Hyperinflation: Difference between revisions

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Certain figures in this article use scientific notation for readability.

In economics, hyperinflation occurs when a country experiences very high and usually accelerating rates of

The value of economic items remains relatively stable in terms of foreign currencies.

Unlike low inflation, where the process of rising prices is protracted and not generally noticeable except by studying past market prices, hyperinflation sees a rapid and continuing increase in nominal prices, the nominal cost of goods, and in the supply of money.^[2] Typically, however, the general price level rises even more rapidly than the money supply as people try ridding themselves of the devaluing currency as quickly as possible. As this scenario happens, the real stock of money (i.e., the amount of circulating money divided by the price level) decreases.^[3]

Hyperinflations are usually caused by large persistent government deficits financed primarily by

Definition

File:Inflació utan 1946.jpg

In 1956, Phillip Cagan wrote The Monetary Dynamics of Hyperinflation, the book often regarded as the first serious study of hyperinflation and its effects^[4] (though The Economics of Inflation by C. Bresciani-Turroni on the German hyperinflation was published in Italian in 1931^{[citation needed]}). In his book, Cagan defined a hyperinflationary episode as starting in the month that the monthly inflation rate exceeds 50%, and as ending when the monthly inflation rate drops below 50% and stays that way for at least a year.^[5] Economists usually follow Cagan’s description that hyperinflation occurs when the monthly inflation rate exceeds 50%.^[4]

The International Accounting Standards Board has issued guidance on accounting rules in a hyperinflationary environment. It does not establish an absolute rule on when hyperinflation arises. Instead, it lists factors that indicate the existence of hyperinflation:^[6]

• 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
• 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 currency;
• 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;
• Interest rates, wages, and prices are linked to a price index; and
• The cumulative inflation rate over three years approaches, or exceeds, 100%.

Causes

There are a number of theories on the causes of high and/or hyper inflation.

.

Supply shocks

This theory, based on historical analysis, claims that past hyperinflations were caused by some sort of extreme negative supply shock, often but not always associated with wars, the breakdown of the communist system or natural disasters.^[9]

Money supply

Modern economic theories concur in saying that hyperinflation occurs when there is a continuing (and often accelerating) rapid increase in the amount of money that is not supported by a corresponding growth in the output of goods and services.

The price increases that result from the rapid money creation creates a vicious circle, requiring ever growing amounts of new money creation to fund government deficits. Hence both monetary inflation and price inflation proceed at a rapid pace. Such rapidly increasing prices cause widespread unwillingness of the local population to hold the local currency as it rapidly loses its buying power. Instead they quickly spend any money they receive, which increases the velocity of money flow; this in turn causes further acceleration in prices. This means that the increase in the price level is greater than that of the money supply.^[10] The real stock of money, M/P, decreases. Here M refers to the money stock and P to the price level.

This results in an imbalance between the supply and demand for the money (including currency and bank deposits), causing rapid inflation. Very high inflation rates can result in a loss of confidence in the currency, similar to a bank run. Usually, the excessive money supply growth results from the government being either unable or unwilling to fully finance the government budget through taxation or borrowing, and instead it finances the government budget deficit through the printing of money.^[11]

Governments have sometimes resorted to excessively loose monetary policy, as it allows a government to devalue its debts and reduce (or avoid) a tax increase. Inflation is effectively a

, cost cutting, or by other means, because either

• during the time between recording or levying taxable transactions and collecting the taxes due, the value of the taxes collected falls in real value to a small fraction of the original taxes receivable; or
• government debt issues fail to find buyers except at very deep discounts; or
• a combination of the above.

Theories of hyperinflation generally look for a relationship between

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 rational government would engage in actions that cause or continue hyperinflation. One reason for such actions is that often the alternative to hyperinflation is either

.

In neo-classical economic theory, hyperinflation is rooted in a deterioration of the

from 1939 to 1945 is a classic example of a government printing money to pay civil war costs. By the end, currency was flown in over the Himalayas, 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 seigniorage, 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."

