Problem

Hyperinflation

Other Names:
Very high rates of inflation
Nature:

The effects of hyperinflation extend far beyond the economic field and affect all aspects of society. Over and above the economic consequences of daily devaluation (financial speculation, a chronic disease in productive investments and a systematic deterioration of real wages), constant inflation, with annual rates of three or even four digits, erodes a people's faith in their country, and gives rise to deep uncertainty about the future. This acute deterioration in confidence, along with a sense of uncertainty and scepticism create a phenomenon which is difficult to reverse and an environment where innovative alternatives capable of overcoming an inflationary crisis are almost impossible to generate.

Incidence:

In recent years, countries such as Brazil, Argentina, Bolivia and Peru have been devastated psychologically and socially by a currency in which their users have little confidence. By one estimate prices increased in Brazil from 1989 to 1993 by 10 million percent, with the figure for 1993 estimated at 2,500%. In 1993 as a result of sanctions and the wider Yugoslav conflicts, Serbia experienced price doubling every week forcing the authorities to issue a 500 million dinar note which on release was worth approximately $7. In July 1993, the inflation rate in Serbia jumped 48% in one day (2% per hour). Some statistical experts estimated that if Serbian inflation rates continued in the same manner, they would amount to an annual increase of 1,000 million percent. Ten packets of cigarettes or 1kg of coffee was worth the average Serbian monthly salary in 1993. From June to July that year, bus fares rose 500%. Enormous inflation rates have forced conversion of the Serbian dinar into German marks, although the dinar remains the official currency. The average Serbian pension in 1993 was 3 German marks, which left many elderly people searching through trash cans and unable to buy even 1 kg of meat (£4). By July 1993, an estimated 97% of people in Serbia were living below the poverty level, while the remaining 3% were rich enough to take several vacations that year. A mid 1993 report found that inflation had increased in the Ukraine by 3,000% over the previous year. In 1992 Poland released a 2 million zloty note; in Zaire in 1993 a 5 million zaire note was issued. After World War II, Hungary issued notes with a face value of 1,000 million million million pengoes. In Ukraine in 1993 inflation was 100% per month.

Claim:

Inflation might be easier, not harder, to stop once it has become hyperinflation. It can collapse all at once under its own weight. When economy hits rock-bottom, it is also more likely that the popular will to do something will appear.

 

Narrower Problems:
Shortage of banknotes
Problem Type:
D: Detailed problems
Subject(s):
Finance
Economics
Date of last update
20.06.2018 – 09:51 CEST