Hyperinflationary episodes have appeared several times over the past century — 55, to be exact — as the world’s nations have experimented with fiat currencies backed by the full faith and credit of the governments that issue them.
At times, that full faith and credit has been misplaced — and holders of unstable currencies have been caught empty-handed in countries all over the world.
Often, this is can be a recurring theme among developing nations like those in Latin America during the debt crisis that struck the region in the 1980s.
Even some of the largest economies in the world today, though — like China, Germany, and France — have suffered devastating hyperinflationary episodes.
A major historical precursor of hyperinflation is war that destroys the capital stock of an economy and dramatically reduces output — but the misplaced monetary and fiscal policies that ensue are almost always part of the story.
Economists Steve Hanke and Nicholas Krus compiled data on all 56 recorded hyperinflations in a 2012 study. We summarize 9 of the worst episodes here.
Daily inflation rate: 65 per cent
Prices doubled every: 34 hours
Story: The fall of the Soviet Union led to a decreased international role for Yugoslavia -- formerly a key geopolitical player connecting East and West -- and its ruling Communist party eventually came under the same pressure as the Soviets did. This led to a breakup of Yugoslavia into several countries along ethnic lines and subsequent wars over the following years as the newly-formed political entities sorted out their independence.
In the process, trade among regions of the former Yugoslavia collapsed, and industrial output followed. At the same time, an international embargo was placed on Yugoslavian exports, which further crushed output.
Petrovic, Bogetic, and Vujosevic (1998) explain that the newly-formed Federal Republic of Yugoslavia, in contrast with other states that broke away like Serbia and Croatia, retained much of the bloated bureaucracy that existed before the split, contributing to the federal deficit. In an attempt to monetise this and other deficits, the central bank lost control of money creation and caused hyperinflation.
Daily inflation rate: 14 per cent
Prices doubled every: 5 days, 8 hours
Story: After World War Two, China was divided by civil war. Nationalists and Communists battled for control of the country and introduced competing currencies in the process, leaving China's monetary system fragmented among 10 major mediums of exchange in 1948.
Currency took center stage at times during the conflict -- Campbell and Tullock (1954) explained that the three governments (including the Japanese occupiers) engaged in 'monetary warfare' by attempting to undermine opposing currencies in various ways.
To fund the conflict, the Nationalists resorted to running huge budget deficits, which they eventually looked to cover by printing money, leading to runaway hyperinflation. (this was preceded by abandonment of the silver standard in China in 1935). They even got the Taiwanese central bank involved with the monetization scheme, which caused hyperinflation in Taiwan as well.
Sources: Hanke and Crus (2012), Fergusson (1975)
Daily inflation rate: 5 per cent
Prices doubled every: 13 days, 2 hours
Story: Peru had a long battle with inflation in the latter half of the 20th century. During the first half of the 1980s, Fernando Belaunde Terry was president, and Peru was faced with austerity policies imposed by IMF lenders following the Latin American financial crisis that began early in the decade.
Economist Thayer Watkins says the Belaunde Terry administration gave the appearance that it was complying with the reforms recommended by the IMF, when in reality, it was not. The economy was suffering stagflation at the time, and it was blamed on IMF austerity policies by the electorate, even though those policies weren't actually being followed.
This led to the election of Alan Garcia in 1985 as president. Garcia enacted populist economic reforms that only served to weaken the economy and shut Peru out of international credit markets. Faced with a lack of access to credit and deteriorating economic conditions, sustained high inflation became hyperinflation in Peru.
Daily inflation rate: 5 per cent
Prices doubled every: 15 days, 2 hours
Story: The French Revolution (1789-1799) came after a period in which France had run up substantial debts from fighting wars, including the war for U.S. independence from Great Britain.
One of the major economic policies of the French Revolution was the nationalization of land formerly owned by the Catholic Church. The Church was seen as an easy target for asset expropriation because they owned a lot of land yet had relatively little political influence in the new regime.
The government then issued assignats to the public -- notes that essentially amounted to a land-backed currency -- which were supposed to be redeemable for the land by note-holders at a future date. However, the government ended up issuing way too many notes in an attempt to close the deficit, devaluing the assignats and leading to runaway hyperinflation.
Sources: Hanke and Crus (2012), White (1995)
Daily inflation rate: 4 per cent
Prices doubled every: 16 days, 10 hours
Story: In 1979, Nicaragua underwent a revolution that found the communist Sandinistas in power. This came against the backdrop of a global recession and a financial crisis across much of Latin America sparked by record high debt levels and the inability by nations to service those debts.
The Nicaraguan economy was ravaged by the revolution -- GDP contracted by 34 per cent cumulatively during 1978-1979. When the Sandinistas took power, they nationalized large parts of the economy, further contributing to the economic turmoil and hindering a robust recovery.
In the face of this, the Nicaraguan government turned to expansionary fiscal policy and foreign borrowing to stimulate domestic demand. This spending accelerated in the latter half of the decade to finance a war with the opposing Contras. While strong capital controls and a fixed exchange rate kept inflation at bay initially, 1985 economic reform moving away from such policies unleashed the suppressed inflation in the Nicaraguan economy.
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