Weird Money Facts: 5 True Cases of Unbelievable Inflation

by Paul Michael on 15 May 2014 0 comments

Inflation. It's a simple enough concept to grasp, although the economics behind it can be way more complex. Basically, inflation is a continual increase in the prices of goods and services. What was $1 last year could be $1.07 this year and $1.14 the year after that. This results in decreased buying power for consumers, especially if wages do not keep up with inflation.

But when hyperinflation occurs, all hell breaks loose. Whereas inflation is gradual, and hopefully not very noticeable, hyperinflation is a rapid increase in the cost of goods and services over very short periods of time. This can often happen during times of war, sociopolitical upheavals, or other government crises. There are books dedicated to this subject, but the net result is that money starts getting printed rapidly, in higher and higher denominations, and the value of the smaller currencies become worthless. When you're paying $1,000,000 for an apple, you can't buy much for a $1 any more. (See also: Saving Rates Below Inflation? Save Anyway)

There have been many cases of hyperinflation over the years. Here, we look at five of the worst. And in case you're thinking this is ancient history, one of the biggest occurred within the last decade.

1946 Hungary

Imagine the prices of everything doubling overnight. That would be tough. Now, imagine that happening day after day, week after week. That's what happened in Hungary in 1946, by far the worst case of hyperinflation on record, when the highest monthly inflation topped out at 13,600,000,000,000,000%!

That's a daily inflation rate of 195%.

Prices doubled every 15.6 hours, and suddenly people were paying for their groceries with 100,000,000,000,000,000,000 pengő bills (that's one hundred quintillion, if you're counting). People were carrying money around in suitcases, and banknotes were often stamped with new denominations as new money could not be printed quickly enough. When the pengő was replaced by a new currency — the forint — in August of 1946, all of the Hungarian banknotes in circulation equated to 1/1,000 of a US dollar, and four hundred octillion pengő became just one forint.

1923 Germany

In the middle of August 1921, during the final years of the Weimar republic, Germany began purchasing foreign currency with Marks at any price. This, obviously, had the knock-on effect of devaluing the currency.

When Germany had to pay for war reparations demanded by the Treaty of Versailles, things really started to go off the rails. Inflation hit a high of 29,500% per month, with prices doubling every 3.7 days. To put this in perspective, the papiermark was exchanging at a rate of 4.2 per US dollar in 1914. By August 1923, it was 1 million papiermark per US dollar, and two months later, it was 238 million papiermark to one US dollar! A special medal exists that recognizes this insanity, reading "On November 1923, 1 pound of bread cost 3 billion; 1 pound of meat: 36 billion; 1 glass of beer: 4 billion." A typical grocery shopping trip could cost a family trillions of paipermarks, and the smaller notes were so worthless they were used as wallpaper.

1994 Yugoslavia

Once again, regional conflicts and government mismanagement were responsible for this case of hyperinflation.

A massive inequity between supply and demand, and the government's solution to print money ad nauseam, led to the complete collapse of the Yugoslavian dinar. The highest monthly inflation reached 313,000,000%, the equivalent of 65% per day, with prices doubling every 1.4 days. In fact, between 1993-1995, it is estimated that prices increased approximately 5 quadrillion percent. Revaluations of the dinar happened five times, with one million dinars becoming one new dinar, and one new new dinar then becoming 1 billion old new dinars, and so on! Confusing isn't even close. One huge side effect of this was that residents stopped paying bills. After all, why pay a bill today, when next week that bill will have been devalued by a factor of a thousand?!

2008 Zimbabwe

Just six years ago, Zimbabwe was in a financial meltdown of historic proportions. It could all be traced back to the failed policies of President Robert Mugabe, whose land redistribution programs crippled the country's ability to produce food. And when demand vastly outstrips supply, prices quickly begin to skyrocket.

With massive loans to pay, Zimbabwe started printing money like it was going out of fashion (which it was about to), putting 21 trillion ZWD (Zimbabwean Dollars) into circulation to pay off IMF loans. In a few years, it printed another 60 trillion ZWD to pay the salaries of soldiers and government workers. The effects were devastating to the economy. In one month, inflation hit almost 80,000,000,000%, with prices doubling every 24 hours. A loaf of bread cost $35 million ZWD. And by April of 2008, the $50 million ZWD note was worth a little over one US dollar. They were printing so much money, they ran out of paper. The country was full of trillionaires and almost all of them were struggling to survive.

1944 Greece

You may have heard of the financial woes of Greece today, but they're nothing compared to 1944.

Greece incurred a great deal of debt during World War II, and was occupied by the Axis powers for much of that time. In fact, in just one year Greece went from a budget surplus of 271 million drachma in 1939, to a deficit of 790 million drachma in 1940. And it only got worse. Tragically, the expectation of future inflation, and the government paying debts in gold francs, caused the general public to lose faith in the drachma. The government's limited ability to collect taxes snowballed, and in record time the drachma was almost worthless. In 1942, the highest denomination of currency was the 50,000 drachma note. Just two years later, it was the 100 trillion drachma note. Fortunately, by 1947, after the creation of a Currency Committee, prices had stabilized, the currency had been revalued, and Greece had dug its way out of a horrific cycle of financial destruction.

Can you recall any examples of devastating inflation? Please share in comments!

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