Hyperinflation

Certain figures in this article use scientific notation for readability.

In economics, hyperinflation is inflation that is "out of control," a condition in which prices increase rapidly as a currency loses its value. No precise definition of hyperinflation is universally accepted. One simple definition requires a monthly inflation rate of 20 or 30% or more. In informal usage the term is often applied to much lower rates. As a rule of thumb, normal inflation is reported per year, but hyperinflation is often reported for much shorter intervals, often per month.

The definition used by most economists is "an inflationary cycle without any tendency toward equilibrium." A vicious circle is created in which more and more inflation is created with each iteration of the cycle. Although there is a great deal of debate about the root causes of hyperinflation, it becomes visible when there is an unchecked increase in the money supply or drastic debasement of coinage, and is often associated with wars (or their aftermath), economic depressions, and political or social upheavals.

Characteristics

File:Inflation-1923.jpg

Inflation 1923-24: A German woman feeding a stove with currency notes, which burn longer than the amount of firewood they can buy.

In 1956, Phillip Cagan wrote "The Monetary Dynamics of Hyperinflation", generally regarded as the first serious study of hyperinflation and its effects. In it he defined hyperinflation as a monthly inflation rate of at least 50%.

International Accounting Standard 29 describes four signs that an economy may be in hyperinflation:

1. The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power.
2. The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that foreign currency.
3. Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short.
4. Interest rates, wages and prices are linked to a price index and the cumulative inflation rate over three years approaches, or exceeds, 100%.

Rates of inflation of several hundred percent per month are often seen. Extreme examples include:

• Germany in 1923 when the rate of inflation hit 3.25 × 10⁶ percent per month (prices double every 49 hours)
• Greece during its occupation by German troops (1941-1944) with 8.55 × 10⁹ percent per month (prices double every 28 hours).
• The most severe known incident of inflation was in Hungary after the end of World War II at 4.19 × 10¹⁶ percent per month (prices double every 15 hours).
• More recently, Yugoslavia suffered 5 × 10¹⁵ percent inflation per month (prices double every 16 hours) between 1 October 1993 and 24 January 1994.

Other more moderate examples include:

• Other Eastern European countries such as Ukraine in the period of economic transition in the early 1990s
• In Latin American countries such as;
  • In Mexico from 1982 to 1988
  • In Bolivia in 1985
  • In Argentina and Venezuela in 1989
  • In Peru from 1988 to 1990
  • In Brazil in the early 1990s
• In the African nation of Zimbabwe in 2006 and 2007.

Root causes of hyperinflation

The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run. Enactment of legal tender laws and price controls to prevent discounting the value of paper money relative to gold, silver, hard currency, or commodities, fails to force acceptance of a paper money which lacks intrinsic value. If the entity responsible for printing a currency promotes excessive money printing, with other factors contributing a reinforcing effect, hyperinflation usually continues. Often the body responsible for printing the currency cannot physically print paper currency faster than the rate at which it is devaluing, thus neutralising their attempts to stimulate the economy.

Hyperinflation is generally associated with paper money because the means to increasing the money supply with paper money is the simplest: add more zeroes to the plates and print, or even stamp old notes with new numbers. There have been numerous episodes of hyperinflation, followed by a return to "hard money". Older economies would revert to hard currency and barter when the circulating medium became excessively devalued, generally following a "run" on the store of value.

Hyperinflation effectively wipes out the purchasing power of private and public savings, distorts the economy in favor of extreme consumption and hoarding of real assets, causes the monetary base whether specie or hard currency to flee the country, and makes the afflicted area anathema to investment. Hyperinflation is met with drastic remedies, whether by imposing a shock therapy of slashing government expenditures or by altering the currency basis. An example of the latter is placing the nation in question under a currency board as Bosnia-Herzegovina had in 2005, which allows the central bank to print only as much money as it has in foreign reserves. Another example is dollarization as Ecuador officially initiated in September 2000 in response to a massive 75% loss of value of the Sucre currency in early January 2000. Dollarization is the use of a foreign currency (not necessarily the U.S. dollar) as a national unit of currency.

The aftermath of hyperinflation is equally complex. As hyperinflation has always been a traumatic experience for the area which suffers it, the next policy regime almost always enacts policies to prevent its recurrence. Often this means making the central bank very aggressive about maintaining price stability as is the case with the German Bundesbank, or moving to some hard basis of currency such as a currency board. Many governments have enacted extremely stiff wage and price controls in the wake of hyperinflation, which is, in effect, a form of forced savings.

