What I Learned Today - Want a 100 billion dollar bill?

30th July 2008

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Want a 100 billion dollar bill?

It’s yours for $199, $49.72, or as low as $25 if you act fast. The only problem – these $100 billion Zimbabwe notes are each worth less than $1 US dollar and can’t even buy a loaf of bread.

And this isn’t even even the most outrageous banknote in history. The Economist lists the highest-denomination national banknotes since 1900. They are:

1,000,000,000,000,000,000    Hungary Pengo, 1946
100,000,000,000,000    Germany Papiermark, 1923
500,000,000,000    Former Yugoslavia Dinar, 1993
100,000,000,000    Zimbabwe Dollar, 2008
100,000,000,000    Greece Drachma, 1944
50,000,000    Poland Marka, 1923

Zimbabwe ranks fourth, though its status may soon change. The central bank governor announced the Reserve Bank of Zimbabwe will remove “more zeros” from the country’s currency - 10 to be exact. And it will resuscitate the use of coins that were earlier abandoned due to hyperinflation.

What’s hyperinflation? It’s when inflation is out of control. Prices increase rapidly and currency loses value. A classic trigger is extremely rapid growth in the supply of paper money. A nation issues large quantities of money, often to pay for a large stream of government expenditures. The more money issued the less valuable it is. Inflation in Zimbabwe is officially pegged at 2.2million percent, with the value of goods doubling every 21 to 25 days.

In further efforts to curb cash shortages, the RBZ will also increase the withdrawal allowance to $200b. Before now, despite outrageous inflation, the RBZ limited cash withdrawals for individuals and corporations to $100 billion daily. That’s barely enough to buy a single candle in a country where power outages are frequent. Uniformed forces, however, were able to withdraw $1trillion daily.

The new currency will be issued August 1, per the RBZ. But how will they print the new currency? Earlier this month, the Germany company Giesecke and Devrient that has been Zimbabwe’s banknote paper supplier for 40 years halted its supply in protest of Zimbabwe’s deteriorating political and social-economic situation.