HyperInflation
An economic problem effecting many economies
around the world

Zimbabwe’s economy
is in a state of
hyperinflation

In economic terms, hyperinflation is the
condition in which inflation is out of control and
the value of the currency is on a rapid decline

In Germany, bank notes
had lost so much value
that they were being used
as pieces of wallpaper
(Germany, 1923)

About hyperinflation;
• Inflation rate which is very high
• A situation in which the value of a currency
rapidly looses it value
• It is said that hyperinflation is reached
when the inflation rate over three years is
or is coming close to 100%

“an inflationary cycle without any
tendency toward equilibrium”

What are the causes?
• Large increases in the amount of money in
the market place (this in itself is not negative
- but if it is not supported by the market, it will
lead to a situation of hyperinflation)
• Imbalances between supply and demand for
the specific currency
• The reduction of the value of paper money
(this can be seen in Zimbabwe)

What are the causes?
• Very often war can bring along a state of
hyperinflation
• Excessive growth in money supply (supply
and demand)
• Loss of confidence in the country’s
economy (generally accepted as one of the
first steps into a state of hyperinflation)

What are the causes?
• Irresponsible lending practices
• Increased borrowing in order to pay of
other debts

“Hyperinflation is born out of the
irresponsibility's of the financial
authorities to borrow excess money
and make payments of all its
expenditures.”
Source: Economy Watch

Consequences
• Decreases in the publics purchasing power
• Creates an environment which encourages
consumption and spending, but NOT
investment and saving
• International Investors see the country as
volatile, therefore not investing in the
economy (lack of FDI, this is essential to a
health economy and to economic growth)

Consequences
• Reallocation of wealth
• Value of the country’s currency rapidly
decreases
• Lowers the economic welfare of the
country’s inhabitants
• Reduction in the economy’s efficiency

Stopping Hyperinflation
• Stopping the rapid production of paper
based money
• Monetary Reform (in Germany, a new
currency was adopted, this too will need to be
done in Zimbabwe in order to save the
economy)
• Gold Standard (Although not fully necessary,
partial gold backing of a currency will assist in
maintaining a credible value)

In times of hyperinflation, gold value in
most cases remains stable

Stopping Hyperinflation
• Fiscal Reform: Government needs to bring
its “budget into balance”
• Government needs to become less
dependent of inflationary taxation (income
generated from those who are letting financial
institutions hold their money)
• Increased interest rates and taxation
• Decreased government spending

Thank You!
• http://answers.yahoo.com/question/index?qid=20081214175352AAqIYBv
• http://www.econlib.org/library/Enc/Hyperinflation.html
• http://www.economywatch.com/inflation/hyperinflation/causes.html
• http://en.wikipedia.org/wiki/Hyperinflation
• http://www.economywatch.com