A 500,000,000,000 (500 billion) Yugoslav dinar banknote circa 1993, the largest nominal value ever officially printed in Yugoslavia, the final result of hyperinflation. Photo courtesy of National Bank of Serbia (www.nbs.yu)

Because it allows them to hide their spending and avoid an honest tax increase, governments have frequently resorted to printing money to meet their expenses. During hyperinflation, the monetary authority can't even do that as it becomes a net loss. Those holding government debt, directly or indirectly, have less buying power. Theories of hyperinflation generally look for a relationship between seignorage and the inflation tax. In both Cagan's model and the neo-classical models, a crucial point is when the increase in money supply or the drop in basic money stock makes it impossible for a government to improve its financial position. Thus when fiat money is printed, government obligations that are not denominated in money increase in cost by more than the value of the money created.

From this, it might be wondered why any state would engage in actions that cause or continue hyperinflation. One reason is that often the alternative to hyperinflation is either depression or military defeat. In late 2001, the Argentine peso collapsed in value. Rather than printing sufficient cash for the public to carry, which they feared would start a run on the banks, the government took the peso off its dollar peg. Many international economists predicted that they would have to get a new loan from the IMF and impose shock therapy in order to avoid hyperinflation. Currency controls were imposed, tariffs were instituted, and the economy was allowed to fall into a severe recession during which unemployment hit 25%, homelessness and crime spiraled upwards, and the poverty rate peaked at over 50%.

The root cause is a matter of more dispute. In both classical economics and monetarism, it is always the result of the monetary authority irresponsibly borrowing money to pay all its expenses. These models focus on the unrestrained seignorage of the monetary authority, and the gains from the inflation tax. In Neoliberalism, hyperinflation is considered to be the result of a crisis of confidence. The monetary base of the country flees, producing widespread fear that individuals will not be able to convert local currency to some more transportable form, such as gold or an internationally recognized hard currency. This is a quantity theory of hyper-inflation.

In neo-classical economic theory, hyperinflation is rooted in a deterioration of the monetary base, that is the confidence that there is a store of value which the currency will be able to command later. In this model, the perceived risk of holding currency rises dramatically, and sellers demand increasingly high premiums to accept the currency. This in turn leads to a greater fear that the currency will collapse, causing even higher premiums. One example of this is during periods of warfare, civil war, or intense internal conflict of other kinds: governments need to do whatever is necessary to continue fighting, since the alternative is defeat. Expenses cannot be cut significantly since the main outlay is armaments. Further, a civil war may make it difficult to raise taxes or to collect existing taxes. While in peacetime the deficit is financed by selling bonds, during a war it is typically difficult and expensive to borrow, especially if the war is going poorly for the government in question. The banking authorities, whether central or not, "monetize" the deficit, printing money to pay for the government's efforts to survive. The hyperinflation under the Chinese Nationalists from 1939-1945 is a classic example of a government printing money to pay civil war costs. By the end, currency was flown in over the Himalaya, and then old currency was flown out to be destroyed.

Hyperinflation is regarded as a complex phenomenon and one explanation may not be applicable to all cases. However, in both of these models, whether loss of confidence comes first, or central bank seignorage, the other phase is ignited. In the case of rapid expansion of the money supply, prices rise rapidly in response to the increased supply of money relative to the supply of goods and services, and in the case of loss of confidence, the monetary authority responds to the risk premiums it has to pay by "running the printing presses".

In the United States of America, hyperinflation was seen during the Revolutionary War and during the Civil War, especially on the Confederate side. Many other cases of extreme social conflict encouraging hyperinflation can be seen, as in Germany after World War I, Hungary at the end of World War II and in Yugoslavia in late 1980s just before break up of the country.

Less commonly, hyperinflation may occur when there is debasement of the coinage — wherein coins are consistently shaved of some of their silver and gold, increasing the circulating medium and reducing the value of the currency. The "shaved" specie is then often restruck into coins with lower weight of gold or silver. Historical examples include Ancient Rome, China during the Song Dynasty, and the United States beginning in 1933. When "token" coins begin circulating, it is possible for the minting authority to engage in fiat creation of currency.

Hyperinflation can also occur in the absence of a central bank. One case is when there is "free banking" yet a government allows a bank to suspend convertibility, often in violation of explicit or implicit promises and contracts. These episodes often cause a panicked run on other banks and a collapse in the available money supply, leading to a depression and deflation.

The 1920s German inflation

A 1000 Mark banknote, over-stamped in red with 1,000,000,000 (1 billion) mark, issued in Germany during the hyperinflation of 1923

The hyperinflation episode in the Weimar Republic in the 1920s was not the first hyperinflation, nor was it the only one in early 1920s Europe. However, as the most prominent case following the emergence of economics as a science, it drew interest in a way that previous instances had not. Many of the surreal economic behaviors now associated with hyperinflation were first documented systematically in Germany: order-of-magnitude increases in prices and interest rates, redenomination of the currency, consumer flight from cash to hard assets, and the rapid expansion of industries that produced those assets.

