considered obsolete due to the extremely high rate of inflation suffered by that beleaguered country. By knocking several zeros off the paper currency, the old coins are once again worth something in terms of their face value.
Apart from a number of bizarre incidents resulting from people attempting to recover discarded coins previously thought to be worthless, the effort seems marginally successful. The move, however, fails to address the underlying problem. It resembles efforts in Germany, Austria, and Hungary following the First World War when the notorious hyperinflation raised the price level faster than the Reichsbank could print money. Old imperial coins were pressed into service as barter items, or counter-stamped with inflated values. Other expedients were foreign currency, the famed "notgeld" ("not money") series issued by private individuals, companies, banks, states (anyone, in short, who had need of circulating media), and barter.
The hyperinflation was only stopped when the "Old Wizard," Dr. Hjalmar Horace Greeley Schacht, was given powers sweeping enough to force a return to an asset-backed currency. Schacht's accomplishment and prestige was so great that, when he was implicated in a plot to assassinate Hitler, Der Führer didn't dare "liquidate" him, and had to be content with imprisoning the Old Wizard in a concentration camp. The currency Schacht established retained its value until demonetized by the Allies in 1948.
There is nothing to stop Zimbabwe (or any other country, including the United States) from duplicating Dr. Schacht's feat, and restoring a stable currency:
• First, cut the government off from the "money machine" of the central bank. That is, restrict State borrowing to existing pools of savings, and strictly prohibit the central bank, or any bank that retains the power of creating currency or demand deposits, from purchasing government securities with new money created for that purpose.
• Second, finance all capital formation using new money created in response to financially feasible (i.e., self-liquidating) projects presented for loans at commercial banks and discounted at the central bank. Initially, until the reformed currency demonstrates its stability, the World Bank and the International Monetary Fund can serve to back up the national currency.
• Third, institute 100% reserve banking and abolish all forms of fractional reserve banking. That is, all demand deposits in commercial banks must be backed 100% by cash or sound securities that have passed intense scrutiny. Usually this means government bonds, but until the currency is stabilized and the government is cut off from any money creation mechanism, the commercial banks of Zimbabwe may need to purchase reserves from the World Bank or the International Monetary Fund out of existing currency or demand deposits. After their government debt is repaid, of course, the reserves should be in cash or secured, asset-backed private sector securities.
• Fourth, all capital credit should be extended by commercial banks in ways that allow citizens who currently lack ownership of the means of production can become owners. This will increase personal disposable income, alleviating poverty, and tying the wellbeing of all citizens to that of the whole country so that everyone benefits by economic growth.
These are just the highlights of a possible program, of course. The full proposal is detailed in the book Capital Homesteading for Every Citizen. While written specifically for the United States, the program in Capital Homesteading illustrates principles that can be applied to great benefit in any economy in the world.
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