How Complacency leads to Adversity

It’s funny how short human memories can be, how quickly we fall back into complacency.

Back in 2008 the Zimbabwe dollar in its 3rd re-denomination was once again worth less than the value of the paper it was printed on. Inflation in November of that year had reached 98% per day or a mind-blowing 10²⁵  %.  I have to record it that way, as the string of 0s would stretch half way across the page.

Read this article on Wikipedia for more details.

Notes in various multi billion dollar denominations were issued, the example above is of a $5 billion that my son sent me.

After a 4th re-denomination, the currency was abandoned in 2009 and the use of “real” money – US$, British pounds and local currencies – the SA Rand and Botswana Pula was legitimised.

A degree of stability returned to the economy. With it a degree of complacency.

But the underlying problem of a devastated economy caused by a corrupt and brutal dictator was not addressed.

With massive unemployment, former farm and industrial workers were forced to rely on the informal economy to survive. Many no longer had bank accounts. Without bank accounts, those in the informal sector used cash for all their transactions. Surplus cash was kept at home, not deposited into the banking system.

Earlier this year the country was running out of cash. Banks had no notes or coins. The few remaining farmers and commercial employers could not get cash to pay workers. Workers did not want to accept cheques because they could not cash them.

With no currency of its own, the country could not resort to the printing press as it had in the previous decade.

It was estimated that of the $US 9 billion circulating in the economy, only 25% was in the banking sector, the rest was in private hands as cash. Outside the banks and safe from government control.

That was unacceptable. Something had to change.

It did.

The government introduced a “bond” in notes and coins of various denominations for local transactions.  Supposedly at par with the US$. Exporters would be forced to hand over their hard currency receipts in exchange for local bonds. Importers could no longer source hard currency from the banks to pay for their purchases. A system of prioritising allocations of foreign currency for imports was introduced.

All of this guaranteed to nurture a thriving black market for foreign currency.

And to drive inflation up.

Just as it had before.

Many people had become victims of complacency. They had thought that the introduction of hard currency for local use would prevent the return of inflation and cash shortages.

It didn’t. Instead it will cause more adversity.

Does that complacency exist in the first world?

Yes it does.

It is highly unlikely that the hyper inflation seen in Zimbabwe would occur in North America or Europe.

However recent events in Venezuela and Brazil show that sound economies can be severely affected by disastrous political policies. That is exactly what changed successful, prosperous Rhodesia into the basket case that is Zimbabwe today.

It is estimated that the forest fires in Alberta will knock $1billion of the Canadian GDP from two weeks lost oil production. It could get worse.

That on its own will not cause hyper inflation. But it is an indication that even in the most stable economies, unexpected events and natural disasters can have a huge effect.

The far bigger danger in the Western democracies is the complacency about the moves by various governments and banks towards a cashless society.

Those informal traders in Zimbabwe have only survived because they can earn, hold and use real cash. They would have starved if they had been forced to rely on worthless paper or plastic money.

Once we have all been forced to surrender our physical cash and rely on plastic and electronic transactions, we will be as helpless and vulnerable as those poor people in Zimbabwe.

We all need to guard against complacency.

What do you think? Leave a comment.