Nevertheless, the immense acceleration process that occurs during hyperinflation (such as during the German hyperinflation of 1922/23) still remains unclear and unpredictable. The transformation of an inflationary development into the hyperinflation has to be identified as a very complex phenomenon, which could be a further advanced research avenue of the

Models

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 if the (monetary) inflating is not stopped. Either one, or both of these together are the root causes of 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. 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

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 whichever 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.

Because rapidly rising prices undermine the role of money as a

, hyperinflation is out of control, because ordinary policy mechanisms, such as increasing reserve requirements, raising interest rates, or cutting government spending will be ineffective and be responded to by shifting away from the rapidly devalued money 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 become common. Many of the people who hoard gold today expect hyperinflation, and are hedging against it by holding specie. There may also be extensive

, 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 (1919–November 1923) was ended by producing a currency based on assets loaned against by banks, called the

. Hyperinflation often ends when a civil conflict ends with one side winning.

Although

are sometimes used to control or prevent inflation, no episode of hyperinflation has been ended by the use of price controls alone, because price controls that force merchants to sell at prices far below their restocking costs result in shortages that cause prices to rise still further.

Effects

Germany, 1923

: banknotes had lost so much value that they were used as wallpaper.

Hyperinflation effectively wipes out the purchasing power of private and public savings; distorts the economy in favor of the 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.

One of the most important characteristics of hyperinflation is the accelerating substitution of the inflating money by stable money—gold and silver in former times, then relatively stable foreign currencies after the breakdown of the gold or silver standards (Adolphe Thiers's Thiers' Law). If inflation is high enough, government regulations like heavy penalties and fines, often combined with exchange controls, cannot prevent this currency substitution. As a consequence, the inflating currency is usually heavily undervalued compared to stable foreign money and in terms of purchasing power parity. As a consequence, foreigners can live cheaply and buy at cheap prices in the countries hit by high inflation. It follows that governments who do not succeed in engineering a successful currency reform in time must finally legalize the stable foreign currencies (or, formerly, gold and silver) which is threatening to fully substitute the inflating money. Otherwise, their tax revenues, including the inflation tax, will approach zero.^[15] The last hyperinflation where this process could be observed took place in Zimbabwe in the first decade of the 21st century. In this case, the local money was mainly driven out by the US dollar and the South African rand.

Enactment of price controls to prevent discounting the value of

.

Much attention on hyperinflation centers on the effect on savers whose investment becomes worthless. Academic economists seem not to have devoted much study on the (positive) effect on debtors.^[citation needed] Interest rate changes often cannot keep up with hyperinflation or even high inflation, certainly with contractually fixed interest rates. For example, in the 1970s in the United Kingdom inflation reached 25% per annum, yet interest rates did not rise above 15%—and then only briefly—and many fixed interest rate loans existed. Contractually, there is often no bar to a debtor clearing his long term debt with "hyperinflated cash", nor could a lender simply somehow suspend the loan. "Early redemption penalties" were (and still are) often based on a penalty of x months of interest/payment; again no real bar to paying off what had been a large loan. In interwar Germany, for example, much private and corporate debt was effectively wiped out—certainly for those holding fixed interest rate loans.

Ludwig von Mises introduced the term crack-up boom (German: Katastrophenhausse) to describe the economic consequences of an unmitigated policy of increasing the base-money supply.^[17] As more and more money is provided, interest rates decline towards zero. Realizing that fiat money is losing value investors will try to place money in assets such as real estate, stocks, even art as these appear to represent "real" value. Asset prices are thus becoming inflated. This potentially spiraling process will ultimately lead to the collapse of the monetary system. The Cantillon effect^[18] describes that those institutions that receive the new money first are the beneficiaries of the policy.

Aftermath

Hyperinflation is ended with drastic remedies, such as imposing the

Hyperinflation has always been a traumatic experience for the area which suffers it, and 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 was the case with the German

, and always leads to widespread shortages of consumer goods if the controls are rigidly enforced.

