollar note Super Saver 🙂
At 2,000,000% inflation, I’d wait a month and buy the 100 billion note for a penny US. Then I could be a billionnaire 🙂