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Zimbabwe: When the Black Market Becomes the Real Market

by Jeff Thomas, International Man:

For many years, I’ve described black markets not as the evil danger to economies that governments profess them to be, but as predictable and sensible reactions to the overregulation of official markets.

Black markets appear whenever an official market has become overregulated or otherwise unworkable due to governmental interference. They then thrive in direct proportion to the failure of official markets to function freely. They are, in fact, both a barometer and a checks-and-balances system for official markets.

Back in 2008, I commented on the growth of the black market in Zimbabwe, as that country slid from inflation to hyperinflation. At that time, the people resorted to the use of other currencies (most notably the US dollar) as black market currency. The government, desperate to force their people into the dying Zim dollar, made it illegal to use the US dollar, but this hardly made a dent in the use of what was clearly a more stable currency. The ban on the US dollar only succeeded in driving it underground. Commerce did not grind to a halt, and money did not cease to change hands. The only real change was that the Zimbabwean government was taken out of the monetary loop.

The significance here is that when a government corrupts its official market, a black market arises in equal measure to recreate a “free” market. Its very illegality assures that it remains free of regulations and functions effectively.

In 2008, the Zim dollar crashed through hyperinflation. (At that time, the largest denomination for a bank note was $100 trillion, and even that soon became worthless in terms of purchasing power.)

The government then attempted a series of measures that were, predictably, big on government control but did little to correct the government-created economic problem.

Bond notes were put forward as a panacea to diminish the flight of wealth from Zimbabwe, yet the cash crisis continued unabated. Those awaiting cash transfers at a bank may wait a month to be cleared and, even then, the transfer may be refused.

Recently, The Standard, Zimbabwe’s leading Sunday newspaper, ran an article entitled, “Black market thrives, as banks run dry.”

Some highlights from that article:

HARARE’S Road Port has become the unofficial bank of last resort, never short of cash, no queues and a multicurrency platform. The money market at this busy bus terminus now plays the role that the formal banking sector has failed. It is effectively making a mockery of the Reserve Bank of Zimbabwe (RBZ).

This points to the nature of black markets. They thrive based upon fulfilling an existing need, not upon government control. They therefore replace whatever services the official market fails to provide.

“Top government officials, supermarket owners and service stations were behind the thriving black market, which is never short of cash.”

As I’ve commented in the past, the most essential commodities are food and fuel, in that order. Consequently, when an official market begins to fail, these commodities are always the first to generate a black market. In such cases, even the most law-abiding citizens will find a means of exchange to provide food for their families and to buy fuel to keep themselves mobile.

Additionally, this quote unintentionally reveals the way in which a black market eventually succeeds over a dysfunctional official market—the top officials eventually join in its use. This occurs when the leaders realise that it’s easier for them to obtain food and fuel when they surreptitiously resort to the use of the black market. (When the Minister of Agriculture finds that his cook routinely buys food on the black market to place on his table, as his plate would sometimes be empty otherwise, the minister is likely to realise that the jig is up and the only way forward is to acknowledge and legalise the black market.)

At present, ministers have gone so far as to purchase pricey cars and electronic items with black market cash, as even they find their own official market non-navigable.

“In Harare’s central business district, especially after 5pm, fuel stations refuse to accept plastic money, forcing motorists to buy in cash, which they in turn allegedly pour on the black market.”

This comment provides insight for those who recognise that a “War on Cash” is afoot in the world today. Zimbabwe has done all it could to make it impossible for its people to use anything but the official currency in day-to-day transactions. Instead, the people have turned to the US dollar, the rand, the pula, and even barter to circumvent the oppressive government currency restrictions. The reference here to the refusal of credit cards exemplifies the fact that, as banks increase their stranglehold on deposited funds, the people increasingly turn to cash—any form of cash—rather than relinquish their freedom to engage in commerce as they see fit. (This is not done through courage or patriotism; it’s done through a need for convenience and simplicity.)

And so, any involvement by banks and government becomes increasingly avoided, even as regards the acceptance of credit cards for payment, as they require the acknowledgement of a credit to account by banks.

Many in the Western world—the former “free” world—fear that the War on Cash will result in their accounts in banks being frozen and possibly confiscated. They also fear that their safe deposit boxes will be raided. Finally, they fear that the day will come that they can no longer perform any monetary transaction without a bank being the middleman, as a result of electronic currency that’s only available through the banks.

This fear is quite justified, as this is clearly the direction in which the banks are headed. However, as history attests, human beings continue to be inventive whenever banks or governments put on the monetary squeeze. The more arrogant the banks and political leaders are of their omniscience over the populace, the less likely they are to credit the populace for finding ways to worm out of this one-sided deal.

At first, it’s always those who already live on the wrong side of the law who create black markets. But when we reach that point mentioned above—the point at which food for the family and fuel for mobility are at stake—the average man will join the black market. Soon after that point, it becomes ubiquitous and, in some cases, becomes the primary market, as it has in Zimbabwe.

Read More @ InternationalMan.com

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