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A trip down memory lane: History’s worst cases of hyperinflation

When governments and central banks decide to print more money to stimulate their economies, inflation is a common outcome. And in some cases, it ends with hyperinflation, where whole economies collapse and currencies become so devalued they end up needing to be replaced.

So let’s take a look at some of the worst cases of hyperinflation in world history.

Federal Republic of Yugoslavia

In 1994, Yugoslavia suffered a severe bout of hyperinflation, which was set in motion by the end of the former soviet republic of Yugoslavia and the devastating effects of war, trade embargoes and sanctions on imports.

At this time, the inflation rate rose 313 million%. A single loaf of bread would set you back 500 million dinar. The inflation became so ridiculous that the cost of a packet of cigarettes in the morning would equal just one cigarette by that same evening. The government kept hatching new plans to keep the inflation in check, but nothing worked, until later that year, when it created a new currency, backed by the German Mark. After that, inflation decreased to double digit levels in annual terms.


The case of Zimbabwe happened less than 13 years ago, showing hyperinflation is still very much a modern danger. In November 2008, prices increased 79.6billion%.

Robert Mugabe’s authoritarian regime had become isolated from the rest of the world after its involvement in two Congo wars and also his land reform program, in which vast areas of land were seized from their owners and redistributed. Established farms were taken over by inexperienced first time farmers and the central bank began lending directly to them to fund the reform. A bad drought followed and agricultural production and exports fell off a cliff. Food shortages and riots took hold and foreign investment fell from US$400m in 1998 to US$30m in 2000. A bag of sugar cost 90bn Zimbabwean dollars and salaries of unskilled workers were around 200bn, the equivalent of US$10 a month. 150bn Zimbabwean dollars got you 20 eggs.

In 2009 the country created a multi-currency system to replace the Zimbabwe dollar. It calmed things down, but inflation is still high today in the country.

Hungary (Post WWII)

Hungary holds the world record for inflation, with a rate of 41.9 quadrillion% in July 1946. The damage was largely done by being on the losing side in WWII, and the $600 to $900 million in reparation bills Hungary was ordered to pay by the Soviets.

With a huge deficit and largely isolated, Hungary began printing so much money that currency circulation passed from 25 billion pengo in July 1945 to 1.6 trillion by January 1946, 65 quadrillion by May 1946 and 47 septillion by July.

Prices were doubling every 15 hours and a note with a face value of 100 quintillion pengo was issued. No bank note with a higher denomination has ever been issued. In 1947, the Hungarian government created a new currency and stipulated new central bank regulations to government loans. Prices started falling and went back to normal in the following months.

When bad money drives out good

16th century London financier Thomas Gresham created Gresham’s Law, which states “bad money drives out good”.
Good money is money which is undervalued or stable in value. Bad money is overvalued or loses value rapidly.
In an ideal scenario, people will spend the “bad” money and hoard the “good”, which will ultimately mean “good” money is removed from circulation.

Say you had $1000 worth of bank notes and $1000 worth of gold for example, you would prefer to keep the gold as it is good money and has real value, whereas a bank note is a piece of paper and nothing more than legal tender, it only has value because the government says so.

In recent times, there has been an exponential rise in money supply, both in printed cash, but also in the adding of values digitally to bank accounts (even more so lately with stimulus packages).

So, inflation is largely the norm in today’s world and when a government fails to manage its money supply, in extreme cases, hyperinflation can still happen.

When it does, the reverse of Gresham’s Law can occur. In this case, good money ends up driving the bad out of circulation, because official money becomes so worthless that no one will take it. Instead they might trade in food, or precious metals, or, in a modern example, in cryptocurrency. This is true in Venezuela right now where people are using Bitcoin to exchange, rather than holding it as a speculative investment.

So what’s happening in Australia?

The RBA recently announced it would be pumping $100bn through the Australian economy as an extension of its quantitative easing program through until September.
Already our currency is losing its value. Just take a look at the property market right now, where we are apparently primed for a nationwide boom as people put their money into tangible, physical assets like real estate and precious metals, plus decentralised assets like Bitcoin.
There is no doubt inflation is occurring in this country and the wealth gap between property owners and those trying to save money is growing wider. But what lies in store? Could it be possible that Australian money will be no more valuable than the paper it’s printed on? Time will tell.