Chart of the week: dollarisation in Zimbabwe

Explanation:

Dollarization

One type of monetary secession results from the fact that there are large differences in the quality of money issued by governments around the world. While many Americans justly complain about the Fed causing inflation in the U.S., the U.S. dollar is a far better product than many foreign alternatives. The Zimbabwean dollar under the control of Mugabe, for example, became a rather poor product indeed. By printing huge amounts of money, the Zimbabwean government removed the scarcity of its currency and made it a next to useless medium of exchange. At one stage, prices were doubling roughly every 24 hours and therefore signalled very little.  The graph below shows the path – in logarithmic scale! – of the Zimbabwean dollar’s exchange rate against the U.S. dollar.

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