Currency

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
  quintillion) marks.^[21]
• The largest denomination banknote ever officially issued for circulation was in 1946 by the
  sextillion) pengő, printed, but not issued image.) The banknotes however did not depict the numbers, "hundred million b.-pengő" ("hundred million trillion pengő") and "one milliard b.-pengő" were spelled out instead. This makes the 100,000,000,000,000 Zimbabwean dollar
  banknotes the note with the greatest number of zeros shown.
• The Post-World War II hyperinflation of Hungary held the record for the most extreme monthly inflation rate ever — 41,900,000,000,000,000% (4.19 × 10¹⁶% or 41.9 quadrillion percent) for July 1946, amounting to prices doubling every 15.3 hours. By comparison, recent figures (as of 14 November 2008) estimate Zimbabwe's annual inflation rate at 89.7
  sextillion (10²¹) percent,^[22]
  which corresponds to a monthly rate of 79.6 billion percent, and a doubling time of 24.7 hours. In figures, that is 89,700,000,000,000,000,000,000%.

One way to avoid the use of large numbers is by declaring a new unit of currency (an example being, 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

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 the time new notes were 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. None of these actions address the root causes of inflation and if discovered, they tend to further undermine trust in the currency, causing further increases in inflation. Price controls will generally result in shortages and hoarding and extremely high demand for the controlled goods, causing disruptions of supply chains. Products available to consumers may diminish or disappear as businesses no longer find it sufficiently profitable (or may be operating at a loss) to continue producing and/or distributing such goods at the legal prices, further exacerbating the shortages.

There are also issues with computerized money-handling systems. In Zimbabwe, during the hyperinflation of the Zimbabwe dollar, many

Notable hyperinflationary episodes

Austria

In 1922, inflation in Austria reached 1,426%, and from 1914 to January 1923, the consumer price index rose by a factor of 11,836, with the highest banknote in denominations of 500,000 krones.^[24]

Political ineptitude in Post WWI Austria comprised political expedience and Socialist benevolence. Thus, essentially all State enterprises ran at a loss. The number of state employees in Vienna—the capital of the post WWI republic—was greater than that of the earlier monarchy, even though they (state employees) served a population base nearly eight times smaller.^[25]

Observing the Austrian response to developing hyperinflation, fueled by selfishness and political ineptitude, including the hoarding of food and the speculation in foreign currencies, Owen S. Phillpotts, the Commercial Secretary at the British Legation in Vienna wrote: “The Austrians are like men on a ship who cannot manage it, and are continually signalling for help. While waiting, however, most of them begin to cut rafts, each for himself, out of the sides and decks. The ship has not yet sunk despite the leaks so caused, and those who have acquired stores of wood in this way may use them to cook their food, while the more seamanlike look on cold and hungry. The population lack courage and energy as well as patriotism”.^[26]

• Start and End Date: Oct. 1921 – Sep. 1922
• Peak Month and Rate of Inflation: Aug. 1922, 129%^[27]

China

As the first user of

in 1955.

• (1) Start and End Date: Jul. 1943 – Aug. 1945
• (1) Peak Month and Rate of Inflation: Jun. 1945, 302%
• (2) Start and End Date: Oct. 1947 – Mid. May 1949
• (2) Peak Month and Rate of Inflation: Apr. 5,070%[29]

France

During the

Napoleon replaced them with the franc in 1803, at which time the assignats were basically worthless. Stephen D. Dillaye pointed out that one of the reasons for the failure was massive counterfeiting of the paper currency, “the Assignats” – largely through London – where, according to Dillaye: “Seventeen manufacturing establishments were in full operation in London, with a force of four hundred men devoted to the production of false and forged Assignats.” [31]

• Start and End Date: May 1795 – Nov. 1796
• Peak Month and Rate of Inflation: Mid-Aug. 1796, 304%^[32]

Germany (Weimar Republic)

By November 1922, the gold value of money in circulation fell from £300 million before WWI to £20 million. The Reichsbank responded by the unlimited printing of notes, thereby accelerating the devaluation of the mark. In his report to London, Lord D'Abernon wrote: "In the whole course of history, no dog has ever run after its own tail with the speed of the Reichsbank."

