Biti-currency

Zimbabwe will hold another re-election in two days, if Robert Mugabe can arrange it, but the most interesting thing about that country (since 2009, anyway) is the support it gives to Milton Friedman's dictum that inflation is always and everywhere a monetary phenomenon. That's because, according to a Bloomberg story from April, since Zimbabwe abandoned the Zimbabwean dollar by legalizing foreign currency, it has stabilized its economy;

Benson Mahenya, and [currency] traders like him, have sprung up since Finance Minister Tendai Biti abandoned the Zimbabwe dollar in 2009 following hyperinflation that the International Monetary Fund estimates hit 500 billion percent. Under Biti, Zimbabwe stopped printing money and adopted the U.S. dollar, the euro, the South African rand, the Botswana pula and the British pound as legal currencies.

Which put an end to the downward spiral of the economy thanks largely to currency arbitrage;

....Harare, the capital in the north of the country, has largely become a dollar economy while in the south, the second city, Bulawayo, uses rand because of its proximity to South Africa. In Harare supermarket goods are often paid for in dollars while retailers give out change in rand and minibus taxis also charge in the South African currency. Speculators profit from arbitrage between the different rates in the cities.

....Banks sell currency to general customers at rates set at a daily level based on international markets while giving their corporate customers, such as retailers, a range within which they can trade. Customs rates are set weekly by the government for import duty purposes.

It’s an “incomparable” improvement from trading before Zimbabwe dollar was abolished, said [Dave] Mills [managing director of Meikles Africa Ltd.-owned TM Supermarkets (PVT) Ltd], whose company competes with OK Zimbabwe Ltd. to be the country’s biggest supermarket chain, said. “Back then shelves were empty and retail was at a standstill.”

So there may be a lot riding on the election this week, as Mugabe is making noises about restoring the Zimbabwe dollar.