Editing Hyperinflation (section)

==Effects==
[[File:Bundesarchiv Bild 102-00104, Inflation, Tapezieren mit Geldscheinen.jpg|right|thumb|[[inflation in the Weimar Republic|Germany, 1923]]: banknotes had lost so much value that they were used as wallpaper.]]

Hyperinflation increases market prices, wipes out the purchasing power of private and public savings, distorts the economy in favor of the hoarding of real assets, causes the monetary base (whether [[money|specie]] or hard currency) to flee the country, and makes the afflicted area anathema to investment.

One of the most important characteristics of hyperinflation is the accelerating substitution of the inflating money by stable money—gold and silver in former times, then relatively stable foreign currencies after the breakdown of the gold or silver standards ([[Thiers' law]]<!--Do not also link to Thiers' article. He is off topic here. Interested readers can follow the link chain.-->). If inflation is high enough, government regulations like heavy penalties and fines, often combined with exchange controls, cannot prevent this currency substitution. As a consequence, the inflating currency is usually heavily undervalued compared to stable foreign money in terms of purchasing power parity. So foreigners can live cheaply and buy at low prices in the countries hit by high inflation. It follows that governments that do not succeed in engineering a successful currency reform in time must finally legalize the stable foreign currencies (or, formerly, gold and silver) that threaten to fully substitute the inflating money. Otherwise, their tax revenues, including the inflation tax, will approach zero.<ref name="Bernholz, Peter 2003">Bernholz, Peter 2003</ref> The last episode of hyperinflation in which this process could be observed was in [[Zimbabwe]] in the first decade of the 21st century. In this case, the local money was mainly driven out by the US dollar and the South African rand.

Enactment of price controls to prevent discounting the value of [[paper money]] relative to gold, silver, [[hard currency]], or other commodities fail to force acceptance of a paper money that lacks intrinsic value. If the entity responsible for printing a currency promotes excessive money printing, with other factors contributing a reinforcing effect, hyperinflation usually continues. Hyperinflation is generally associated with paper money, which can easily be used to increase the money supply: add more zeros to the plates and print, or even stamp old notes with new numbers.<ref>{{cite web |url=https://blogs.wsj.com/marketbeat/2008/03/06/jefferson-county-memories/ |title=Jefferson County Miracles |department=Marketbeat |archive-url=https://web.archive.org/web/20180119120102/https://blogs.wsj.com/marketbeat/2008/03/06/jefferson-county-memories/ |archive-date=19 January 2018 |work=The Wall Street Journal |date=6 March 2008}}</ref>

Much attention on hyperinflation centers on the effect on savers whose investments become worthless. Interest rate changes often cannot keep up with hyperinflation or even high inflation, certainly with contractually fixed interest rates. For example, in the 1970s in the United Kingdom inflation reached 25% per annum, yet interest rates did not rise above 15%—and then only briefly—and many fixed interest rate loans existed. Contractually, there is often no bar to a debtor clearing his long term debt with "hyperinflated cash", nor could a lender simply somehow suspend the loan. Contractual "early redemption penalties" were (and still are) often based on a penalty of ''n'' months of interest/payment; again no real bar to paying off what had been a large loan. In interwar Germany, for example, much private and corporate debt was effectively wiped out—certainly for those holding fixed interest rate loans.

As more and more money is provided, interest rates decline towards zero. Realizing that fiat money is losing value, investors will try to place money in assets such as real estate, stocks, even art; as these appear to represent "real" value. Asset prices are thus becoming inflated. This potentially spiraling process will ultimately lead to the collapse of the monetary system. The Cantillon effect<ref>{{Cite web|url=https://azizonomics.com/2012/08/07/the-cantillon-effect/|title=The Cantillon Effect|first=John|last=Aziz|website=azizonomics |archive-url=https://web.archive.org/web/20230917171230/https://azizonomics.com/2012/08/07/the-cantillon-effect/|archive-date=2023-09-17|date=7 August 2012|url-access=subscription}}</ref>{{self-published inline|certain=y|date=June 2024}} says that those institutions that receive the new money first are the beneficiaries of the policy.

===Aftermath===
Hyperinflation is ended by drastic remedies, such as imposing the [[shock therapy (economics)|shock therapy]] of slashing government expenditures or altering the currency basis. One form this may take is [[dollarization]], the use of a foreign currency (not necessarily the [[United States dollar|U.S. dollar]]) as a national unit of currency. An example was dollarization in Ecuador, initiated in September 2000 in response to a 75% loss of value of the [[Ecuadorian sucre]] in early 2000. Usually the "dollarization" takes place in spite of all efforts of the government to prevent it by exchange controls, heavy fines and penalties. The government has thus to try to engineer a successful currency reform stabilizing the value of the money. If it does not succeed with this reform the substitution of the inflating by stable money goes on. Thus it is not surprising that there have been at least seven historical cases in which the good (foreign) money did fully drive out the use of the inflating currency. In the end, the government had to legalize the former, for otherwise its revenues would have fallen to zero.<ref name="Bernholz, Peter 2003"/>

Hyperinflation has always been a traumatic experience for the people who suffer it, and the next political regime almost always enacts policies to try to prevent its recurrence. Often this means making the central bank very aggressive about maintaining price stability, as was the case with the German [[Bundesbank]], or moving to some hard basis of currency, such as a [[currency board]]. Many governments have enacted extremely stiff [[wage and price controls]] in the wake of hyperinflation, but this does not prevent further inflation of the money supply by the [[central bank]], and always leads to widespread shortages of consumer goods if the controls are rigidly enforced.

