Famous Cases of Hyperinflation

The common perception amongst lay people is that hyperinflation is the economic equivalent of a doomsday. True, that the consequences are dire and the threats are real. But this sort of stuff almost never happens, does it? This is the opinion that the common public holds when they are confronted with the issue of hyperinflation.

However, if we consider facts, nothing could be further from the truth. In fact, hyperinflation has occurred over 50 times since the 1900’s. There has been a rapid rise in the incidence of hyperinflation in the past few decades. It is extremely likely that all of us may have heard about hyperinflation in the news. Here are some commonly mentioned cases of hyperinflation. The objective is to convince the reader that hyperinflation is far more common than it is believed to be!

French Revolution

One of the earliest examples of hyperinflation in modern history was seen in colonial France. In fact, it is believed to be one of the leading causes of the French revolution. The monarchy of France had run up a huge debt because of fighting multiple wars. Paying down this debt was next to impossible until some assets were sold. The French therefore created a land backed currency which they used to pay off the debt holders. The problem was that the French ended up creating far too many currency notes as compared to the land that they had on hand, therefore creating runaway hyperinflation as well as the French revolution in the process!

Pre-World War 2 Germany

The most notable example of hyperinflation is the pre World War 2 Germany. Germany was asked to pay heavy damages to its neighbors for the loss of World War-1. Since Germany did not have enough money in taxes to pay off these debt obligations, the German government started printing money to pay off the debt, resulting in hyperinflation. People lost the value of their savings and wages had to be paid daily, in gold!

The hyperinflation resulted in a complete breakdown of the monetary system as the German currency lost its value. There was rioting and break down of law and order. Adolf Hitler took advantage of the chaos caused and promised a stable monetary system to the people of Germany. This was one of the major reasons that he ended up in power. The pre World War-2 hyperinflation is perhaps the most famous example of hyperinflation. It is famous because it ended up propelling Adolf Hitler to power.

Zimbabwe

The Zimbabwean hyperinflation which happened in 2008 is also extremely famous and also a grim reminder of the havoc that hyperinflation can wreck on an unsuspecting population. In 2008, Robert Mungabe came to power in Zimbabwe. The international community was wary of his policies and refused to offer him more credit, while simultaneously calling in the old loans made! This created a situation where in the Zimbabwe government immediately required funds several time more than they had collected in taxes. Robert Mungabe decided to print the money and pay off the debts.

Also, since there was widespread discontent against Mungabe, he decided to double the wages of military officers in order to protect himself and have a strong hold on the military. Once again, the government did not have the money and the increased wages were paid by printing more money. All this newly created money rushed into the marketplace and ended up creating one of the worst known hyperinflations.

At its peak, Zimbabwe was suffering from a billion percent per year inflation! There was a complete breakdown of the law and order as well as the monetary system. The government was printing hundred trillion dollar currency notes! Finally wages had to be paid several times every day. In the short run, the system came back to the gold standard. However, at the present moment, the British pound sterling is being used as the medium of exchange post the hyperinflation.

South America

During the 1990’s multiple South American countries faces hyperinflation. This was caused because of the debt created by enacting populist policies. The IMF tried to impose austerity measures on the governments which many of them did not agree to. As a result they continued with their own monetary policies and were effectively shut out from the world debt markets. With no one to borrow the money from and populist policies which require huge payouts, many of these governments had to print the money required to pay off the obligations. This ended up causing massive hyperinflation.

Therefore hyperinflation has been quietly present all through the ages. The world is facing an even larger threat right now. This threat is being caused by the fact that for the first time in the history of the world, the entire world is on a fiat money system!


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Managerial Economics