Postage stamps of Weimar Germany during the hyperinflation period of early 1920s

It is sometimes argued that Germany had to inflate its currency to pay the war reparations required under the Treaty of Versailles, but this is misleading. The German currency was relatively stable at about 60 Marks per US Dollar during the first half of 1921. But the "London Ultimatum" in May 1921 demanded reparations in gold to be paid in annual installments of 2,000,000,000 gold marks plus 26 percent of the value of Germany's exports. The first payment was paid when due in August 1921. That was the beginning of an increasingly rapid devaluation of the Mark which fell to less than one third of a cent by November 1921. The total reparations demanded was 132,000,000,000 gold marks which was far more than the total German gold or foreign exchange. An attempt was made by Germany to buy foreign exchange, but that was paid in treasury bills and commercial debts for Marks which only increased the speed of devaluation.

During the first half of 1922 the mark stabilized at about 320 Marks per Dollar accompanied by international reparations conferences including one in June 1922 organized by U.S. banker J. P. Morgan. When these meetings produced no workable solution, the inflation changed to hyperinflation and the Mark fell to 8000 Marks per Dollar by December 1922. The cost of living index was 41 in June 1922 and 685 in December, an increase of more than 16 times. In January 1923 French and Belgian troops occupied the industrial region of Germany in the Ruhr valley to insure that the reparations were paid by goods, such as coal from the Ruhr and other industrial zones of Germany, because the Mark was practically worthless. Although, reparations accounted for about one third of the German deficit from 1920 to 1923, the government found reparations a convenient scapegoat. Other scapegoats included bankers and speculators (particularly foreign). The inflation reached its peak by November 1923, but ended when a new currency (the Rentenmark) was introduced. The government stated this new currency had a fixed value, and this was accepted.

Hyperinflation did not directly bring about the Nazi takeover of Germany; the inflation ended with the introduction of the Rentenmark and the Weimar Republic continued for a decade afterward. The inflation did, however, raise doubts about the competence of liberal institutions, especially amongst a middle class who had held cash savings and bonds. It also produced resentment of Germany's bankers and speculators, many of them Jewish, whom the government and press blamed for the inflation.

Models of hyperinflation

File:500kcruzeiros.jpg

A 500,000 Cruzeiro banknote, issued by Brazil in 1993. If exchanged, would be worth R$ 0.18 in 1994. Every few years the currency was renamed, and three zeros dropped from the bank notes. A 1960s Cruzeiro is now worth less than one trillionth of a US cent, after adjusting for multiple devaluations and note changes.

A 100,000 Ukrainian karbovanets (used between 1992 and 1996). In 1996, it was taken out of circulation, and was replaced by the Hryvnya at an exchange rate of 100,000 karbovanzi = 1 Hryvnya (approx. USD 0.50 at that time, about USD 0.20 as of 2007). This translates to an average inflation rate of approximately 1400% per month during between 1992 and 1996

Since hyperinflation is visible as a monetary effect, models of hyperinflation center on the demand for money. Economists see both a rapid increase in the money supply and an increase in the velocity of money. Either one or both of these encourage inflation and hyperinflation. A dramatic increase in the velocity of money as the cause of hyperinflation is central to the "crisis of confidence" model of hyperinflation, where the risk premium that sellers demand for the paper currency over the nominal value grows rapidly. The second theory is that there is first a radical increase in the amount of circulating medium, which can be called the "monetary model" of hyperinflation. In either model, the second effect then follows from the first — either too little confidence forcing an increase in the money supply, or too much money destroying confidence.

In the confidence model, some event, or series of events, such as defeats in battle, or a run on stocks of the specie which back a currency, removes the belief that the authority issuing the money will remain solvent — whether a bank or a government. Because people do not want to hold notes which may become valueless, they want to spend them in preference to holding notes which will lose value. Sellers, realizing that there is a higher risk for the currency, demand a greater and greater premium over the original value. Under this model, the method of ending hyperinflation is to change the backing of the currency — often by issuing a completely new one. War is one commonly cited cause of crisis of confidence, particularly losing in a war, as occurred during Napoleonic Vienna, and capital flight, sometimes because of "contagion" is another. In this view, the increase in the circulating medium is the result of the government attempting to buy time without coming to terms with the root cause of the lack of confidence itself.

In the monetary model, hyperinflation is a positive feedback cycle of rapid monetary expansion. It has the same cause as all other inflation: money-issuing bodies, central or otherwise, produce currency to pay spiralling costs, often from lax fiscal policy, or the mounting costs of warfare. When businesspeople perceive that the issuer is committed to a policy of rapid currency expansion, they mark up prices to cover the expected decay in the currency's value. The issuer must then accelerate its expansion to cover these prices, which pushes the currency value down even faster than before. According to this model the issuer cannot "win" and the only solution is to abruptly stop expanding the currency. Unfortunately, the end of expansion can cause a severe financial shock to those using the currency as expectations are suddenly adjusted. This policy, combined with reductions of pensions, wages, and government outlays, formed part of the Washington consensus of the 1990s.