===Currency===
[[File:HUP 100MB 1946 obverse.jpg|thumb|100 million trillion pengő (100 quintillion pengő) banknote from the period of postwar hyperinflation in Hungary in 1946, the largest denomination banknote ever officially issued for circulation]]
[[File:HUP 1000MB 1946 obverse.jpg|thumb|1 {{Not a typo|milliard}} b.-pengő (1 sextillion pengő) banknote, printed but never issued]]
In countries experiencing hyperinflation, the [[central bank]] often prints money in larger and larger denominations as the smaller denomination notes become worthless. This can result in the production of unusually large denominations of [[banknote]]s, including those denominated in amounts of 1,000,000,000 (10{{sup|9}}, 1 billion) or more.
* By late 1923, the [[Weimar Republic]] of Germany was issuing two-trillion mark banknotes and postage stamps with a face value of fifty billion marks. The highest value banknote issued by the Weimar government's Reichsbank had a face value of 100 trillion marks (10{{sup|14}}; 100,000,000,000,000; 100 million million).<ref>1 billion in the German long scale = 1000 milliard = 1 trillion US scale.</ref><ref>{{Cite web |url=http://www.sammler.com/coins/inflation.htm |title=Values of the most important German Banknotes of the Inflation Period from 1920 – 1923 |access-date=3 May 2004 |archive-url=https://web.archive.org/web/20040413214534/http://sammler.com/COINS/inflation.htm |archive-date=13 April 2004 |url-status=live }}</ref> At the height of the inflation, one US dollar was worth 4 trillion German marks. One of the firms printing these notes submitted an invoice for the work to the Reichsbank for 32,776,899,763,734,490,417.05 (3.28 × 10{{sup|19}}, roughly 33 [[quintillion]]) marks.<ref>{{cite book |title=The Penniless Billionaires |first=Max |last=Shapiro |publisher=New York Times Book Co. |year=1980 |page=203 |isbn=0-8129-0923-2 |quote=Of course, one must not forget the 5 pfennig!}}</ref>
* The largest denomination banknote ever officially issued for circulation was in 1946 by the [[Hungarian National Bank]] for the amount of 100 quintillion [[pengő]] (10{{sup|20}}; 100,000,000,000,000,000,000; 100 million million million). (A banknote worth 10 times as much, 10{{sup|21}} (1 [[sextillion]]) pengő, was printed but not issued.) The banknotes did not show the numbers in full: "hundred million b.-pengő" ("hundred million trillion pengő") and "one milliard b.-pengő" were spelled out instead. This makes the 100,000,000,000,000 [[Zimbabwean dollar]] banknotes the note with the greatest number of zeros shown.
* The Post-World War II hyperinflation of Hungary held the record for the most extreme monthly inflation rate ever – 41.9 quadrillion percent ({{val|4.19|e=16}}%; 41,900,000,000,000,000%) for July 1946, amounting to prices doubling every 15.3 hours. By comparison, on 14 November 2008, Zimbabwe's annual inflation rate was estimated to be 89.7 [[sextillion]] (10{{sup|21}}) percent.<ref name="cato">{{cite web |url=http://www.cato.org/zimbabwe |title=New Hyperinflation Index (HHIZ) Puts Zimbabwe Inflation at 89.7 sextillion percent |last=Hanke |first=Steve H. |publisher=[[Cato Institute]] |date=17 November 2008 |access-date=17 November 2008 |archive-url=https://web.archive.org/web/20081113221554/http://www.cato.org/zimbabwe |archive-date=13 November 2008 |url-status=live }}</ref> The highest monthly inflation rate of that period was 79.6 billion percent ({{val|7.96|e=10}}%; 79,600,000,000%), and a doubling time of 24.7 hours.

One way to avoid the use of large numbers is by declaring a new unit of currency. (As an example, instead of 10,000,000,000 dollars, a central bank might set 1 new dollar = 1,000,000,000 old dollars, so the new note would read "10 new dollars".) One example of this is Turkey's revaluation of the lira on 1 January 2005, when the old [[Turkish lira]] (TRL) was converted to the [[new Turkish lira]] (TRY) at a rate of 1,000,000 old to 1 new lira. While this does not lessen the actual value of a currency, it is called [[redenomination]] or [[revaluation]] and also occasionally happens in countries with lower inflation rates. During hyperinflation, currency inflation happens so quickly that bills reach large numbers before revaluation.

Governments may try to disguise the true rate of inflation through a variety of techniques. If these actions do not address the root causes of inflation they may undermine trust in the currency, causing further increases in inflation. [[Price controls]] will generally result in shortages and hoarding and extremely high demand for the controlled goods,{{Citation needed|date=April 2024}} causing disruptions of [[supply chain]]s. Products available to consumers may diminish or disappear as businesses no longer find it economic to continue producing and/or distributing such goods at the legal prices, further exacerbating the shortages.

There are also issues with computerized money-handling systems. In Zimbabwe, during the hyperinflation of the Zimbabwe dollar, many [[automated teller machines]] and payment card machines struggled with [[arithmetic overflow]] errors as customers required many billions and trillions of dollars at one time.<ref>{{cite news |url=https://www.theguardian.com/world/2008/jul/31/zimbabwe |location=London |work=The Guardian |first=Mark |last=Tran |title=Zimbabwe knocks 10 zeros off currency amid world's highest inflation |date=31 July 2008 |access-date=17 December 2016 |archive-url=https://web.archive.org/web/20170202084334/https://www.theguardian.com/world/2008/jul/31/zimbabwe |archive-date=2 February 2017 |url-status=live }}</ref>