What happened to Zimbabwe when they were experiencing hyperinflation?
"It was terrible. You'd have to pay for your coffee before you drank it because if you waited the cost would rise within minutes.” Prices would change by the minute, causing stress revolving around the fluctuations, one of the devastating effects of hyperinflation.[1]In June 2008 the annual rate of price growth was 11.2 million percent. The worst of the inflation occurred in 2008. The peak month of hyperinflation occurred in mid-November 2008 with a rate estimated at 79,600,000,000% per month[2].It was a perpetual cycle that escalated this problem to such an extent.This was one of the legal tenders issued by the Reserve Bank of Zimbabwe: 100 trillion dollars. At one point, this could not even cover a bus fare.[3]Reasons:Inefficient land distribution programme.Under-reported War spendings in CongoExcessive printing of moneyLack of public confidence in government to practice fiscal restraint.Effects:The currency was so worthless, the Central bank could not afford even paper to print notes. The cost of printing money was much more than its worth.Banking Sector collapsed, with restricted credit facilities availableFood & Manufacturing sector output fell.Unemployment records shot as high as 80%.[4]Population thought it better to flee to neighbouring countries.Aftermath:The government abandoned printing Zimbabwean dollars at all forcing the public to now adopt foreign currencies.In 2009 , the country's infamous reserve bank, declared the U.S. dollar as one of the official currencies. As per June 2016, 9 currencies are a legal tender in Zimbabwe of which USD and South African Rand account the maximum.Irony is, Zimbabwe now suffers among the world’s worst deflation. Having substituted the world’s weakest currency for the strongest, subdued domestic economics, and global oil crises, they invited deflation.[5]Footnotes[1] The 'worthless' 100 trillion dollar bank note [2] https://object.cato.org/sites/ca...[3] Zimbabwe’s trillion-dollar note: from worthless paper to hot investment[4] http://www.netrootsmass.net/word...[5] ‘Boosting economy answer to deflation’
Why cant a poor country print its own currency and be rich?
Currency is no longer backed by the gold standard. That was abandoned in the early 1900s during the Bretton Woods negotiations. To answer your question: The poor country would have to use some sort of means to tie the currency to a value basis in a stronger currency. For example, some countries deliberately mark the value of their currency to the US dollar (e.g. Hong Kong) or the UK pound. If the poor country has no manufacturing and no export commodoties, their currency value may be limited by the fact that other countries will not have the need to obtain the poor country's local currency for purchases of that country's goods/services/commodities. Richer countries tend to have stronger currencies because of their resources (commodities, goods, services) that can be acquired by that currency. Poor countries that overprint money also tend to suffer from inflation (meaning that it takes a large denomination of their currency to buy something).
How much currency can a country print? Which are the factors which restrict large amount of currency print?
Theoretically a country can print as much money as it wants. There is no limit on to this, but printing large amount of money has consequences that restrict the amount of money printed. The consequences are:High Inflation- already explained in the previous answers.Depreciation of Domestic Currency - it happens in 3 ways:Higher Inflation usually leads to a decrease in the country’s export competitiveness which lead to a decrease in the Net exports resulting in the currency’s depreciation.Higher domestic currency with Central Bank would enable it to buy dollars resulting in the depreciation of domestic currency.Increased Money in circulation would mean surplus of the domestic currency in the Forex markets resulting in its depreciation w.r.t. dollar.The above two result in Slowing down of EconomyWhich further results in the country becoming unattractive for FDI, which further weakens the domestic currency as a lot of FIIs and FPIs make an exit.So the Central Bank Regulates the circulation of currency rather than print the money. Which it does by making an assessment of money in circulation through Monetary & Liquidity Aggregates (M1, M2, M3, L1, L2 etc.) and accordingly making use of the tools its has such as (Open Market Operations, Repo Rates, etc.)