August 24, 2011 by Jeffrey Tucker
The country’s new finance minister, Tendai Biti, declared that the Zimbabwean dollar had ceased to exist: “Our currency,” he said, “is moribund.” On April 12, Zimbabwe suspended the use of its currency as legal tender.
“At first covertly, then in openness, and finally with the consent of the government,” Mr. Noko writes, “foreign currencies – the rand, the euro, the pound, the U.S. dollar, the [Zambian] kwacha – replaced Zimbabwe’s dollar.” Precisely as Mr. Hayek had imagined, Zimbabwe’s inflationary spiral ended. Within weeks, the country’s economy showed dramatic improvement. Businesses began to open. Banks began to function. Unemployment began to fall. GDP began to rise. Private credit began to increase. Foreign investment began to return. The human exodus ended.
Out of sheer necessity, Zimbabwe adopted the fiscal discipline known as “cash budgeting,” which meant that the government could spend and lend only the money it had in cash. Mr. Biti, the finance minister, said simply: “We will eat what we have gathered.”