Whatever the cause, hyperinflation involves both the supply and velocity of money. Which comes first is a matter of debate, and there may be no universal story that applies to all cases. But once the hyperinflation is established, the pattern of increasing the money stock, by which ever agencies are allowed to do so, is universal. Because this practice increases the supply of currency without any matching increase in demand for it, the price of the currency, that is the exchange rate, naturally falls relative to other currencies. Inflation becomes hyperinflation when the increase in money supply turns specific areas of pricing power into a general frenzy of spending quickly before money becomes worthless. The purchasing power of the currency drops so rapidly that holding cash for even a day is an unacceptable loss of purchasing power. As a result, no one holds currency, which increases the velocity of money, and worsens the crisis.

That is, rapidly rising prices undermine money's role as a store of value, so that people try to spend it on real goods or services as quickly as possible. Thus, the monetary model predicts that the velocity of money will rise endogenously as a result of the excessive increase in the money supply. At the point where ordinary purchases are affected by inflation pressures, hyperinflation is out of control, in the sense that ordinary policy mechanisms, such as increasing reserve requirements, raising interest rates or cutting government spending will all be responded to by shifting away from the rapidly dwindling currency and towards other means of exchange.

During a period of hyperinflation, bank runs, loans for 24 hour periods, switching to alternate currencies, the return to use of gold or silver or even barter becomes common. Many of the people who hoard gold today expect hyperinflation, and are hedging against it by holding specie. There is, also, extensive capital flight or flight to a "hard" currency such as the U.S. dollar. These are sometimes met with capital controls, an idea which has swung from standard, to anathema, and back into semi-respectability. All of this constitutes an economy which is operating in an "abnormal" way, which may lead to decreases in real production. If so, that intensifies the hyperinflation, since it means that the amount of goods in "too much money chasing too few goods" formulation is also reduced. This is also part of the vicious circle of hyperinflation.

Once the vicious circle of hyperinflation has been ignited, dramatic policy means are almost always required, simply raising interest rates is insufficient. Bolivia, for example, underwent a period of hyperinflation in 1985, where prices increased 12,000% in the space of less than a year. The government raised the price of gasoline, which it had been selling at a huge loss to quiet popular discontent, and the hyperinflation came to a halt almost immediately, since it was able to bring in hard currency by selling its oil abroad. The crisis of confidence ended, and people returned deposits to banks. The German hyperinflation of the 1920s was ended by producing a currency based on assets loaned against by banks, called the Rentenmark. Hyperinflation often ends when a civil conflict ends with one side winning. Though sometimes used, wage and price controls to control or prevent inflation, no episode of hyperinflation has been ended by the use of price controls alone, though they have sometimes been part of the mix of policies used to halt hyperinflation.

Hyperinflation and the currency

In times of hyperinflation, gold is a store of value which cannot be printed out of existence

File:3sovriegns.jpg

A krugerrand and three sovereigns. Gold coins are hoarded to escape inflation. In times of inflation, the price of gold rises by roughly the devaluation of the paper currency.

As noted, in countries experiencing hyperinflation, the central bank often prints money in larger and larger denominations as the smaller denomination notes become worthless. This can result in the production of some interesting banknotes, including those denominated in amounts of 1,000,000,000 or more.

• By late 1923, the Weimar Republic of Germany was issuing fifty-million Mark banknotes and postage stamps with a face value of fifty billion Mark. The highest value banknote issued by the Weimar government's Reichsbank had a face value of 100 trillion Mark (100,000,000,000,000) {100 Trillion US/UK}. . One of the firms printing these notes submitted an invoice for the work to the Reichsbank for 32,776,899,763,734,490,417.05 (3.28×10¹⁹, or 33 quintillion) Mark.

• The largest denomination banknote ever officially issued for circulation was in 1946 by the Hungarian National Bank for the amount of 100 quintillion pengő (100,000,000,000,000,000,000, or 10²⁰). image (There was even a banknote worth 10 times more, i.e. 10²¹ pengő, printed, but not issued image.) The banknotes however didn't depict the number, making the 500,000,000,000 Yugoslav dinar banknote the world's leader when it comes to depicted zeros on banknotes. The Post-WWII hyperinflation of Hungary holds the record for the most extreme monthly inflation rate ever — 41,900,000,000,000,000% (4.19 × 10¹⁶%) for July, 1946, amounting to prices doubling every fifteen hours.

One way to avoid the use of large numbers is by declaring a new unit of currency (so, instead of 10,000,000,000 Dollars, a bank might set 1 new dollar = 1,000,000,000 old dollars, so the new note would read "10 new dollars".) An example of this would be Turkey's revaluation of the Lira on January 1, 2005, when the old Turkish Lira (TRL) was converted to the new Turkish Lira (YTL) at a rate of 1,000,000 old to 1 new Turkish Lira. While this does not lessen actual value of a currency, it is called revaluation and also happens over time in countries with standard inflation levels. During hyperinflation, currency inflation happens so quickly that bills reach large numbers before revaluation.

