Hyperinflation: when currency loses value by the hour

Every economy faces inflation - it is a natural process where prices for goods slowly increase. States and banks try to keep this process under control. But what happens when control is lost? When prices rise not by a few percent a year, but by dozens or hundreds of percent a month?

Economist Philip Keegan in his work identified the threshold at which ordinary inflation turns into a catastrophe. Hyperinflation begins when the prices of goods rise by more than 50% within one month. It sounds like pure mathematics, but in reality, it means the collapse of the economic system. In practice, such growth does not stop at this percentage - it accelerates exponentially.

How does it look in reality

Imagine a simple example: a bag of rice costs 10 dollars. After a month, its price has risen to 15 dollars. It seems like a small jump. But in the following month, the price is already 22.50 dollars. After six months, the bag costs 114 dollars, and after a year, it exceeds 1000 dollars.

In a state of true hyperinflation, the pace accelerates radically. Prices can change within an hour, or even within minutes. The purchasing power of citizens declines every day. People stop trusting the national currency, companies close their doors, unemployment rises, and the state budget collapses.

Historical Lessons: When This Has Happened Before

Germany: paper money as firewood for heating

After World War I, the Weimar Republic faced an unmanageable burden of debt. Germany borrowed huge sums for the war and then had to pay billions in reparations to the victors. The government made critical mistakes: it abandoned the gold standard, began printing money without limits, trying to buy foreign currency.

The result was catastrophic. The German mark depreciated so quickly that inflation rates sometimes exceeded 20% per day. The currency became cheaper than wood - some people simply burned money in stoves for heating. This was a symbol of the complete loss of trust in the monetary system.

Venezuela: the collapse of an oil state

Venezuela had everything for prosperity - vast oil reserves, a developed economy of the 20th century. But the oil surplus in the 1980s, combined with chronic corruption and mismanagement, triggered the mechanism of collapse.

Inflation began to slow down. In 2014 it was 69%, in 2015 it was already 181%. Then came true hyperinflation: 800% at the end of 2016, 4000% in 2017, and at the beginning of 2019 it reached over 2.6 million percent. The bolivar lost all its value.

In 2018, President Maduro announced a “renovation” of the currency - issuing a new sovereign bolivar at a rate of 1 to 100,000 old ones. But this was merely a cosmetic procedure. As economist Steve Hanke rightly stated, cutting zeros changes nothing without changes in economic policy. Venezuelans returned to searching for any stable values - including cryptocurrencies.

Zimbabwe: misguided reforms and economic disruption

After gaining independence in 1980, Zimbabwe had a stable economy. However, in 1991, President Mugabe launched the “Economic Structural Adjustment Program” (ESAP), which is considered the main reason for the subsequent collapse. Land reforms destroyed agricultural production, leading to famine and a social crisis.

The Zimbabwean dollar began to fall at the end of the 1990s, and true hyperinflation started in the 2000s. The rates were horrific: 624% in 2004, 1730% in 2006. In July 2008, the official figure reached 231 million percent. According to calculations by Professor Hanke, in November 2008 hyperinflation peaked at 89.7 sextillion percent - that is a 98% loss of value daily.

Zimbabwe became the first country of the 21st century to experience such a level of hyperinflation, and the second in history after Hungary in terms of the scale of the disaster. In 2008, the national currency was officially abandoned, replacing it with foreign money.

Cryptocurrencies as an Alternative

Against the backdrop of the collapse of traditional currencies, more and more people are turning their attention to Bitcoin and other cryptocurrencies. Unlike state money, cryptocurrencies are not controlled by centralized systems and governments.

Blockchain technology provides a key advantage: the issuance of new coins follows a predetermined schedule and cannot be altered by political decisions. Each unit is unique and protected from counterfeiting. This is why in countries with hyperinflation, such as Venezuela and Zimbabwe, the demand for cryptocurrencies is growing exponentially.

Some central banks (Sweden, Singapore, Canada, China, USA) are seriously exploring the possibilities of launching state digital currencies on the blockchain. However, most of these projects are unlikely to achieve what makes Bitcoin revolutionary - a fixed and limited supply.

Conclusion

Hyperinflation is not a random phenomenon - it is a logical result of critical mistakes in economic policy. Political upheavals, export crises, or loss of control over the money supply can pull the trigger very quickly.

The traditional response of governments - printing more money - only exacerbates the problem. But there is an interesting pattern: when people lose trust in the state currency, they seek alternatives. This could fundamentally change the global attitude towards money in the future.