Hyperinflation isinflation that is veryhigh or "out ofcontrol", a conditionin which pricesincrease rapidly.usually more than50% a month.
History of Hyperinflation In 1922, inflation in Austria reached 1426%, in January 1923, the consumer price index rose by a factor of 11836, with the highest banknote in denominations of 500,000 krones.• Germany went through its worst inflation in 1923. In December 1923 the exchange rate was 4,200,000,000,000 Marks to 1 US dollar. In 1923, the rate of inflation hit 3.25 × 106 percent per month (prices double every two
Hungary went through the worst inflation ever recorded between the end of 1945 and July 1946. It is the most severe known incident of inflation recorded, peaking at 1.3 × 1016 percent per month (prices double every 15 hours). The Republic of China went through the worst inflation 1948–49. Peak Month and Rate of Inflation: Apr. 5070%
Hyperinflation in Zimbabwe was one of the few instances that resulted in the abandonment of the local currency. Hyperinflation began early in the 21st- century,in 2004, reaching 624%. At its Nov. 2008, peak monthly rate was 79.6 billion percent, which is equivalent to around 7× 10108 percent yearly rate. At that rate, prices were doubling every 24.7
Causes High inflation must always be preceded by major increases in the supply of money. Imbalance between supply and demand for the specific currency. The reduction of the value of the paper money. Increased borrowing in order to pay of other debt.
The role of civil war, revolution, or deep social/political unrest is the factor in many of the hyperinflation. The existence of weak govt. is another important condition that triggers hyperinflation. Loss of confidence in the country’s economy(the first step into hyperinflation).
Effects The prices of goods go higher, especially the prices of commodities. Creates an environment for consumption and spending, but NOT investment and saving. International investors will not invest in the country’s economy (lacks FDI). People prefer to keep their wealth in non-monetary assets or in a relatively stable foreign currency.
Decrease in public purchasing power. Currency debasement (which lowers the value of a currency, and sometimes cause a new currency to be born. People tend to barter instead of using money as a way of exchanging goods.
How it can be controlledThere are broadly two ways of controlling hyperinflationin an economy:I).Monetary MeasuresThe most important and commonly used method tocontrol inflation is monetary policy of the Central Bank.Most central banks use high interest rates as thetraditional way to fight or prevent inflation.Monetary measures used to control hyperinflationinclude:(i) bank rate policy(ii) cash reserve ratio and(iii) open market operations.
2). Fiscal measuresFiscal measures to control hyper inflation includetaxation, government expenditure and publicborrowings. The government can also take someprotectionist measures (such as banning the exportof essential items such as pulses, cereals and oilsto support the domestic consumption, encourageimports by lowering duties on import items etc.).
Prevention Increase the interest rate dramatically. Cutting government spending and debt. Increasing reserve rates for banks. But each of these steps might have their own side effects in the economy.