Another response:
The Zimbabwean currency as well as the economy of Zimbabwe faced "Hyperinflation"
Hyperinflation in Zimbabwe was a period(2000-2008) of currency instability that began in late 1990s, shortly after confiscation of private farms from landowners, towards the end of Zimbabwean involvement in Second Congo War. The currency in Zimbabwe has been experiencing a rapid decline in value for the past eight years. Because of the hyperinflation, the largest denomination of the former Zimbabwean dollars was not able to buy a loaf of bread. Earlier this month, the Reserve Bank of Zimbabwe (RBZ) announced that the high
inflation rate (of 231 million percent) has forced the bank to remove 12 zeros from its paperbacks.
Over the past decade, Zimbabwe has accrued the largest public debt in the world, amounting to 240 percent of their GDP6. As the
deficit has grown, the government has been paying it off by continually printing out money, leading to an exponentially increasing inflation rate. Since 1995, the inflation rate in Zimbabwe has risen annually from 22.5 percent, to 58.5 percent in 2000, to 6,723.7 percent in 2007, to 231 million percent in July of 20086. The only other instance of this level of hyperinflation was the Hungarian currency in 1946.
In any economy, as you print more dollars, the value of each dollar decreases resulting in inflation. An inflation rate of 240 million percent means that the
price of
goods doubles at least once a day. The hyperinflation that Zimbabwe is currently experiencing is crippling the economy. Money has three functions; to act as a store of value, a medium of exchange, and a unit of account. Hyperinflation negates these functions.
Prior to 2000, agriculture was the backbone of Zimbabwe's economy, but there was a scarcity of useful farming land and a great disparity between the quality of land owned by black and white Zimbabwean farmers. White Zimbabweans had controlled a majority of the arable land (which only accounts for 8.24 percent of the total land in Zimbabwe) since Zimbabwe was colonized by Britain. The land was used for both private and commercial purposes, but the commercial sector was a huge proponent to Zimbabwe’s agricultural
stability. Black Zimbabwean farmers, however, were living on land that was arid and infertile. Because of the social and economic inequalities, the Zimbabwean Government was faced with growing discontent amongst the population.
Beginning in 2000, President Mugabe instituted the Land Acquisition Act, which was supposed to remove thousands of white Zimbabwean farmers from their lands so that it could be redistributed and given to black farmers. The plan was supported by Kofi Annan, then the U.N. Secretary-General, who voiced his agreement by saying, “the equitable distribution of productive capital, such as land, is not only economically important, but also essential to ensure peace and stability”.
There were numerous problems with Mugabe's land reform. First, it was never properly funded. The plan called for every removed farmer to receive a 'fair compensation' for his property, but the government was never able to produce the capital required. As delays ensued, many black Zimbabwean farmers began to feel as if their government had lied to them.
The Zimbabwean dollar has lost its aspect of being a store of value because the value of any biodegradable good will decrease slower than the value of the money that was used to buy that good. If you are a farmer, you are better off holding on to your goods than exchanging them for money. The currency cannot serve as a medium of exchange because businesses are refusing to use it, favoring foreign currencies instead. Lastly, the currency cannot serve as a unit of account because it cannot properly measure the value of the goods in the market; they are changing too rapidly.
Source:
www.quora.com