Some banknotes were stamped to indicate changes of denomination. This is because it would take too long to print new notes. By time the new notes would be printed, they would be obsolete (that is, they would be of too low a denomination to be useful).

Metallic coins were rapid casualties of hyperinflation, as the scrap value of metal enormously exceeded the face value. Massive amounts of coinage were melted down, usually illicitly, and exported for hard currency.

Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

• Outright lying as to official statistics such as money supply, inflation or reserves.
• Suppression of publication of money supply statistics, or inflation indices.
• Price and wage controls.
• Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or similar.
• Adjusting the components of the Consumer Price Index, to remove those items whose prices are rising the fastest.

None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency, causing further increases in inflation. Price controls will generally result in hoarding and extremely high demand for the controlled goods, resulting in shortages; additionally, supply may diminish as producers no longer find it sufficiently profitable to continue producing such goods, further exacerbating the problem.

Hyperinflation around the world

Angola

Angola went through its worst inflation from 1991 to 1995. In early 1991, the highest denomination was 50,000 kwanzas. By 1994, it was 500,000 kwanzas. In the 1995 currency reform, 1 kwanza reajustado was exchanged for 1,000 kwanzas. The highest denomination in 1995 was 5,000,000 kwanzas reajustados. In the 1999 currency reform, 1 new kwanza was exchanged for 1,000,000 kwanzas reajustados. The overall impact of hyperinflation: 1 new kwanza = 1,000,000,000 pre 1991 kwanzas.

Argentina

Argentina went through steady inflation from 1975 to 1991. At the beginning of 1975, the highest denomination was 1,000 pesos. In late 1976, the highest denomination was 5,000 pesos. In early 1979, the highest denomination was 10,000 pesos. By the end of 1981, the highest denomination was 1,000,000 pesos. In the 1983 currency reform, 1 Peso Argentino was exchanged for 10,000 pesos. In the 1985 currency reform, 1 austral was exchanged for 1,000 pesos argentino. In the 1992 currency reform, 1 new peso was exchanged for 10,000 australes. The overall impact of hyperinflation: 1 new peso = 100,000,000,000 pre-1983 pesos.

Austria

Between 1921 and 1922, inflation in Austria reached 134%.

Belarus

Belarus went through steady inflation from 1994 to 2002. In 1993, the highest denomination was 5,000 rublei. By 1999, it was 5,000,000 rublei. In the 2000 currency reform, the ruble was replaced by the new ruble at an exchange rate of 1 new ruble = 1,000 old rublei. The highest denomination in 2002 was 50,000 rublei, equal to 50,000,000 pre-2000 rublei.

Bolivia

Bolivia went through its worst inflation between 1984 and 1986. Before 1984, the highest denomination was 1,000 pesos bolivianos. By 1985, the highest denomination was 10 Million pesos bolivianos. In 1985, a Bolivian note for 1 million pesos was worth 55 cents in US dollars, one-thousandth of its exchange value of $5,000 less than three years previously. In the 1987 currency reform, peso boliviano was replaced by boliviano which was pegged to U. S. dollar.

Bosnia-Herzegovina

Bosnia-Hezegovina went through its worst inflation in 1993. In 1992, the highest denomination was 1,000 dinara. By 1993, the highest denomination was 100,000,000 dinara. In the Republika Srpska, the highest denomination was 10,000 dinara in 1992 and 10,000,000,000 dinara in 1993. 50,000,000,000 dinara notes were also printed in 1993 but never issued.

Brazil

From 1986 to 1994, the base currency unit was shifted three times to adjust for inflation in the final years of the Brazilian military dictatorship era. A 1960s cruzeiro was, in 1994, worth less than one trillionth of a US cent, after adjusting for multiple devaluations and note changes. A new currency called real was adopted in 1994, and hyperinflation was eventually brought under control.

Chile

Beginning in 1971, during the presidency of Salvador Allende who had implemented many marxist or radical left programs. Chilean inflation began to rise and reached peaks of 1,200% in 1973. As a result of the hyperinflation, food became scarce and overpriced. The economic and social troubles culminated in the 1973 coup d'état that deposed the democratically-elected Allende and installed a military government led by Augusto Pinochet. Pinochet's free-market economic policy ended the inflation and except for an economic depression in 1981 the economy has fully recovered.

