In this article, We learn about “Hyperinflation “.Let’s Go!
Hyperinflation is a situation in which price levels rise rapidly as a country’s currency depreciates.
In other words, hyperinflation is extremely rapid inflation.
This often occurs when the money supply increases significantly and gross domestic product (GDP) growth cannot support it, resulting in an imbalance between money supply and demand.
Economists often use this term to refer to monthly inflation exceeding 50%.
As the money supply increases, the demand for money decreases. In fact, hyperinflation often results in a rapid decline in the value of a currency.
Hyperinflation not only makes money worthless, it also destroys the economy.
For example, Venezuela began experiencing hyperinflation in 2016, after which the country’s economy collapsed.
During the financial crisis, Zimbabwe had its second-highest rate of hyperinflation in history. In November 2008, the country’s inflation rate reached an insane 79,600,000,000% (daily inflation rate is 98%).
What is the cause of hyperinflation?
Hyperinflation usually occurs when the money supply increases significantly and is not supported by economic growth. Simply put, it is caused by a sharp increase in the amount of money in the economy.
An increase in the money supply is usually caused by the government printing more money into the domestic economy. As more money is in circulation, prices rise.
What are the effects of hyperinflation?
Hyperinflation rapidly devalues local currencies as the prices of goods and services rise as the money supply increases.
This situation actually tends to cause holders of local currency to reduce their holdings and switch to more stable foreign currencies.
To avoid paying higher prices tomorrow due to hyperinflation, individuals often start hoarding durable goods such as equipment, machinery, jewelry, etc.
In a case of prolonged hyperinflation, individuals will start hoarding perishable goods.
However, this approach creates a vicious cycle.
As prices rise, people hoard more goods, which creates higher demand for goods and prices rise further.
If hyperinflation continues unabated, it will almost always eventually lead to a major economic collapse.
Severe hyperinflation will cause the domestic economy to shift to a barter economy, which will have a significant impact on business confidence.
For example, Zimbabwe’s unemployment rate exceeds 70%, economic activities have been suspended, and the domestic economy has turned into a barter economy.
It would also disrupt the financial system because banks would be reluctant to lend.
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