In 2017, South African police saw a weird sight.
In a hurry, they reached the sides of the Limpopo River.
There, they saw a Mercedes car stuck in the sand beside the river.
Tied to the Mercedes car were 4 donkeys – trying to pull it out of the sand.
A few men who were with the Mercedes ran and vanished into the bushes.
In the same area, in 2024, police chased a Ford pick-up truck in a dangerous high-speed chase.
They managed to catch the person – before he crossed the Limpopo River.
Yet again, a few days later, police discovered a crude bridge across the river. It was made with sacks, wood, and other gathered materials.
Limpopo River separates the two countries of South Africa and Zimbabwe – it acts like an international border.
The cars mentioned above were stolen in South Africa. They were being smuggled to Zimbabwe.
The crude bridge made across the river was also used for smuggling.
The Limpopo River is filled with crocodiles and hippopotamuses – animals that can easily kill people.
There are roads between the two countries too. But still, people try to cross the river.
Why?
Why are people putting in so much effort to smuggle things into Zimbabwe?
Because everything in Zimbabwe is crazily expensive.
Not just cars. Everything.
In 2021, a truck was seized at the border.
It was carrying washing powder, food, and other essential items. It was trying to enter Zimbabwe from South Africa.
Why was that truck stopped? And why is everything so expensive there?
Hyperinflation in Zimbabwe.
What is Hyperinflation?
Life in Zimbabwe is difficult for common people.
Everything is getting more expensive all the time.
Yes – at times, we have seen that in India too.
In 2022 & 2023, that problem affected the USA, Europe, and many other major economies.
But that inflation is nothing in front of Zimbabwe’s inflation.
In 2022, the US experienced an inflation rate of over 6% (per year). This is considered very high for the US.
India too saw higher than normal inflation. But it was still in single digits.
Zimbabwe has seen hyperinflation – not just inflation.
What is hyperinflation?
If inflation goes up by 50% in a month (not in a year) – it is called hyperinflation.
What happened?
In the recent few centuries, some countries have experienced hyperinflation.
Hungary (1946), Yugoslavia (1994), and Germany (1923) are some examples.
Zimbabwe is a recent example.
It has a complicated history. We will not go into that.
But let’s stick to this part: they were printing money.
The central banks of countries can print money. They can literally create new money – out of nothing.
They have that power.
In India, we have the Reserve Bank of India (RBI). In the USA, they have the Federal Reserve.
The economy of Zimbabwe was in a bad condition in the early 2000s. The government was dealing with conflicts on their borders.
They needed money.
Starting around the year 2000, the Zimbabwean central bank printed extra money.
Things got out of control.
The money that was printed – they spent it.
The police, the soldiers, the government officials – their salaries had to be paid.
Once they got their salaries, they spent that money on food, rent, essentials, etc.
Now, the more the government spends, the more money flows into the economy.
Soon, people had a lot more money – but there were not enough goods to buy. So everything got more expensive (supply vs demand).
Now, because everything was more expensive, salaries needed to go up.
So the government printed more money.
This cycle continued.
Everything just kept getting more and more expensive.
In 2008, things got so bad that Zimbabwe’s inflation rate was 79,000,000,000% (monthly).
79 billion % per month.
Some people carried money in a wheelbarrow to buy groceries. That’s how much they needed to buy regular items.
At this point, Zimbabwe’s money had no value. It was worthless.
The currency’s buying power was getting weaker and weaker.
The government tried to control the currency forcefully. They introduced new rules and regulations.
They even ‘banned’ inflation – which is impossible.
Prices of everyday items were doubling in a matter of hours.
Imagine buying 1 packet of milk for Rs 30 today and tomorrow, its price will be Rs 60!
The people of Zimbabwe were losing trust in their currency. They started using the US dollar instead.
The government tried to control the flow of goods into the country. They tried to ban the use of the US dollar.
And this is why smuggling became so common.
People bought things for regular prices in South Africa, smuggled them to Zimbabwe, and sold them using US dollars as currency.
They solved the inflation problem on their own.
Everything from cars, biscuits, washing powder, soap, meat, fruits – everything is smuggled.
The smuggled items are sold informally by the roadside.
Printing money
Printing money is one of the many ways central banks control a country’s economy.
In 2020 when the pandemic struck, the US Fed printed a lot of money.
The fear was that the pandemic would slow the economy too much. They wanted to encourage people to borrow and spend money.
This is believed to be one of the main reasons why the US experienced higher inflation in 2022.
Many experts argue that the US printed too much money in 2020. That is an open debate.
But the US did not have hyperinflation. And now, their inflation seems under control.
RBI cautiously avoided printing money in 2020.
And RBI’s management of inflation was superbly done too. Inflation did not become as big a problem in India as it was in the West in 2022-2023.
If done in a limited manner, printing money is an effective tool.
But when done excessively – you get hyperinflation.
This is why most central banks are extremely careful about printing money.
It is not free money.
The illustrations used above are made using an AI tool (DALL-E).
Quick Takes
+India’s GST collection stood at Rs 1.68 lakh cr in Feb, up 12.5% year-on-year.
+Prices of 19 kg commercial LPG gas cylinders hiked by Rs 25 in metro cities. Jet fuel prices have been increased too.
+India is expected to witness the highest growth in the number of ultra-high-net-worth individuals ($30 million+) in the world by 2028: Knight Frank report.
+PM Modi revealed the names of 4 astronauts for India’s first human space mission, Gaganyaan.
+Spectrum auction will be conducted in the next 2-3 months: Secretary of DoT.
+Indian companies are expected to give an average 10% salary hike this year, with auto, manufacturing, and engineering sectors giving the highest hikes. In 2023, the average hike was 9.5%: Mercer's survey.
+Foreign portfolio investors' aggregate holding in Indian stocks fell to a 10-year low in Jan 2024: ICICI Securities.
+Share of SUVs in the total passenger vehicle (PV) sales in India is expected to increase from 51% in the financial year 2022-23 to 62% in the financial year ending March 2025: CRISIL.
+India will add 18 more nuclear power reactors by 2032: Nuclear Power Corporation.
+Cult Fit has raised Rs 84.5 cr in a round led by existing investor Valecha Investments.
+The markets were open on Saturday (2nd March): Nifty: 22,378 ▲ 0.18%
6-Day-Course
Theme of the week: renting vs buying house
We’ve reached the end of this week’s course that started on Monday.
Here’s a test you should take. Get pen and paper!
Question 1:
Is it possible that you have to pay rent as well as home loan EMI at the same time?
-Yes
-No
Question 2:
It is always better to take a loan and pay EMIs instead of investing and living on rent.
-True
-False
Question 3:
Which of these is not guaranteed?
-Investment returns (non-real estate)
-Property price increase
-Both
Question 4:
Which of these factors do not matter when taking a home loan?
-Status of house (under construction/ready)
-Interest rate of home loan
-Return of investment (non-real estate)
-All of them matter
Question 5:
It makes sense to not take a home loan even If the interest rate of the loan is very low compared to the return on investment (non real estate).
-Yes
-No
Answers:
Q1: Yes
Q2: False
Q3: Both
Q4: All of them matter
Q5: No
The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.
Team Groww Digest