• (1) Start and End Date: Jan. 1920 – Jan. 1920
• (1) Peak Month and Rate of Inflation: Jan. 1920, 56.9%
• (2) Start and End Date: Aug. 1922 – Dec. 1923
• (2) Peak Month and Rate of Inflation: Nov. 1923, 29,525%[27]

Greece (German-Italian occupation)

With the German invasion in April 1941, an abrupt increase of prices was observed. This was due to psychological factors related to the fear of shortages and to the hoarding of goods. During the German and Italian Occupation (1941-1944), the agricultural, mineral, industrial etc production of Greece were used to sustain the occupation forces, but also to secure provisions for the Afrika Korps. One part of these "sales" of provisions was settled with bilateral clearing through the German DEGRIGES and the Italian Sagic companies at very low prices. As the value of the Greek exports in drachmas fell, the demand for drachmas followed suit and so did its forex rate. At the same time as shortages started due to naval blockades and hoarding, the prices of commodities soared. The other part of the "purchases" was settled with drachmas secured from the Bank of Greece and printed for this purpose by private printing presses. As prices soared, the Germans and Italians started requesting more and more drachmas from the Bank of Greece to offset price increases; each time prices increased, the note circulation followed suit soon thereafter. In November 1944 the annual inflation (with respect to November 1943) rose to 2.5 × 10¹⁰%, the circulation was 6.28 × 10¹⁸ drachmas and the gold sovereign cost 43,167 billion drachmas. The hyperinflation started subsiding immediately after the departure of the German occupation forces, but the inflation rates took several years before they fell below 50%.^[36]

• Start and End Date: Jun. 1941 – Jan. 1946
• Peak Month and Rate of Inflation: Dec. 1944, 3.0 × 10¹⁰%

Hungary

The Treaty of Trianon and political instability between 1919 and 1924 led to a major inflation of Hungary's currency. In 1921, in an attempt to arrest Post WWI inflation, the national assembly of Hungary passed the Hegedüs reforms, including a 20% levy on bank deposits. This action precipitated a mistrust of banks by the public, especially the peasants, and resulted in a reduction savings and the amount of currency in circulation.^[37] Unable to tax adequately, the government resorted to printing money and in 1923 inflation in Hungary reached 98% per month.

However, between the end of 1945 and July 1946, Hungary went through the worst inflation ever recorded. In 1944, the highest denomination was 1,000

) pengő became 1 forint.

• Start and End Date: Aug. 1945 – Jul. 1946
• Peak Month and Rate of Inflation: Jul. 1946, 41.9 quadrillion percent^[41]

North Korea

North Korea most likely experienced hyperinflation from December 2009 to mid-January 2011. Based on the price of rice, North Korea's hyperinflation peaked in mid-January 2010, but according to black market exchange-rate data, and calculations base on purchasing power parity, North Korea experienced its peak month of inflation in early March 2010. However, this data is unofficial and therefore must be treated with a degree of caution.^[42]

Philippines

The Japanese government occupying the Philippines during the

In 1942, the highest denomination available was 10 pesos. Before the end of the war, because of inflation, the Japanese government was forced to issue 100, 500 and 1000 peso notes.

• Start and End Date: Jan. 1944 – Dec. 1944
• Peak Month and Rate of Inflation: Jan. 1944, 60%[45]

British Malaya

motifs

of banana trees on the currency's 10 dollar banknote.

Malaya and Singapore were under

issued by the British. During that time, the cost of basic necessities increased drastically. As the occupation proceeded, the Japanese authorities printed more money to fund their wartime activities, this resulted in hyperinflation and a severe depreciation in value of the banana note.

Value of $100 Straits currency in Japanese scrip

• February to December 1942 : $100
• 1 August 1945 : $10,500
• 12 August 1945 : $95,000
• 13 August 1945 and after : N/A (Japanese scrip had become valueless)[46]

Soviet Union

Hyperinflation in early Soviet Russia connotes a seven-year period of uncontrollable spiraling inflation in the early

. The inflationary crisis effectively ended in March 1924 with the introduction of the so-called "gold ruble" as the country's standard currency.

