Hyperinflation
What is hyperinflation?
Hyperinflation - a sharp increase in prices and the volume of money supply in free circulation, which leads to a depreciation of the national currency.
Unlike the standard InflationThe increase in cash in circulation can be many times larger. According to some sources, a 10-fold increase is enough to state hyperinflationOthers say there should be an increase of 50% per month.
The consequences of hyperinflation are an economic recession, an increase in demand for real goods such as real estate, gold bullion and the like. It becomes almost impossible to manage the situation in this case.
When does inflation turn into hyperinflation?
From the point of view of experts in the field of economics, a rise in the price level can be called hyperinflation, if the cost of the consumer basket increases by more than 50% per month, and such a rise in price in the country lasts for more than 3 months. That is, in literally 2-3 months money depreciates several times.
Why does hyperinflation occur?
This phenomenon is caused by the issuance of large amounts of money (emission). The government decides to run the printing press, demand exceeds supply many times over, but people do not feel any increase in income.
So why do situations arise when you have to turn on the printing press at full power?
A country's budget is made up of revenues and expenditures planned for a certain period. The budget mainly receives revenues:
- from the taxes paid by businesses, companies, and ordinary citizens;
- from the activities of banks and other financial institutions;
- sales of goods and raw materials to other countries.
However, these are not all sources of funding for the budget.
At the time of budget planning, there is no money in the treasury for the entire year. Economists only forecast their receipts. And if something goes wrong, and revenues are less than planned, it becomes impossible to provide funding in the planned amount. In this case, we have to look for funds to make up the budget deficit, and this problem is often solved by emission.
Here are the most striking examples of the country's budget replenishment through the printing press, which leads to hyperinflation:
- Falling export prices
When planning the budget, the cost of goods and raw materials, which is set at the time of writing, is taken into account. The volume of sales is also projected. And if for some reason the price of raw materials or goods starts to fall drastically or sales volume decreases, there will not be enough money in the budget.
- Military actions
The state spends huge sums on arming and maintaining the army. But it is impossible to plan these expenditures in the budget, because, as a rule, no one waits for the outbreak of war. Sometimes all the budgeted funds are not enough to conduct military operations, and then the money is simply printed in huge quantities.
- Business churn
The shutdown of large companies leads to a reduction in taxes paid to the budget. When it comes to small firms, their collapse may not affect the national economy, but the departure of huge companies can lead to hyperinflation.
What are the consequences of hyperinflation?
Hyperinflation leads to a general decline in production, a depreciation of savings, and a complete collapse of the financial system in a country. In addition, hyperinflation affects the financial situation of citizens. With the same amount of wages a person can buy several times less goods and services. Many companies go bankrupt, which leads to unemployment. As a result, the number of poor people increases, they have to buy only basic necessities to survive in this situation. And the longer hyperinflation lasts, the more serious the consequences.
Examples of hyperinflation
Many countries in the twentieth century experienced hyperinflation. The most record-breaking examples of this phenomenon in the history of the world economy are:
- Zimbabwe, early twenty-first century. The amount of inflation was 230,000,000 % per year.
- Hungary, 1946. The amount of inflation was 42 quadrillion percent.
- Yugoslavia, end of 1993. The amount of inflation was 5 quadrillion percent.
The most striking example of hyperinflation is considered to be in Zimbabwe - in 2008, food prices rose at a record rate of one and a half times an hour.