7 ms·

Anyone who follows the work of Randall Wray[1] and Bill Mitchell[2] knows this is a terrible idea. Relinquishing sovereignty of your currency (or pegging it to

• x1798DE 11y ago
  Isn't that the whole point? I get the impression that Zimbabwe's policymakers have a terrible reputation, so they are deliberately tying their own hands in order to restore confidence in their currency.
  • dragonwriter 11y ago
    They are completely abandoning their currency, which is a strange way of restoring confidence in it; it may be a measure to restore confidence in the economy, at the expense of the currency.
    • dageshi 11y ago
      The local currency is already defacto dead, any new currency they introduce will not be taken seriously, they've already lost their local currency.
  • dools 11y ago
    Could well be ...
• nordsieck 11y ago
  Once you've hit hyper-inflation, your options are already equally limited.
  • dools 11y ago
    Reissue a new currency. Problem solved (well, so long as the root causes of the hyperinflation are also solved ... Which in the case of Zim may not be so ...)
• dragonwriter 11y ago
  > Anyone who follows the work of Randall Wray and Bill Mitchell knows this is a terrible idea. Retiring the domestic currency is an existing policy that this article is only tangentially about. Adding the yuan to the set of currencies support by the government for public uses given the absence of a domestic currency is the subject of the article. > Relinquishing sovereignty of your currency (or pegging it to another currency or commodity) only narrows domestic policy space. Once your currency has so little credibility that no one is using it in practice, its advantage in terms of domestic policy options is minimal, anyway.
  • dools 11y ago
    All you have to do is reissue a new currency just as Germany did and just as Ghana did (and hope you can manage the new one properly!) Hyperinflation in Zimbabwe was caused by agricultural mismanagement and cronyism. There's no reason they can't fix it except they have shit leadership. Adopting the Yuan DOES, I suppose, remove control from the shit leadership so maybe it's a great idea.
    • crdoconnor 11y ago
      It wouldn't have prevented them from destroying their agricultural sector.
    • gozur88 11y ago
      >All you have to do is reissue a new currency just as Germany did and just as Ghana did (and hope you can manage the new one properly!) People have to trust you enough to use your new currency, though. Nobody in Zimbabwe is going to trust the government that far without a change in leadership.
      • dools 11y ago
        The value of currency is driven by the ability of the government to impose taxes denominated in that currency. The easiest way to do that in a situation where you are introducing a new currency is to impose land taxes in NewZims. How will land owners obtain NewZims in order to pay their taxes? They will grow shit and sell it to people for NewZims. How will people obtain NewZims to buy the produce? By working for the government which will pay in NewZims.
• foobar2020 11y ago
  I wonder why so few people in Europe realise that. Despite how bad the consequences are (eg. Greece). Luckily my country (Poland) still prints its own currency and manages its own monetary policy.
  • dragonwriter 11y ago
    > I wonder why so few people in Europe realise that. I don't think there's ever been any confusion that the adoption of the Euro limits member countries' domestic policy options; people in Europe may have differences of opinions about whether this is a good tradeoff for having a common currency and increasing Eurozone-level policy options, but I don't think many of them fail to realize that limiting local policy options is an effect of the Euro. OTOH, there's a difference between an upward transfer to a higher-level government that is still accountable to your citizenry (even if their voice is diluted because it is a higher-level government with broader scope) and outsourcing monetary policy to an external issuer.
• mapt 11y ago
  Right. For a functioning economy with a functioning government, functioning central bank, and functioning currency. But that is not Zimbabwe in the 2000's. Zimbabwe became a dystopian cliché of hyperinflation and societal breakdown, with 80% unemployment and 100% inflation per day. It is the current example we use when we summon up the absurdist "wheelbarrows of currency" imagery. Basically, they were limited to a barter economy, with a thick layer of authoritarian interference in what became a very limited system of production and distribution of goods & services. To create a currency union that's sustainable, you have to commit to a fiscal union (where there is stable net wealth transfer from New York to Nebraska through things like social security), and/or to a very stiff amount of labor mobility & remittances (where internal migration to the site of available employment is as common as in the Dust Bowl). The EU did not have enough of the latter (for a bunch of reasons), and chickened out on the former; In that case failure was unavoidable, and credit availability simply delayed an inevitability. You can give up 'monetary sovereignty' in a long-term stable manner and sustain a functioning economy if you're willing to do these things. The United States did. We have whole regions that would be depopulated without social security, Medicare, and welfare to keep the population alive without its manufacturing base. We have abundant internal migration. But Zimbabwe is a whole other sort of thing. They didn't relinquish much of anything when they gave up their currency; They had to build a new economy from the foundations on up.
  • paublyrne 11y ago
    To create a currency union that's sustainable, you have to commit to a fiscal union I have come to agree with this. I was a supporter of the Euro and Emu since the 1990s, but I think I've been convinced that trying have a single currency without full fiscal union is folly. You should choose to either have balkanised currencies, or a federal financial bucket, meaning the richer countries subsidise the poorer ones. We went with Option C in Europe, and I don't have a lot of confidence that the Euro can survive in the long run in the current system.
    • HiLo 11y ago
      Agreed. I simply can't imagine what would happen if our federal fiscal policy was left up to the 50 states individually. Jesus that would be bad. Texas, my personal and favorite example, would go from an economic powerhouse to unable to support its economy, ever, if anything went south, pun intended.
• gozur88 11y ago
  Zimbabwe doesn't have a sovereign currency. Well, it might have one technically, but the de facto currency is the US dollar. It's rarely a terrible idea to admit to reality.
  • dools 11y ago
    It's a bad idea to try and solve the problem of hyperinflation by piling on more currencies they don't control (unless they want to just not really govern themselves ... )
    • trhway 11y ago
      sounds like you never lived in a country even with high inflation, less hyperinflation.
      • dools 11y ago
        I haven't but there are plenty of examples of governments solving hyper or high inflation by reissuing a currency and resolving the cause of inflation in the first place.
• yxhuvud 11y ago
  It can work as a stop gap measure though, when the local currency is functioning so bad as the one they have now do. They will be better off switching to their own currency, after their government stop abusing the country.