The Nassau Institute recently attended the economic conference “Freedom Fest” in Las Vegas – billed as the “World’s Largest Gathering of Free Minds”.
One of the topics discussed was the toxic effects of excessive inflation, currency devaluation and poor economy management. As a general rule, the higher a country’s budget deficit, governmental borrowings and level of money creation the greater downward pressure on that country’s currency. Conversely, a strong currency is a reflection of a sound and productive economy, and increases that country’s buying power in world markets.
At “Freedom Fest”, the example of Zimbabwe was given to represent the extreme and toxic effects possible with poor economic management.
Zimbabwe ruined their currency (and economy in the process) through reckless spending, excessive borrowing and money creation. The Zimbabwe Central Bank has now begun to print official, legal tender 100 Trillion Dollar Notes!
At “Freedom Fest”, Steve Forbes (CEO, Forbes Magazine) held one of these 100 Trillion Dollar Notes and related a simple analogy and warning regarding Zimbabwe’s economic path: “Thirty years ago the Zimbabwe Dollar was pegged to the U.S. Dollar. If I would have had this 100 Trillion Dollar note 30 years ago, and it was legal tender, I would have been able to buy everything in the world and had change! Now through the manipulation of the printing press and money inflation, I can’t even go into the lobby of this hotel and buy a pack of chewing gum”.
To The Nassau Institute, this is an extreme, but clear, example and a lesson to Bahamian policy makers to run a sound economy with balanced budgets, low taxation, minimal intervention and appropriate levels of money creation.