A Historical Look at Hyperinflation

Hyperinflation is a debilitating economic phenomenon in which the money supply vastly exceeds economic output, leading to a collapse in the value of a national currency and igniting excessive inflation.

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A Historical Look at Hyperinflation

A Historical Look at Hyperinflation

The Wall Street Journal recently reported on hyperinflation and that Venezuela’s annual inflation rate ballooned to 833,000 percent in October, with the number of bolivars in circulation at 157 times more than just nine months earlier.1

Venezuela is only the most recent country in the last 100 years to experience hyperinflation, a debilitating economic phenomenon in which the money supply vastly exceeds economic output, leading to a collapse in the value of a national currency and igniting excessive inflation.

Recent Episodes of Hyperinflation

In a review of hyperinflation throughout history, the BBC ranked the five worst episodes:2

  1. Hungary 1946

Hungary’s inflation rate peaked in July 1946 at 41.9 quadrillion percent a month. Prices doubled every 15 hours. It required Hungarians to spend their pay immediately since morning wages brought back home in the evening lost 50 percent in value.

By August 1946, Hungary adopted a monetary stabilization program that included tax reform, recovery of gold assets from abroad and the introduction of a new currency, backed by gold and other international currencies.

  1. Zimbabwe 2008

Expropriation of properties owned by white landowners and a costly involvement in the Congo War in 1998, along with U.S. and European sanctions, caused a steady rise in prices over the years that followed. By November 2008, inflation had reached 79 billion percent a month, with prices doubling every 25 hours.

Zimbabwe ultimately abandoned its currency and began using the U.S. dollar and the South African rand.

  1. Yugoslavia

Yugoslavia was an ethnic amalgam created in the aftermath of WWI. A fractious population beset by economic and political crises led to civil wars. To fund its needs, the government began printing money; this, in combination with corruption, irresponsible spending and UN sanctions led to a 313 million percent monthly inflation rate in early 1994.

To restore confidence, a new currency was adopted, backed by gold and hard currency reserves.

  1. Germany 1923

The Weimer Republic may be the best known example of hyperinflation. The daily inflation rate was 21 percent, with prices doubling every 3 days and 17 hours. In October 1923, inflation peaked at 29,500 percent per month.

Germany found its solution through issuing a new currency backed by agricultural land.

  1. Greece 1944

Suffering the effects of Axis occupation in WWII, shortages of food, livestock and other raw materials—along with shrinking tax receipts—sent inflation to a peak of 13, 800 per month in November 1944.

After three attempts, Greece finally stabilized its currency through fiscal reform, loans and issuing a new currency.

History teaches us a steady and trusted currency is fundamental to a civil society and economic stability. Indeed, there may be no more important duty of government than to protect the integrity of the nation’s currency.

Sources:

  1. https://www.wsj.com/articles/venezuelas-inflation-rate-surges-higher-1541634089
  2. https://www.bbc.com/news/business-45523636

See referenced disclosure (2) (3) at http://blog.americanportfolios.com/disclosures/ 

About The Author

Cliff Walsh, CFA

 

Vice President of Asset Management 
631.439.4600 ext. 277 

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