China

As the first user of fiat currency, China has had an early history of troubles caused by hyperinflation. The Yuan Dynasty printed huge amounts of fiat paper money to fund their wars, and the resulting hyperinflation, coupled with other factors, led to its demise at the hands of a revolution. The Republic of China went through the worst inflation 1948-49. In 1947, the highest denomination was 50,000 yuan. By mid-1948, the highest denomination was 180,000,000 yuan. The 1948 currency reform replaced the yuan by the gold yuan at an exchange rate of 1 gold yuan = 3,000,000 yuan. In less than 1 year, the highest denomination was 10,000,000 gold yuan. The highest denomination by a regional bank was 6,000,000,000 yuan issued by XinJiang Provincial Bank in 1949. As the result of the hyperinflation, the New Taiwan dollar was introduced in order to help contain the problem.

Free City of Danzig

Danzig went through its worst inflation in 1923. In 1922, the highest denomination was 1,000 Mark. By 1923, the highest denomination was 10,000,000,000 Mark.

Georgia

Georgia went through its worst inflation in 1994. In 1993, the highest denomination was 100,000 coupons [kuponi]. By 1994, the highest denomination was 1,000,000 coupons. In the 1995 currency reform, a new currency lari was introduced with 1 lari exchanged for 1,000,000 coupons.

Germany

Germany went through its worst inflation in 1923. In 1922, the highest denomination was 50,000 Mark. By 1923, the highest denomination was 100,000,000,000,000 Mark. In December of 1923 the exchange rate from marks to US dollars was 4,000,000,000,000:1. During the worst times, one U.S. dollar was equal to 80 billion Mark.

Greece

Greece went through its worst inflation in 1944. In 1943, the highest denomination was 25,000 drachmai. By 1944, the highest denomination was 100,000,000,000,000 drachmai. In the 1944 currency reform, 1 new drachma was exchanged for 50,000,000,000 drachmai. Another currency reform in 1953 replaced the drachma at an exchange rate of 1 new drachma = 1,000 old drachma. The overall impact of hyperinflation: 1 (1953) drachma = 50,000,000,000,000 pre 1944 drachmai. The Greek inflation rate reached 8.5 billion percent.

Hungary

Hungary went through its worst inflation in modern history in 1945-46. Before 1945, the highest denomination was 1,000 pengő. By the end of 1945, it was 10,000,000 pengő. The highest denomination in mid-1946 was 100,000,000,000,000,000,000 pengő. Banknotes The rate of inflation was 4.19 quintillion (4.19 x 10¹⁸) percent. A special currency the adópengő - or tax pengő - was created for tax and postal payments [1]. The value of the adópengő was adjusted each day, by radio announcement. On January 1, 1946 one adópengő equaled one pengő. By late July, one adópengő equaled 2,000,000,000,000,000,000,000 or 2×10²¹pengő. When the pengo was replaced in August 1946 by the forint, the total value of all Hungarian banknotes in circulation amounted to one-thousandth of one US cent.

One source [2] states that this hyperinflation was purposely started by trained Russian Marxists in order to destroy the Hungarian middle and upper classes. The 1946 currency reform changed the currency to forint. Previously, between 1922 and 1924 inflation in Hungary reached 98%.

Israel

Inflation accelerated in the 1970s, rising steadily from 13% in 1971 to 111% in 1979.From 133% in 1980, it leaped to 191% in 1983 and then to 445% in 1984, threatening to become a four-digit figure within a year or two. In 1985 Israel froze all prices by law. That same year, inflation more than halved, to 185%. Within a few months, the authorities began to lift the price freeze on some items; in other cases it took almost a year. By 1986, inflation was down to 19%.

Krajina

Krajina went through the worst inflation in 1993. In 1992, the highest denomination was 50,000 dinara. By 1993, the highest denomination was 50,000,000,000 dinara. Note that this unrecognized country was reincorporated into Croatia in 1998.

Madagascar

The Malagasy franc had a turbulent time in 2004, losing nearly half its value and sparking rampant inflation. On 1 January 2005 the Malagasy ariary replaced the previous currency at a rate of 0.2 ariary for one Malagsy franc. In May 2005 there were riots over rising inflation, although falling prices have since calmed the situation.

Mexico

The Mexican peso had a turbulent time in late 1980's and early 1990's, culminating in the 1994 economic crisis in Mexico.

Nicaragua

Nicaragua went through the worst inflation from 1987 to 1990. Before 1987, the highest denomination was 1,000 córdobas. By 1987, it was 500,000 córdobas, overprinted on a 1,000-córdoba bill. In the 1988 currency reform, 1 new córdoba was exchanged for 1,000 old córdobas. The highest denomination in 1990 was 100,000,000 new córdobas. In the mid-1990 currency reform, 1 gold cordoba was exchanged for 5,000,000 new córdobas. The overall impact of hyperinflation: 1 gold córdoba = 5,000,000,000 pre-1988 córdobas.

