Business

Hyperinflation – Reason Why Printing More Money Won’t Work

Aug 24 2021 By Anuska Gautam  
hyperinflation



hyperinflation
Source : shutterstock

To get wealthier, a country must produce and sell more goods. It might be anything from merchandise to services. This allows that government to create additional cash, allowing consumers to purchase those more items.

When a country tries to get wealthier by simply printing more currency, it fails because once everyone in the country has more money, prices rise immediately. This occurs when individuals require increasing amounts of money to purchase the same amount of products at an increased price.

This recently occurred in Zimbabwe, Africa, and Venezuela, South America, when these nations created additional money in order to boost their economies. Prices grew quicker as printing presses became faster, resulting in “hyperinflation” in certain nations. That’s when prices skyrocket by a factor of ten.

What is Hyperinflation?

hyperinflation
Source: Tender Capital

Hyperinflation is uncontrollable inflation in which the cost of goods and services grows at a rate of 1,000 percent or more per year. Hyperinflation can result from an excess of paper money without a matching increase in the production of goods and services. Some say the United States is on the verge of hyperinflation as a result of previous and potential future government stimulus.

Experts, on the other hand, do not believe that hyperinflation is likely. This is due to the fact that these countries can only produce their own currency, not dollars. If they publish a lot more, their prices will skyrocket, and consumers will cease spending their money.

People will instead trade commodities for other goods or pay in US dollars. That’s what occurred in Zimbabwe and Venezuela, as well as many other hyperinflation-stricken countries. Venezuela attempted to safeguard its citizens from hyperinflation by enacting legislation to maintain low prices on the necessities of life, such as food and medicine. However, this just meant that the stores and pharmacies were out of such items.

Here are some countries that faced the worst cases of hyperinflation in history:

Weimar Germany

Germany had one of the worst examples of hyperinflation in history. It caused 4.2 trillion German marks worth only one American dollar at one time.

hyperinflation
Source: Reddit

Germany experienced severe economic and political shocks in the aftermath of World Conflict I. This was mainly due to the conditions of the Treaty of Versailles, which concluded the war. The treaty compelled Germany to pay reparations to the winning countries through the Bank for International Settlements for the damage inflicted by the war. Unfortunately, the terms of these restitution payments made it very difficult for Germany to fulfill its responsibilities, and the country did not do so.

The Germans had no alternative but to swap their money for an acceptable “hard currency” at disadvantageous rates since they were unable to make payments with it. The rates deteriorated as they created more money to make up the shortfall, and hyperinflation rapidly set in. Hyperinflation in Weimar Germany reached over 30,000 percent each month at its peak, forcing prices to double every few days.

Hyperinflation in Hungary

In 1946, near the close of World War II, Hungary saw the greatest hyperinflation ever recorded. It was the outcome of a necessity to make reparations for a recently concluded war. According to economists, Hungary’s monthly inflation rate hit 41.9 quadrillion percent. Prices in Hungary quadrupled every 15 hours at this time.

The Hungarian currency’s inflation got out of control to the point where the government had to introduce a completely new currency for tax and postal payments. Due to huge swings, officials published the value of even that special-use money on a regular basis. The total value of all Hungarian banknotes in circulation was one-tenth of a US cent by August 1946.

GDP growth is a monetary illusion. You would have more money, but if everything is more costly, you are not better off. The issue is that printing money would result in inflation, lowering the value of money.

Zimbabwe

Zimbabwe is a more recent example of hyperinflation. Inflation spiraled out of control at an almost unthinkable rate from 2007 to 2009. It was caused by political upheavals that resulted in the seizure and redistribution of agricultural land, resulting in a flight of foreign money.

hyperinflation
Source: SlideShare

Simultaneously, Zimbabwe was hit by a severe drought, which, when combined with economic pressures, almost guaranteed a failing economy. Zimbabwe’s government tried printing more money to remedy the issues. But the nation rapidly plunged into hyperinflation, which peaked at 489 billion percent in September 2008.

In 2008, Zimbabwe experienced hyperinflation, with prices rising by as high as 231,000,000% in a single year. Consider how a candy that cost one Zimbabwe dollar before inflation would now cost 231 million Zimbabwean dollars a year later.

You might also like to read about Pink Tax: The Cost of Being a Female Buyer.

Share This Story

Related Posts