When you hear the word ‘Hyperinflation’ you probably think about that history lesson you had in school, the one about Germany between the wars where a wheelbarrow full of cash was needed to buy a loaf of bread. The one that included The Wall Street Crash and brownshirt Nazi thugs beating people up in the streets.
Hyperinflation though isn’t a long-dead historical phenomenon.
Right now Venezuela is being decimated by hyperinflation and Zimbabwe has had to abandon its currency altogether due to its catastrophic effects!
So what exactly is Hyperinflation?
According to the Cambridge Dictionary, hyperinflation is :
“a condition where the price of everything in a national economy goes out of control and increases very quickly”
It is commonly accepted that hyperinflation occurs when the rate of inflation grows by over 50% a month or by 1000% a year.
It often occurs in countries where there is a lack of political and economic instability as well as global turmoil.
Key periods of pronounced hyperinflation in more than one country include post-WW2 Europe, during the late 80’s South America and during the aftermath of the collapse of the USSR in Central Asia and Eastern Europe.
What is the worst hyperinflation on record?
The worst recorded case of hyperinflation was not in fact interwar Germany but actually, post-war Hungary where its currency, the Pengő experienced the worst case of hyperinflation ever recorded.
For context, Hungary was decimated by World War Two, its economy and government collapsed and it was occupied by the Soviet Union.
Between VE Day and the replacement of the Pengő, it experienced a monthly inflation rate of 13,600,000,000,000,000%.
At one point in the crisis, the Hungarian government were forced to issue a 100,000,000,000,000,000,000 (One Hundred Quintillion) Pengő banknote!
In July 1946 the Pengő was finally replaced by the Forint, the same currency Hungary uses today.
The collapse of the Venezuelan Bolivar
For many people, the only things they know about Venezuela are that it’s in South America and that things are really not going well there.
Venezuela has always historically struggled with inflation (as have many other nations in South America) however in the last decade, they’ve moved from problem to overwhelming national crisis.
Right now a loaf of bread can cost 1,000,000 bolivars! And that comes after a gigantic devaluation just last year.
So how did they get into this position?
The Venezuelan economy is massively reliant on oil, virtually all of their exports are centred in this notably volatile industry. Its GDP is also fundamentally linked to the sector.
Unlike other ‘Petrostates,’ the oil industry is pretty much fully nationalised in Venezuela. This means that the government controls almost every aspect of the industry.
In the past, Venezuela benefited from nationalisation, the huge profits the country made from high oil prices went straight into the national treasury (rather than the pockets of oil execs).
However, over time a combination of lack of investment in the sector, increasing inefficiencies and a collapse in the price of oil created the perfect economic storm.
As the economy faltered, democracy crumbled as the Government became ever more authoritarian. People fled, unemployment rose, oil output fell and a vicious never-ending cycle was established. The currency has been devalued twice in the last few years.
There is virtually no foreign investment and no road forward at the moment, especially given the push towards renewable energy rather than oil. (For example, Saudi Arabia, another Petrostate, is actively diversifying its economy so that it can survive in a post-fossil fuel world.)
Hyperinflation in Venezuela has caused a humanitarian crisis, basic provisions like bread and medicine are increasingly unavailable. Despite nominal efforts by the Government such as launching its own crypto-currency, little is working and the future looks bleak for this country of nearly 30 million people.
The disappearance of the Zimbabwean Dollar
Thankfully for the Zimbabwean people, the currency crisis that has been engulfing the nation since the mid-2000s seems to finally be coming to an end.
Hyperinflation in Zimbabwe started less than 15 years ago.
At one point in 2009, the Reserve Bank of Zimbabwe actually printed a 100,000,000,000,000 (100 trillion) banknote which people actually used to pay for things. Although note for long, pretty much as soon as it went into circulation it didn’t even cover the cost of a loaf of bread.
The crisis has its roots in the policies of Robert Mugabe.
Mugabe’s regime oversaw a wholesale collapse in agricultural output (one of Zimbabwe’s main exports) and chronic corruption. As his rule went on, the economy and value of the currency continued to decline.
Year on year food production declined, increasing the price locally for ordinary Zimbabweans in an almost exponential fashion.
As confidence collapsed, the regime made the error repeated throughout history of simply printing more money in ever higher denominations to keep up with prices.
At its peak, it cost trillions to just buy a loaf of bread.
The government undertook a number of devaluations and even replaced the currency, all to no avail.
Today there is no national Zimbabwean currency in circulation, transactions are now almost always carried out in foreign currencies like US Dollars and Euros. Even Civil Servants are now regularly paid in these foreign currencies.
Other countries teetering on the brink of Hyperinflation?
Whilst not formally in a period of Hyperinflation, there are a handful of currencies that are experiencing very high inflation.
Sudan, Lebanon and Syria all have annual inflation rates over 100%. They are also countries that are in the grips of economic, political and humanitarian crises.
The worst case is Sudan, saw its currency the Sudanese Pound collapse in value at the beginning of last year.
£1 in Jan 2021 was worth 71 Sudanese pounds. Today it’s worth nearly 600 Sudanese pounds. It now costs an average family several hundred thousand Sudanese pounds a month to survive.
Other countries have high levels of inflation, some in the 50%+ annual figures but it’s worth remembering, hyperinflation technically only occurs if the currency has an inflation rate of 1000% a year!