Source: ARK Disrupt Issue 97: October 23rd, 2017 @bhavanaARK on Twitter

In the 1990s, land “reforms” caused a collapse in agricultural production and an economic bust in Zimbabwe. Monetary policy mistakes compounded its problems, culminating in hyperinflation that devalued its currency almost completely in the middle to the latter part of the last decade, as shown below. Out of desperation in 2009, Zimbabwe made the US dollar its legal tender.

Inflation, Consumer Prices (Annual %)

chart depicting Inflation Consumer Prices in Zimbabwe 1990-2007

Source: World Bank

Unfortunately, Zimbabwe did not reinforce the monetary discipline of dollarization with fiscal discipline, and once again it is in desperate trouble. Capital outflows have accelerated, forcing its central bank to import ~$10 million per week to keep the economy afloat. Nonetheless, acute cash shortages are forcing its banks to ration dollar withdrawals daily.

In the face of this cash crisis, Zimbabwe’s consumers and businesses have resorted to the use of bitcoin, pushing its price on the local exchange to $10,000, more than a 60% premium to the price of bitcoin elsewhere in the world. That premium seems to indicate that the dollarized monetary system in Zimbabwe is unraveling and that bitcoin is the preferred store of value, if not means of exchange.

Zimbabwe dollar borrowers should be thrilled that hyperinflation is eviscerating their debt burdens and would do well to transition into the bitcoin ecosystem.  Zimbabwe dollar lenders are getting crushed by worthless fiat currency. Somewhere in this saga, could we be getting a glimpse at the next global banking crisis?

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