Zimbabwe recovering under central bank competition; no inflation: IMF

July 3, 2009 (LBO) – Zimbabwe is starting to recover within months of the money monopoly of the Reserve Bank of Zimbabwe being broken, which allowed foreign currencies to compete against the hyperinflating domestic currency. In a ‘dollarized’ economy, transactions are conducted in foreign currency and people also save in foreign money and the government can no longer use the central bank to inject liquidity into the banking system (print money) to create inflation.

Reserves from thin air

Through the discount or ‘reverse repo’ window, or buying up government debt, a central bank creates non-existent ‘savings’ in commercial banks, triggering an imbalance between savings and credit demand, which leads to a ‘bubble’ and eventual economic collapse.

The International Monetary Fund (IMF) said Thursday the government has matched expenditure to revenue from January to May 2009, and foreign inflows are also helping drive economic activity.

“As a result of improvements in macroeconomic policies, a nascent economic recovery appears to be underway,” Vitaliy Kramarenko, IMF mission chief to Zimbabwe said in a statement.

“A more liberal economic environment, price stability, a deepening in financial interme