Inflation is the rise in prices, indicating the decline in purchasing power over time. This decline in purchasing power means that a unit of currency effectively buys less than it did in previous periods. Though it may have a negative impact on consumers, a small percentage of inflation is a natural outcome of price changes brought about by market forces and governmental policies. While the government has fiscal policies to keep inflation and deflation in check, there are rare times when inflation spirals out of control. Read along to learn about hyperinflation banknotes.
Hyperinflation is the rapid and unrestrained rise of inflation. It occurs when the price of goods and services rises more than 50% per month. There are two main causes: an increase in money supply and demand-pull inflation. Generally, central banks print and circulate more money to encourage banks to lend and consumers and businesses to borrow and spend. Doing this injects more money into the domestic economy and covers budget deficits. However, when there is too much money supply and not enough economic growth, it can result in hyperinflation.
Meanwhile, demand-pull inflation happens when demand surges and outgrows supply. According to the Law of Supply and Demand, prices increase when demand is greater than supply. When demand continues to rise and supply dwindles, prices continue to increase as well.
Hyperinflation can cause many adverse consequences. For example, hyperinflation motivates consumers to hoard goods and causes supply shortages. It also devalues the local currency in foreign exchange markets. Hyperinflation also causes a major economic collapse, with people switching to a barter economy and businesses and banks going bankrupt. One of the most common indicators of hyperinflation is banknotes with large denominations. Here are some examples:
The worst case of hyperinflation in history happened in Hungary from 1945 to 1946. The daily inflation rate was 207%, with prices doubling every 15 hours. After the devastation of the Second World War, Hungary was in shambles—half of its industrial capacity was destroyed and its infrastructure devastated. This reduced the productive capacity, limiting the supply. The government continued to print more money so that citizens had enough money in their hands. Inevitably, the pengo was devalued. The government introduced new currencies with every increasing denomination. The pengo was replaced by the Mpengo (million-pengo), then the Bpengo (billion-pengo), and the inflation-indexed adopengo. The pengo was replaced by the forint at a rate of 1 forint to 400,000 quadrillion pengo.
The largest denomination issued in Hungary was the 1 million b-pengo (1 million billion pengo). It was a green note that featured Lendvay Lucia and the denomination.
The worst case of hyperinflation in modern times happened in Zimbabwe from 2007 to 2008. The daily inflation rate reached 98%, with prices doubling every 24.7 hours. The hyperinflation in Zimbabwe was a consequence of bad land reform policies, the war in Congo, and poor economic policies. The government continued to print money even with its devaluation. Zimbabwe abandoned its own currency and adopted foreign currency to stabilize its economy.
One of the most well-known Zimbabwe dollar note is the 100 trillion dollar note. It is a blue note that features the Chiremba Rocks, a Cape buffalo, and Victoria Falls.