Peru

Peru went through its worst inflation from 1984 to 1990. The highest denomination in 1984 was 50,000 soles de oro. By 1985, it was 500,000 soles de oro. In the 1985 currency reform, 1 inti was exchanged for 1,000 soles de oro. In 1986, the highest denomination was 1,000 intis. It was 20,000,000 intis by 1991. In the 1991 currency reform, 1 nuevo sol was exchanged for 1,000,000 intis. The overall impact of hyperinflation: 1 nuevo sol = 1,000,000,000 pre 1985 soles de oro.

Poland

Poland went through its worst inflation between 1990 and 1993. The highest denomination in 1989 was 200,000 zlotych. It was 1,000,000 zlotych in 1991 and 2,000,000 zlotych in 1992. In the 1994 currency reform, 1 new zloty was exchanged for 10,000 old zlotych. Previously, between 1922 and 1924, Polish inflation reached 275%.

Republika Srpska

Republika Srpska was the breakaway region of Bosnia. As with Krajina, it pegged its currency to that of Yugoslavia. Their bills were almost the same as Krajina's, but they issued fewer and didn't issue currency after 1993.

Romania

Romania is still working through steady inflation. The highest denomination in 1998 was 100,000 lei. By 2000 it was 500,000 lei. In early 2005 it was 1,000,000 lei. In July 2005 the leu was replaced by the new leu at 10,000 old lei = 1 new leu. Inflation in 2005 was 9%. In 2006 the highest denomination is 500 lei (= 5,000,000 old lei).

Russia

Between 1921 and 1922, during the civil war, inflation in Russia reached 213%.

In 1992, the first year of post-Soviet economic reform, inflation was 2,520%, the major cause being the decontrol of most prices in January. In 1993 the annual rate was 840%, and in 1994, 224%. The ruble devalued from about 100 r/$ in 1991 to about 30,000 r/$ in 1999.

Taiwan

Severe inflation existed in the late 1940s due to factors such as corruption and Chinese Civil War. Increasingly higher denominations were issued on the island, up to one million yuan. Inflation was eventually controlled after the new Taiwan dollar was issued in 1949 at a ratio of 40,000-to-1 against the old Taiwan yuan.

Turkey

Throughout the 1990s Turkey dealt with severe inflation rates that finally crippled the economy into a recession in 2001. The highest denomination in 1995 was 1,000,000 lira. By 2000 it was 20,000,000 lira. Recently Turkey has achieved single digit inflation for the first time in decades, and in the 2005 currency reform, introduced the New Turkish Lira; 1 was exchanged for 1,000,000 old lira. There is still double digit inflation from 2005-2007.

Ukraine

Ukraine went through its worst inflation between 1993 and 1995. Before 1993, the highest denomination was 1,000 karbovantsiv. By 1995, it was 1,000,000 karbovantsiv. In 1992, the Ukrainian karbovanets was introduced, which was exchanged with the defunct Soviet ruble at a rate of 1 UAK = 1 SUR. In 1996, during the transition to the Hryvnya and the subsequent phase out of the karbovanets, the exchange rate was 100,000 UAK = 1 UAH. This translates to a hyperinflation rate of approximately 1,400% per month. And to this day Ukraine holds the world record for most inflation in one calendar year, which was set in 1993.

United States

During the Revolutionary War, the Continental Congress authorized the printing of paper currency called continental currency. The easily counterfeited notes depreciated rapidly, giving rise to the expression "not worth a continental."

Between January 1861 and April 1865, the Lerner Commodity Price Index of leading cities in the eastern Confederacy states increased from 100 to over 9000. As the U.S. Civil War dragged on the Confederate States of America dollar had less and less value, until it was almost worthless by the last few months of the war.

A large (approximately 8 feet in height) example of Yapese stone money

Yap

The island of Yap in the Pacific Ocean used varying sized stones as money, of which the largest weighing several tons were the most valuable. The stones had been brought by sea from the Island of Palau 210 km away. The journey was very perilous given the length of the voyage and the rough seas between the islands of Palau and Yap. Many of the stones were lost at sea. The risk associated with procurement of the "money stones" initially made them highly valuable. The Yapese valued them because large stones were quite difficult to steal and were in relatively short supply. However, in 1874, an enterprising Irishman named David O'Keefe hit upon the idea of employing the Yapese to import more "money" in the form of shiploads of large stones, also from Palau. O'Keefe then traded these stones with the Yapese for other commodities such as sea cucumbers and copra. Over time, the Yapese brought thousands of new stones to the island, debasing the value of the old ones. Today they are almost worthless, except as a tourist curiosity.

