Hyperinflation Explained: The 100 TRILLION Dollar Banknote

I've got something cool to show you guys today. Something that came in the mail just the other day. Most people wouldn't get excited about this, but I'm actually pretty excited about it. I'll show you a close-up. This is it! That right there is a 100 trillion dollar Zimbabwean banknote. Now, what's special about this is it is the highest denomination banknote that the world has ever seen.

So, in this video, we're going to be doing a bit of a history lesson and talking about the story that actually brought this banknote to life.

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Now, the reason that this banknote even exists is due to an economic phenomenon that, in this case, went really, really wrong. And that phenomenon is, of course, inflation, or in this specific case for Zimbabwe, it was hyperinflation. Now, this period of hyperinflation in Zimbabwe really started around the year 2000 and really escalated up to the year 2008.

But interestingly, our story for today starts all the way back in 1980 with this dude, Robert Mugabe. Now, this channel is not at all about politics, so for the most part, I'm going to brush over the political side of Robert Mugabe. But what we need to know is that Mugabe came to power in the 1980s, originally as a liberator, as the British crown colony of Southern Rhodesia turned into the Republic of Zimbabwe.

However, unfortunately, he soon became a fierce dictator and essentially had complete rule over Zimbabwe and its people.

Now, from 1991 through to 1996, Robert Mugabe embarked on an economic structural adjustment program which unfortunately had some really serious negative consequences for Zimbabwe's economy. In the late 1990s, the Zimbabwean government implemented some land reforms which intended to evict white farmers and give their land over to black farmers instead. Unfortunately, in most instances, these white farmers were actually being replaced by black citizens, many of whom had absolutely no experience or training in farming.

Because of this, from 1999 through to 2009, Zimbabwe experienced a very sharp reduction in its food production, and this collapse also spread to a collapse in many of its other sectors. For example, the banking sector also collapsed, which compounded the negative effects being seen elsewhere, because now, all of a sudden, farmers could no longer access loans to help their farms grow.

Ultimately, food output capacity fell by 45%, manufacturing output fell 29% in 2005, 26% in 2006, and 28% in 2007, with unemployment rising up to 80 percent. Now, with this sharp reduction in the supply of goods, this obviously triggers prices to start rising, and it's this that started to trigger Zimbabwe's hyperinflation.

Now, small amounts of inflation, around about two to three percent per year, really isn't that bad. In fact, economists around the world, in countries around the world, they aim to keep their country's inflation rate between two and three percent. But what you don't want is you don't want inflation to get out of control. You don't want it to go absolutely crazy. You don't want it to increase too quickly.

So, as a government, if you are experiencing bad inflation at the time, one of the things you probably wouldn't do is you wouldn't want to print a whole lot of cash. You wouldn't want to print new money because that's just a further inflationary force.

What you're doing is you're just printing more and more dollars, so the scarcity reduces for your country's dollar because quite simply, there's just more and more and more of them. Therefore, the value of each one of your dollars goes down.

Unfortunately, when it came to Zimbabwe, the Mugabe government were really big fans of printing money. Now, the money printing started to fund military efforts in the Democratic Republic of the Congo. However, at the same time, they happened to just give a very healthy boost to the salaries of military officials and government officials.

Yeah, if you didn't know, Zimbabwe at this time during Mugabe's rule was rife with corruption, institutionalized corruption. In fact, their government was ranked 157th out of 177 in terms of institutionalized corruption by Transparency International.

At one point, Zimbabwe was under-reporting its war spending to the International Monetary Fund by 23 million dollars per month. Now, the problem here is that when you have a country that is rife with institutionalized corruption and also severe economic mismanagement is that it can very quickly tick the second major driver of inflation into action, and that is a severe lack of faith in the underlying currency.

This might sound crazy, but the main driver of the hyperinflation that was experienced in Zimbabwe wasn't from the price of goods or services just going up very quickly. It wasn't really a case of that. It was actually a case of people's faith in the Zimbabwean dollar falling drastically over a short period of time. It was a case of the currency itself getting less and less and less valuable.

Now, it got pushed to a point; it was so bad at one stage that store owners would literally adjust their prices of goods multiple times per day. They would increase the prices of their goods multiple times per day just to factor in the probability that the dollar would be worth this amount less at the end of the day.

Unfortunately, the currency weakened so quickly; the value of the currency eroded so quickly that in many instances, workers agreed-upon salaries, their yearly salaries, were being eroded so quickly that they could barely afford a loaf of bread.

But you want to know the real cherry on top? The real cherry on top was that the government, the Zimbabwean government's response to this hyperinflation was to simply print more money, just with higher and higher denominations, bigger, fatter banknotes. I mean, that way they can just stay rich, right?

