Question

what are effects of hyperinflation

Answer 1

In economics, hyperinflation is very high and typically accelerating inflation. It quickly erodes the real value of the currency, as the prices of most or all goods increase. Thiscauses people to minimize their holdings in that currency as they usually switch to more stable foreign currencies.

Answer 2

Hyperinflation effects are almost similar to high inflation effects, except that they’re more serious, please check our Inflation Effects before reading the rest of this article, you might be surprised to find out that it also has positive effects but mostly negative ones, the most serious consequence of hyperinflation is the reallocation of wealth. It transfers wealth from the general public, which holds money, to the government, which issues money. Hyperinflations also cause borrowers to gain at the expense of lenders when loan contracts are signed prior to the worst inflation. Check out more effects by visiting our page above.

Hyperinflation in History

Hyperinflation is not a particularly uncommon episode in human history. It has occurred in the following countries: Weimar Republic of Germany 1920 – 23 (466 billion percent from starting value), Zimbabwe 2003 - Now (231 million percent from starting value), Argentina 1975 – 1983 (1,000 percent from starting value), Bosnia-Herzegovina 1992 – 93 (100,000 percent from starting value). Here are some common examples in more details:

Hyperinflation in the Weimar Republic (Germany)

Germany or the Weimar Republic at the time went through its worst inflation in 1923. The highest denomination was 100,000,000,000,000 Mark which was the equivalent of about 25 USD. The rate of inflation hit 3.25 × 106 percent per month (prices double every two days). Beginning on November 20, 1923, 1,000,000,000,000 old Marks were exchanged for 1 Rentenmark so that 4.2 Rentenmarks were worth 1 US dollar, exactly the same rate the Mark had in 1914. The hyperinflation episode in the Weimar Republic in the 1920s was not the first hyperinflation, nor was it the most serious, compared to the Zimbabwean Dollar for example.

The main cause of the Weimar Republic hyperinflation is believed to be because of the "London ultimatum" in May 1921 which demanded reparations in gold or foreign currency to be paid in annual installments of 2,000,000,000 (2 billion) gold marks plus 26 percent of the value of Germany's exports. The first payment was paid when due in August 1921. That was the beginning of an increasingly rapid devaluation of the Mark which fell to less than one third of a cent by November 1921 (approx. 330 Marks per US Dollar). The total reparations demanded was 132,000,000,000 (132 billion) gold marks which was far more than the total German gold or foreign exchange. An attempt was made by Germany to buy foreign exchange, but that was paid in treasury bills and commercial debts for Marks which only increased the speed of devaluation.

But some believe that the government found reparations a convenient excuse and that there might be other reasons that might have triggered the hyperinflation. Other possible causes included bankers and speculators (particularly foreign), both of which groups had, in fact, exacerbated the hyperinflation through the normal course of their profit-seeking. The inflation reached its peak by November 1923, but ended when a new currency (the Rentenmark) was introduced. The government stated that this new currency had a fixed value, secured by real estate, and this was accepted.