The early Soviet hyperinflationary period was marked by three successive redenominations of its currency, in which "new rubles" replaced old at the rates of 10,000-to-1 (January 1, 1922), 100-to-1 (January 1, 1923), and 50,000-to-1 (March 7, 1924), respectively.

Between 1921 and 1922, inflation in the Soviet Union reached 213%.

Yugoslavia

's rate of inflation hit 5 × 10¹⁵ percent cumulative inflation over the time period 1 October 1993 and 24 January 1994.

(1) Start and End Date: Sept. 1989 – Dec. 1989

(1) Peak Month and Rate of Inflation: Dec 1989, 59.7%

(2) Start and End Date: Apr. 1992 – Jan. 1994

(2) Peak Month and Rate of Inflation: Jan. 1994, 313 million percent[48]

Zimbabwe

octillion

) pre-2006 dollars.

Hyperinflation in Zimbabwe was one of the few instances that resulted in the abandonment of the local currency. At independence in 1980, the

printed more and more notes with higher face values.

Hyperinflation began early in the 21st-century, reaching 624% in 2004. It fell back to low triple digits before surging to a new high of 1,730% in 2006. The Reserve Bank of Zimbabwe revalued on 1 August 2006 at a ratio of 1,000 ZWD to each second dollar (ZWN), but year-to-year inflation rose by June 2007 to 11,000% (versus an earlier estimate of 9,000%). Larger denominations were progressively issued:

1. 5 May: banknotes or "bearer cheques" for the value of ZWN 100 million and ZWN 250 million.[52]
2. 15 May: new bearer cheques with a value of ZWN 500 million (then equivalent to about USD 2.50).^[53]
3. 20 May: a new series of notes ("agro cheques") in denominations of $5 billion, $25 billion and $50 billion.
4. 21 July: "agro cheque" for $100 billion.^[54]

Inflation by 16 July officially surged to 2,200,000%^[55] with some analysts estimating figures surpassing 9,000,000%.^[56] As of 22 July 2008 the value of the ZWN fell to approximately 688 billion per 1 USD, or 688 trillion pre-August 2006 Zimbabwean dollars.^[57]

Date of redenomination	Currency code	Value
1 August 2006	ZWN	1 000 ZWD
1 August 2008	ZWR	1010 ZWN = 1013 ZWD
2 February 2009	ZWL	1012 ZWR = 1022 ZWN = 1025 ZWD

On 1 August 2008, the Zimbabwe dollar was redenominated at the ratio of 10¹⁰ ZWN to each third dollar (ZWR).^[58] On 19 August 2008, official figures announced for June estimated the inflation over 11,250,000%.^[59] Zimbabwe's annual inflation was 231,000,000% in July^[60] (prices doubling every 17.3 days). By October 2008 Zimbabwe was mired in hyperinflation with wages falling far behind inflation. In this dysfunctional economy hospitals and schools had chronic staffing problems, because many nurses and teachers could not afford bus fare to work. Most of the capital of Harare was without water because the authorities had stopped paying the bills to buy and transport the treatment chemicals. Desperate for foreign currency to keep the government functioning, Zimbabwe's central bank governor, Gideon Gono, sent runners into the streets with suitcases of Zimbabwean dollars to buy up American dollars and South African rand.^[61] For periods after July 2008, no official inflation statistics were released. Prof. Steve H. Hanke overcame the problem by estimating inflation rates after July 2008 and publishing the Hanke Hyperinflation Index for Zimbabwe.^[62] Prof. Hanke's HHIZ measure indicated that the inflation peaked at an annual rate of 89.7 sextillion percent (89,700,000,000,000,000,000,000%) in mid-November 2008. The peak monthly rate was 79.6 billion percent, which is equivalent to a 98% daily rate, or around 7× 10^¹⁰⁸ percent yearly rate. At that rate, prices were doubling every 24.7 hours. Note that many of these figures should be considered mostly theoretic, since the hyperinflation did not proceed at that rate a whole year.^[63]

At its November 2008 peak, Zimbabwe's rate of inflation approached, but failed to surpass, Hungary's July 1946 world record.^[63] On 2 February 2009, the dollar was redenominated for the fourth time at the ratio of 10¹² ZWR to 1 ZWL, only three weeks after the $100 trillion banknote was issued on 16 January,^[64][65] but hyperinflation waned by then as official inflation rates in USD were announced and foreign transactions were legalised,^[63] and on 12 April the dollar was abandoned in favour of using only foreign currencies. The overall impact of hyperinflation was 1 ZWL = 10²⁵ ZWD.

