Hyperinflation

Hyper inflation is a form of inflation, in which the price level increases very quickly. There is no universally accepted definition, but a common rule of thumb speaks of hyperinflation from a monthly inflation rate of 50 %, which corresponds to an annual rate equivalent to about 13.000 %. Simply put hyperinflation is an uncontrollable inflation with extremely high monthly rate. Many hyperinflations are relatively short and end in a currency reform.

General

Before the 20th century hyperinflations were rare, because the economies went through it exceeds a certain level of inflation to non-embossed precious metals as a substitute for money or barter. The proliferation of unmet money ( fiat money ) allowed hyperinflation. The cause of the ( hyper) inflation is always the State, since he has to constantly borrow to cover its expenses ( fulfillment of promise ) and ultimately undermines the confidence in their own currency.

While ordinary inflations are usually justified by economic causes, hyperinflation beyond are almost always associated with serious disturbances of the economy as a result of war, civil war or social upheaval. The Soviet hyperinflation from 1919 to 1922 had the goal of the abolition of money as means of payment.

Capital flight

As for inflation, it comes very quickly to investments in foreign currency. To stop the flight of capital associated with it, it comes up with hyperinflation to exchange control and massive foreign exchange constraint. Given the since the end of the 20th century possible worldwide cashless payments, however, such measures are only to a limited extent.

Flight to tangible assets

Hyperinflation leads in money investors into a " flight into real values" and to an extensive loss of all other investments such as Bonds denominated in the currency in question. This is a self-reinforcing process.

Tangible assets are primarily real estate and commodities, but also precious metals or stocks. The result is often a temporary shortage of cash, for example, the customers of a bank withdraw their savings.

Quantity equation of hyperinflation

One explanation for the rise in the general price level in the hyperinflation provides the quantity equation of Irving Fisher:

This formula can be transformed to:

Thus, the price level increases, therefore, inter alia,

• Proportional to the quantity of money ( such as when the central bank puts more money into circulation, circulation rate and number of transactions remain unchanged );
• Likewise proportional to the velocity of circulation, if the money supply and transaction number will remain unchanged;
• Also proportional to the reciprocal value of the transaction number (eg, in case of failure of the economic process by disasters, such as when suddenly the deliverability break away, but the demand remains, with money supply and velocity of circulation should be the same).

History

There are several historical episodes of hyperinflation with monthly inflation rates of over 50 percent. Examples are

Maximum monthly inflation rate of 32,400 % ( quadrupling of prices per week) - see German inflation 1914-1923

The highest ever inflation with a maximum monthly rate of 41.9 quintillion percent ( triple the price per day)

Even before the 20th century there were serious inflations: