Hyperinflation

Under a chronic but contained inflation, money depreciates at a slower and more stable rate, while under a hyperinflation the decline is highly variable and unpredictable. Exact measurement of the rate of inflation rates is difficult because the computation of price indexes assumes that something fairly stable is being measured. But annual rates of thousands to millions of percent have been recorded in historic episodes.Robert Blumen. "Weimar and Wall Street", Mises Daily, September 2004, referenced 2010-06-26.
==History==
===Inflation in Weimar Germany===
Perhaps the best known was hyperinflation in Weimar Germany, which was not stopped before the complete destruction of the reichsmark. To illustrate the monetary catastrophe, one may take a look at the exchange rate of the reichsmark against the US dollar. Before the start of World War I in 1914, around 4.2 marks would buy 1 US dollar. As soon as war action began, the convertibility of the mark was suspended and paper marks (papiermark) were issued, largely for financing war-related outlays. In 1918, after the end of World War I, 8.4marks bought 1 US dollar. In December 1919, the mark had depreciated to 46.8 per US dollar, and in December 1920 to 73.4 per dollar. In July 1922, the US dollar cost 670 marks. When French and Belgian troops occupied the Rhineland at the beginning of 1923, however, the exchange rate of the mark plummeted to 49,000 marks per US dollar. On November 15, 1923, when hyperinflation reached its peak, the currency reform effectively made 1 trillion (1,000,000,000,000) papiermarkequal to 1 rentenmark, and as 4.2 trillion papiermark exchanged for 1 US dollar at that time, 4.2 rentenmark would equal 1 US dollar.Thorsten Polleit. "Hyperinflation, Money Demand, and the Crack-up Boom", Mises Daily, January 2010. Referenced 2010-06-26.
In the last phase the legal paper money was replaced by other monies (which had no legal recognition), not only as 'a store of value' and as 'a standard of value', but also as a means of payment. Little by little foreign money, or the old national metallic money (which had been hoarded), or new money created by private firms, entered the circulation. The legal money was rejected by the public....
In the summer of 1922, at a time when the external value of the mark was falling rapidly, causing a revolution of internal prices, the most important industries, one after another, adopted the practice of expressing prices in a foreign 'appreciated' money (dollars, Swiss francs, Dutch florins, etc.) or in gold marks. . . . Later the paper mark continually lost importance as a means of payment also. Wholesale trade, which badly needed a means of payment, resorted to foreign exchange.
In the summer of 1923, the need for a circulating medium being at times very acute, because of the rapid fall in the total real value of paper marks, the 'emergency monies' (which had from time to time appeared in the circulation... regulated by the law of 17 July, 1922) were multiplied. State and local governments, industrial associations, chambers of commerce, and private traders issued great quantities of paper 'money'. Sometimes the issues were authorised and came under certain guarantees, but most were illegal issues, which, thanks to the rapid depreciation of notes, yielded considerable profits to the issuers. Illegal issues were especially frequent in the occupied territories. It is said that in the autumn of 1923 there were two thousand different kinds of emergency money in circulation! The abuses which arose from these issues constitute one of the most unhappy chapters in the history of the mark.F.A. Hayek. "Choice in Currency: A Way to Stop Inflation", Based on an Address entitled 'International Money' delivered to the Geneva Gold and Monetary Conference on 25 September, 1975, at Lausanne, Switzerland. Referenced 2010-06-26.
===Other hyperinflations===
The 20th century saw many other hyperinflations, including China in 1949–50, Brazil in 1989–90, Argentina in the late 1980s and early 1990s, Russia in 1992, Yugoslavia in 1994, and, most recently, Zimbabwe in 2006–09.
==Characteristics==
What happens if people expect that, in the future, the money-supply growth rate will increase to ever-higher rates? The demand for money would, sooner or later, collapse. Such an expectation would lead (relatively quickly) to a point at which no one would be willing to hold any money — as people would expect money to lose its purchasing power altogether. People would start fleeing out of money entirely. This is what Mises termed a crack-up boom:
If once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum size. For under these circumstances the regular costs incurred by holding cash are increased by the losses caused by the progressive fall in purchasing power. The advantages of holding cash must be paid for by sacrifices which are deemed unreasonably burdensome. This phenomenon was, in the great European inflations of the 'twenties, called flight into real goods (Flucht in die Sachwerte) or crack-up boom (Katastrophenhausse). Everybody is anxious to swap his money against "real" goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.Ludwig von Mises. "8. The Anticipation of Expected Changes in Purchasing Power" from the online version of Human Action. Referenced 2010-06-26.
==References==
==External links==
* Hyperinflation on Wikipedia
* Hyperinflation in Germany, 1914-1923 by Hans F. Sennholz, October 2006
* Radioactive Money by Clifford F. Thies, March 2007
* Dinar Inflation by Steve Hanke, April 1999
* Welcome to Zimbabwe by Doug French, April 2010
* Hyperinflation Simulation by Vincent Cate
* Hyperinflation FAQ by Vincent Cate
* Hyperinflation Explained Many Different Ways by Vincent Cate