• Start and End Date: Mar. 2007 – Mid-Nov. 2008
• Peak Month and Rate of Inflation: Mid-Nov. 2008, 7.96 billion percent^[66]

Examples of high inflation

Some countries experienced very high inflation, but did not reach hyperinflation, as defined as a monthly inflation rate of 50%.

Iraq

Between 1987 and 1995 the Iraqi Dinar went from an official value of 0.306 Dinars/USD (or $3.26 USD per dinar, though the black market rate is thought to have been substantially lower) to 3000 Dinars/USD due to government printing of 10s of trillions of dinars starting with a base of only 10s of billions. That equates to approximately 315% inflation per year averaged over that eight-year period.^[67]

Mexico

In spite of increased oil prices in the late 1970s (Mexico is a producer and exporter), Mexico defaulted on its external debt in 1982. As a result, the country suffered a severe case of capital flight and several years of hyperinflation and peso devaluation. On 1 January 1993, Mexico created a new currency, the nuevo peso ("new peso", or MXN), which chopped three zeros off the old peso, an inflation rate of 100,000% over the several years of the crisis. (One new peso was equal to 1,000 old MXP pesos).

Roman Egypt

In Roman Egypt, where the best documentation on pricing has survived, the price of a measure of wheat was 200 drachmae in 276 AD, and increased to more than 2,000,000 drachmae in 334 AD, roughly 1,000,000% inflation in a span of 58 years.^[68]

Although the price increased by a factor of 10,000 over 58 years, the annual rate of inflation was only 17.2% compounded.

Romania

Romania experienced high inflation in the 1990s. The highest denomination in 1990 was 100 lei and 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 lei was replaced by the new leu at 10,000 old lei = 1 new leu. Inflation in 2005 was 9%.^[69] In July 2005 the highest denomination became 500 lei (= 5,000,000 old lei).

United States

During the

, the monthly inflation rate reached a peak of 47 percent in November 1779 (Bernholz 2003: 48). These notes depreciated rapidly, giving rise to the expression "not worth a continental." One cause of the inflation was counterfeiting by the British, who ran a press on HMS Phoenix, moored in New York Harbour. The counterfeits were advertised and sold almost for the price of the paper they were printed on.^[70]

A second close encounter occurred during the

Vietnam

Vietnam went through a period of chaos and hyperinflation in the late 1980s, with inflation peaking at 774% in 1988, after the country's "price-wage-currency" reform package led by Mr Tran Phuong, then Deputy Prime Minister, had failed bitterly.[73] Hyperinflation also characterizes the early stage of economic renovation, usually referred to as Doi Moi, in Vietnam.

Most severe hyperinflations in world history

Highest monthly inflation rates in history[74][75]
Country	Currency name	Month with highest inflation rate	Highest monthly inflation rate	Equivalent daily inflation rate	Time required for prices to double
Hungary	Hungarian pengő	July 1946	4.19 × 1016 %	207.19%	15 hours
Zimbabwe	Zimbabwe dollar	November 2008	7.96 × 1010 %	98.01%	24.7 hours
Yugoslavia	Yugoslav dinar	January 1994	3.13 × 108 %	64.63%	1.4 days
Germany (Weimar Republic)	German Papiermark	October 1923	29,500%	20.87%	3.7 days
Greece	Greek drachma	October 1944	13,800%	17.84%	4.3 days

Units of inflation

is usually measured in percent per year. It can also be measured in percent per month or in price doubling time.

Example of inflation rates and units
When first bought, an item cost 1 currency unit. Later, the price rose...

