What Is Money ? Part I

By Jeff Harding

I am holding in my ink-stained hands a Zimbabwean $100 trillion banknote (100,000,000,000,000, or 1014), the largest ever denomination banknote with the zeros printed out. The largest denomination ever was the 1946 100 quadrillion pengo from Hungary (100,000,000,000,000,000,000, or 1020). My Zimbabwean note cost me US$7.50 on eBay.

As in most countries which have suffered hyperinflation, Zimbabweans were carrying around stacks of these notes to buy simple goods, like bread and milk. Inflation was running at 231,000,000% in July 2008. Prices were doubling every day at the end. The government passed a law prohibiting sellers of basic staples from raising prices which caused goods to disappear from the market, so people just ignored the law. My 100 trillion dollar note was introduced in January, 2009; two weeks later they abandoned their currency and dollarized their economy (dollars are used as the local currency).

Living with hyperinflation was especially difficult in an already difficult economy. They waited in lines to get paid (the printing presses were running day and night) and by the time they received their stacks of notes, the currency had already been devalued. People would get rid of it as soon as they got paid by trying to buy something with it. Goods became scarce as even street vendors would only accept dollars or rand. Shopping for many meant a 40 hour round trip by bus to South Africa for staples. The economy broke down. A cholera epidemic broke out. Robert Mugabe tried to kill election winner Morgan Tsvangirai, but managed to kill Mrs.Tsvangirai instead.

As soon as the economy was dollarized, inflation slowed way down, goods started showing up on shelves, and people could actual hold money and save. The economy is starting to rebound but it is still shattered.

It’s pretty clear that whatever money is, if the government prints too much of it, it becomes worthless and destroys the economy. This has been done many times in history. Marco Polo noted that Kublai Khan wrecked the Chinese economy from hyperinflation by flooding the empire with paper money. Robert Mugabe probably thought Marco Polo was a game you played in the swimming pool.

Money is whatever the people say money is, not what the government tells them. This was pretty obvious from the Zimbabwe experience. Could it happen here? Of course. There is nothing really stopping the Fed from printing money at will.

What is money? See Part II.


3 comments to What Is Money ? Part I

  • JournalJim

    Good start.
    I particularly enjoyed the Zimbabwean $100 trillion note with the pile of rocks as its emblem. Presumably, the central bank of Zimbabwe’s reserve currency is as solid as those rocks, or is it that those rocks are its reserve currency?
    As Bob Dylan once intoned, “Everybody must get stone,” when we all though he was saying “stoned”!

  • Pianki

    Well Zimbabwe economy is said to have been great. Only tig that was wrong it was not great for black Zimbabweans but whites. So they done what I think they should. That is got rid of it in so many words. Too bad the U.S does not have a trillion dollar note. That way if they did it would only tale two of them to pay off the ammased debtt the United States owe which is a result of recklessly printing money out of thin air to maimtain it’s edge over others in the world. A trik by the way every player is aware of today and will called out.