File:Yougoslavia 50 billion bank note.jpg

Yugoslavia 50 billion Dinar bank note

Yugoslavia

Yugoslavia went through a period of hyperinflation and subsequent currency reforms from 1989 to 1994. The highest denomination in 1988 was 50,000 dinars. By 1989 it was 2,000,000 dinars. In the 1990 currency reform, 1 new dinar was exchanged for 10,000 old dinars. In the 1992 currency reform, 1 new dinar was exchanged for 10 old dinars. The highest denomination in 1992 was 50,000 dinars. By 1993, it was 10,000,000,000 dinars. In the 1993 currency reform, 1 new dinar was exchanged for 1,000,000 old dinars. But before the year was over, the highest denomination was 500,000,000,000 dinars. In the 1994 currency reform, 1 new dinar was exchanged for 1,000,000,000 old dinars. In another currency reform a month later, 1 novi dinar was exchanged for 10~13 million dinars (1 novi dinar = 1 German mark at the time of exchange). The overall impact of hyperinflation: 1 novi dinar = 1 × 10²⁷~1.3 × 10²⁷ pre 1990 dinars.

Zaire (now the Democratic Republic of the Congo)

Zaire went through a period of inflation between 1989 and 1996. In 1988, the highest denomination was 5,000 zaires. By 1992, it was 5,000,000 zaires. In the 1993 currency reform, 1 nouveau zaire was exchanged for 3,000,000 old zaires. The highest denomination in 1996 was 1,000,000 nouveaux zaires. In 1997, Zaire was renamed the Congo Democratic Republic and changed its currency to francs. 1 franc was exchanged for 100,000 nouveaux zaires. The overall impact of hyperinflation: 1 franc = 3 × 10¹¹ pre 1989 zaires.

Zimbabwe, 2000s

Template:ZWD inflation At Independence in 1980, the Zimbabwe dollar was worth about $1.50 US. Since then, rampant inflation and the collapse of the economy have severely devalued the currency, causing many organisations to favour using the US dollar instead. Inflation was stable until Robert Mugabe began a program of land reforms that primarily focused on taking land from white farmers and redistributing those properties and assets to others; this in turn sent food production and revenues from export of food plummeting.

Early in the 21st century Zimbabwe started to experience hyperinflation. Inflation reached 624% in early 2004, then fell back to low triple digits before surging to a new high of 1,730% in March 2007. In June 2007 the government released the latest figures of 7,638%. The predictions for the annual inflation range from 3,000% (according to the IMF) to 8,000%.

On 16 February 2006, the governor of the Reserve Bank of Zimbabwe, Dr Gideon Gono, announced that the government had printed ZWD 21 trillion in order to buy foreign currency to pay off IMF arrears.

In early May 2006, Zimbabwe's government began rolling the printing presses again to produce about 60 trillion Zimbabwean dollars. The additional currency was required to finance the recent 300% increase in salaries for soldiers and policemen and 200% for other civil servants. The money was not budgeted for the current fiscal year, and the government did not say where it would come from.

In August 2006, the Zimbabwean government issued new currency and asked citizens to turn in old notes; the new currency (issued by the central bank of Zimbabwe) had three zeroes slashed from it. Most financial analysts remained skeptical and said that the new money would not provide relief from record inflation.

In February 2007, the central bank of Zimbabwe declared inflation "illegal", outlawing any raise in prices on certain commodities between March 1 and June 30, 2007. Officials have arrested executives of some Zimbabwean companies for increasing prices on their products. Such measures, frequently tried during other episodes of hyperinflation, have always failed.

In June 2007 inflation in Zimbabwe had risen to 11,000% from an earlier estimate of 9,000%. U.S. ambassador Christopher Dell predicted it will reach 1.5 million percent by December 2007. The government is currently circulating a $200,000 note, and reports of extreme shortages of basic foodstuffs, fuel, and medical supplies abound. The government instituted a six-month freeze on wages on September 1, 2007.

The Reserve Bank of Zimbabwe issued a $10million note in January 2008, roughly equivalent of 4 US dollars, and not even enough to pay for a hamburger.

See also

• Inflation accounting
• Inflation
• Biflation
• Chronic inflation
• Gold as an investment
• Store of value
• List of economics topics

References

• Costantino Bresciani-Turroni, The Economics of Inflation (English transl.). Northampton, England: Augustus Kelly Publishers, 1937, on the German 1919-1923 inflation.
• Shun-Hsin Chou, The Chinese Inflation 1937-1949, New York, Columbia University Press, 1963, Library of Congress Cat. 62-18260.
• Andrew Dickson White, Fiat Money Inflation in France, Caxton Printers, Idaho, 1969. a popular description of the 1789-1799 inflation.
• F.A. Hayek, Choice in Currency: A Way to Stop Inflation, Institute of Economic Affairs, London, 1976. Free download. Includes section on 1920s Germany.
• Murray N. Rothbard, The Case for the 100 Percent Gold Dollar, Ludwig von Mises Institute, Auburn, Alabama, 2005. Free download. Includes section on 1945 Breton Woods system.

External links

• San José State University: Episodes of hyperinflation
• Bank notes during hyperinflation
• A Comprehensive Gallery of Hyperinflation Banknotes
• The worst hyperinflation in history: Yugoslavia 1993-4