Unfortunately, nobody in Zimbabwe believed that the printing of higher denomination banknotes, the printing of more money would make the currency any more stable. So despite announcements of new currency regimes, more money printing, unfortunately, the hyperinflation just got worse and worse.

It was really baked into people's expectations at this point; it became hyperinflation became a new normal.

So how bad did the hyperinflation in Zimbabwe get? Well, let's start in 1980. In 1980, Zimbabwe's annual inflation rate was seven percent. Then by 1990, it had crept up to 17 percent. In 2000, 55 percent. In 2003, 600 percent. In 2006, 1281 percent. It doesn't stop there. In 2007, 662,000 percent. Then get this: the six months to the start of July 2008, 2.3 billion percent inflation.

And this is where the numbers start to get a little bit murky, quite simply because at this point, the Zimbabwean government just stopped reporting inflation statistics. But with that said, most believe that the worst month of hyperinflation occurred in November of 2008, with a monthly inflation rate skyrocketing to 79.6 billion percent.

This inflation resulted in one U.S. dollar being equivalent to 2.6 billion Zimbabwean dollars. And it's this rampant hyperinflation that got us here, that got us to the 100 trillion dollar Zimbabwean banknote. Interestingly, you could still trade this banknote in for U.S. dollars all the way up until April of 2016.

Guess how much this is worth? This is the true test. See if you can pin how much this banknote was worth in U.S. dollars in April 2016. Gotta guess? 40 U.S. cents.

So, whatever happened to these Zimbabwean banknotes, these Zimbabwean dollars? Well, around about 2007-2008, when the hyperinflation was just getting incredibly bad in Zimbabwe, the government stepped in and they did try and make inflation illegal. However, at that point, the damage was done, and people had already started just trading in other currencies.

There was such little faith in the Zimbabwean dollar that even Zimbabwe's own people weren't using it. This was actually a big problem because the Zimbabwean dollar was still the official currency of Zimbabwe, which means that a lot of workers were still getting paid in Zimbabwean dollars.

The reason this was a problem is it meant that as soon as the workers got their money, they had to go and rush to convert their Zimbabwean dollars into other forms of currency simply to try and preserve the value of their work, of their labor.

But ultimately, in 2009, with absolutely no one showing any faith in this currency anymore, then the Zimbabwean government just stopped printing Zimbabwean dollars altogether. At that point, they just went with a multi-currency system, with most of the transactions happening in U.S. dollars, but also a fair few transactions happening in the euro and also the South African rand.

Then, in more recent years, up to 90 percent of all transactions in Zimbabwe happened in U.S. dollars. That was up until in 2019. Guess what happened? The Zimbabwean government reintroduced a new Zimbabwean dollar. They were going to try and start it all again.

This new dollar, called the Zim dollar or the Zola, was introduced in 2019 and became the only form of legal currency in Zimbabwe. From June 2019 through to March 2020, that's the way it stayed—the Zim dollar was the only legal currency allowed in Zimbabwe.

Of course, that changed in March 2020. They started allowing other forms of foreign currency again because we all know what happened around March 2020. No prizes for guessing with that one.

But unfortunately for Zimbabwe, I mean, old habits die hard. They introduced this new Zimbabwean dollar, and in 2019, straight away, the annual inflation rate of Zimbabwe was straight back to 500 percent. According to Trading Economics, the annual inflation rate of Zimbabwe ticked even higher in February 2020 to 540, and then even higher again in March, up to 676 percent.

So, the Zimbabwean government was starting to see inflation come back and come back quite quickly. So what they did in June 2020 is that they allowed weekly auctions of foreign currencies, and so far, it actually seems to be working.

In August, they only experienced 8.4 percent monthly inflation, which I know is still quite a bit, but on the plus side, that is the lowest number that they've seen for monthly inflation since January 2020 and it's certainly a big step down from the 35.5 percent monthly inflation that they experienced in July.

Let's hope for all citizens of Zimbabwe that these measures do help to stem the inflation and to stop a new era of these sorts of banknotes.

But overall guys, that is the story of Zimbabwe's hyperinflation and the 100 trillion dollar banknote. It's pretty cool actually. Funny story: this is actually probably more valuable than it's ever been because just as a novelty or collector's item, usually you can get one for about 120 on eBay, which is a big increase since 2016 where you could trade it in for 40 U.S. cents.

Anyway, guys, that is it for this video. I hope you enjoyed it. I put a heap of time into this one, so if you wouldn't mind hitting the like button and leaving a comment, I'd super appreciate it. What did you think of the video? What do you think of Zimbabwean's hundred trillion dollar banknote? It's kind of a cool kind of collector's item to own, especially if you're interested in finance.

But anyway, that's where I'll leave it for today, guys. Thanks very much for watching. If you're interested in learning more about my personal investing strategies, check out Profitful. Links are down in the description below. I'd super appreciate it.

But for now, that's all I got to say. I'll see you guys in the next video.

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