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Tuesday, 17 July 2007

Ink and a roll of paper is not real value.

The generally accepted notion in Zimbabwe that it is acceptable that a person can use ink and a roll of paper to collect US Dollars should stop as soon as possible for the best of the Zim people.

Not one ZimDollar of real value is created because it is economically and physically impossible to create real value like that.

No real value is created at all because it is not possible to create real value like that.It is simply a method to use power to use imperfections in the Zim market, not to create value, because that is impossible, but, to collect US Dollars in the parallel market.

That is not due process or acceptable in any economy. It is destroying whatever little bit of real value still exists in the Zim economy; that total of real transaction demand that is somehow represented by the total of ZimDollar notes in circulation.

That real transaction demand is finite now in Zimbabwe. Hardly any new real value is being created.The real transaction demand in real terms is finite.

Adding billions more pieces of paper to that total to collect USDollars in the parallel market, creates no new real Zim value, but, because the actual real Zim value is a finite, definite value, that finite real value has now to be divided amongst so many more billions pieces of paper.

Summary:

It creates not one ZimDollar in real value, but, it destroys millions of US Dollars in real value in the real value of existing ZimDollars in the country.

This process can - if carried on often enough - get to a point where all the real value of the ZimDollar is destroyed.

I cannot explain that final process or why it is like that. I do not yet understand that final step when all ZimDollars become worthless, but, I know from the Yugoslavia case, that it is possible.

I think Zim should stop with this process.

Maybe it would be better to follow the Brazilians and stabilise the Zim economy by stabilizing non-monetary values with a Zim Unidade Real de Valor or real value index unit.