Old price	New price 1 year later	New price 10 years later	New price 100 years later	(Annual) inflation [%]	Monthly inflation [%]	Price doubling time [years]	Zero add time [years]
1	1 .0001	1 .001	1 .01	0.01	0 .0008	6931	23028
1	1 .001	1 .01	1 .11	0.1	0 .00833	693	2300
1	1 .003	1 .03	1 .35	0.3	0 .0250	231	769
1	1 .01	1 .10	2 .70	1	0 .0830	69 .7	231
1	1 .03	1 .34	19 .2	3	0 .247	23 .4	77.9
1	1 .1	2 .59	13800	10	0 .797	7 .27	24.1
1	2	1024	1.27 × 1030	100	5 .95	1	3.32
1	10	1010	10100	900	21 .2	0 .301 (3⅔ months)	1
1	31	8.20 × 1014	1.37 × 10149	3000	32 .8	0 .202 (2½ months)	0.671 (8 months)
1	1012	10120	101,200	1014	900	0 .0251 (9 days)	0.0833 (1 month)
1	1.67 × 1073	1.69 × 10732	1.87 × 107,322	1.67 × 1075	1.26 × 108	0 .00411 (36 hours)	0.0137 (5 days)
1	1.05 × 102,637	1.69 × 1026,370	1.89 × 10263,702	1.05 × 102,639	5.65 × 10221	0 .000114 (1 hour)	0.000379 (3.3 hours)

${\displaystyle {\hbox{New price }}y{\hbox{ years later}}={\hbox{old price }}\times \left(1+{\frac {\hbox{inflation}}{100}}\right)^{y}}$

${\displaystyle {\hbox{Monthly inflation }}=100\times \left(\left(1+{\frac {\hbox{inflation}}{100}}\right)^{\frac {1}{12}}-1\right)}$

${\displaystyle {\hbox{Price doubling time}}={\frac {\log _{e}2}{\log _{e}\left(1+{\frac {\hbox{inflation}}{100}}\right)}}}$

${\displaystyle {\hbox{Years per added zero of the price }}={\frac {1}{\log _{10}\left(1+{\frac {\hbox{inflation}}{100}}\right)}}}$

Often, at redenominations, three zeroes are cut from the bills. It can be read from the table that if the (annual) inflation is for example 100%, it takes 3.32 years to produce one more zero on the price tags, or 3 × 3.32 = 9.96 years to produce three zeroes. Thus can one expect a redenomination to take place about 9.96 years after the currency was introduced.

See also

• Biflation
• Chronic inflation
• Gold as an investment
• Inflation accounting
• Inflationism
• List of economics topics
• Zero stroke

References

Further reading

• Peter Bernholz, Monetary Regimes and Inflation: History, Economic and Political Relationships. Cheltenham, England and Northampton, Mass.: Edward Elgar, 2003, Paperback 2006.
• Costantino Bresciani-Turroni, The Economics of Inflation (English transl.). Northampton, England: Augustus Kelly Publishers, 1937, https://mises.org/books/economicsofinflation.pdf 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.
• Steve H. Hanke, "Zimbabwe: From Hyperinflation to Growth." Development Policy Analysis No. 6. Washington, D.C.: Cato Institute, Center for Global Liberty and Prosperity. (June 25, 2008)
• Steve H. Hanke and Alex K. F. Kwok, "On the Measurement of Zimbabwe’s Hyperinflation." Cato Journal, Vol. 29, No. 2 (Spring/Summer 2009).
• Salemi, Michael K. (2008). "Hyperinflation". In
  OCLC 237794267. {{cite encyclopedia}}: |editor= has generic name (help
  )
• Wolfgang Chr. Fischer (Editor), "German Hyperinflation 1922/23 – A Law and Economics Approach", Eul Verlag, Köln, Germany 2010.
• Pierre Siklos (ed.), Great Inflations of the 20th Century: Theories, Policies and Evidence. Cheltenham, England and Northampton, Mass.: Edward Elgar, 1995.

External links

Wikimedia Commons has media related to Hyperinflation.

• San José State University: Episodes of hyperinflation
• Hanke Hyperinflation Index for Zimbabwe