-----Original Message----- From: Mises Institute News <news at mises.org> To: miseslist at mises.org <miseslist at mises.org> Date: Wednesday, April 28, 1999 12:35 PM Subject: Hanke on the Dinar
>The Mises Institute is sponsoring a timely conference on "The Austrian
>School and Financial Markets," September 16-17, 1999, at the historic and
>beautiful Toronto Stock Exchange and financial district. [For more
>information, write pat at mises.org]
>
>One of the speakers for that conference will be Steve Hanke, a member of
the
>Editorial Board of the Quarterly Journal of Austrian Economics and
professor
>of economics at Johns Hopkins.
>
>Writing in the Wall Street Journal today (April 28, 1999), he tells the
>remarkable story of the Yugoslavian hyper inflation. Understanding the
>extent of suffering that the people have endured at the hands of central
>bankers and politicians, the bombing campaign looks all the more cruel
>and pointless.
>
>Excerpts follow:
>
>"In 1945 Yugoslavia was accepted as a charter member of the International
>Monetary Fund. By Dec. 16, 1992, when Yugoslavia was unceremoniously given
>the boot by the IMF, the wily boys in Belgrade had made hash out of the
>bumbling bureaucrats in Washington. Perhaps that explains why the fantastic
>tale about Yugoslavia's monetary mischief remains untold.
>
>"Yugoslavia got off to a fast start in its race with the IMF. By the
>mid-1950s, it had created the world's most complicated multiple
>exchange-rate system. That Rube Goldberg setup imposed some 200 exchange
>rates for different traded products and was administered under a licensed
>trading system. With an abundant supply of IMF advice, oversight and
>credits, things deteriorated. From 1971 to 1991, the year Yugoslavia broke
>apart, its annualized inflation rate was 76%; only Zaire and Brazil had
>higher inflation.
>
>"All that proved to be nothing but an appetizer. The main course was dished
>up by Slobodan Milosevic. The first of his many monetary shenanigans was
>uncovered on Jan. 7, 1991. That is when the Yugoslav government of Ante
>Markovic discovered that on Dec. 28, 1990, the Milosevic-controlled Serbian
>Parliament had secretly ordered the Serbian National Bank (a regional
>central bank) to issue some $1.4 billion in credits to friends of Mr.
>Milosevic. That illegal plunder equaled more than half of all the new money
>the National Bank of Yugoslavia had planned to emit in 1991. The heist
>sabotaged the Markovic government's teetering plans for economic reform and
>hardened the resolve of the leaders in Croatia and Slovenia to break away
>from Belgrade.
>
>"Without the Croats and Slovenes to fleece, Mr. Milosevic turned on his own
>people with a vengeance. Starting in January 1992, what was left of
>Yugoslavia endured the second-highest and second-longest hyperinflation in
>world history. It peaked in January 1994, when the official monthly
>inflation rate was 313 million percent. Only Hungary, in July 1946, ever
>recorded a higher monthly rate. The Yugoslav hyperinflation lasted 24
>months, only two months shorter than the Soviet hyperinflation in the early
>1920s. Yugoslavia's hyperinflation was far more virulent than the much
>touted 1922-23 hyperinflation in Weimar Germany.
>
>"The results were devastating. Long before NATO struck Yugoslavia, Mr.
>Milosevic's monetary madness had destroyed the economy. Wreck an economy,
>then start a war: It's an age-old power-preservation ploy.
>
>"During the 24-month hyperinflation period, per capita income plunged by
>more than 50%. Ordinary people were forced to deplete their hard-currency
>savings. People couldn't afford to buy food in the free market; they kept
>from starving by either waiting in long lines at state stores for
>irregularly supplied rations of low-quality staples, or by relying on
>relatives who lived in the countryside. For long periods, all of Belgrade's
>gas stations were closed, with the exception of one that catered to
>foreigners and embassy personnel. People also spent an inordinate amount of
>time at the foreign-exchange black markets, where they exchanged huge piles
>of near-worthless dinars into a single German mark or U.S. dollar note....
>
>"Nothing tells this horrendous story better than the devastating
>devaluations that repeatedly decimated the dinar.... Since 1991, the dinar
>has been officially devalued 18 times, and 22 zeros were lopped off that
>unit of account. The five devaluations in 1992 were too much even for the
>IMF, which showed Belgrade the door shortly after November's 73.3%
>devaluation.
>
>"In each of the past three climactic months of the hyperinflation, the
dinar
>completely lost its value, with monthly devaluations of more than 99.99%.
By
>December 1993, the end was in sight. The Topcider mint was working at full
>capacity, turning out 900,000 bank notes a month, but they were worthless
>before the ink had dried. On Dec. 23, 500-billion-dinar bills rolled off
the
>press, worth 4.15 German marks when printed. But by the time they could be
>stuffed into pay packets, they were hardly worth spare change.
>
>"The dinar was redenominated on Dec. 29; nine zeros were lopped off in the
>third redenomination since July 1992. Finally, the mint's physical capacity
>began constraining inflation. The authorities could not print enough cash
to
>keep up. On Jan. 6, 1994, the dinar officially collapsed. The government
>declared the German mark legal tender for payment of all financial
>transactions, including taxes... [But] the superdinar 'currency board' was
>as phony as a three-dollar bill....
>
>"The bogus superdinar system did end the hyperinflation. Monthly inflation
>plummeted from 312 million percent in January to only 2,143% in February,
>and negative 6.2% in March. But by late 1995, the flaws in the phony
>currency-board system were there for all to see. Measured against the
>dollar, the superdinar was devalued by 62.6% on Nov. 26 and by 57.9% in
>April 1998. Today the dinar is trading on the black market at less than
half
>its official value of six dinars to one deutsche mark."
>
>
>