The History Of Hyperinflation

Welcome to Hyperinflation – a history lesson for you … 

Have you ever wondered what you would do if someone gave you ‘1 milliard Pengo’? Probably not, but if you were in Hungary in the 1930s, you wouldn’t have had to wonder.

The Pengo replaced the Korona to become Hungary’s national currency in 1927, but it only lasted for 20 years before being replaced again, in what was history’s most extreme case of hyperinflation.

At first, things went well for the Pengo. Pegged to the gold standard, it was one of the world’s more reliable currencies; until Hitler’s Germany invaded the country in the dying days of World War II and the economy was shattered by war.

In a bid to recover once the war had ended, the government printed a stack of extra money to ensure the population had enough.

But, like what had happened in the 1920s in Germany (where people wallpapered their homes with money as it was cheaper than wallpaper), and has happened since in places like Zimbabwe, printing more money just means the money itself is worth less and you get a little problem called hyperinflation.

People have been robbed of their money by hyperinflation at various stages of history. The first instance occurred in 1024 AD in China.

Rapid fire

To get an idea of how quickly hyperinflation can take hold, there were 33 Pengo to a US dollar in June 1944. Two years later, in June 1946, one US dollar was worth 460 trillion trillion Pengo.

At the height of the hyperinflation, prices were doubling every 15 hours and so much money was being printed that the government eventually ran out of paper to print it on. They eventually replaced the Pengo with a new currency and started from scratch.

So how does this relate to me?

If you think about it, what’s the difference between Hungary in 1946 and now? A 50 Pengo note or a 50 dollar note are both pieces of paper, they both fit in your pocket or wallet; the only value either has is the belief that the Aussie 50 is actually worth something.

But it could be that something similar happens here and we lose our currency over the course of the next decade. The Pengo is a perfect example of what can happen if you put your money into the bank in a 10-year investment, getting a 1 to 5% yield. Let’s say you put your money into the bank today, and in the future there are $1 billion notes floating around out there. It could actually happen. The only difference between then and now is they don’t even need to print currency, they can just lock your bank account and put more money in there.

Stimulus propping up the markets

 Who would have thought that in 2020 we would see the modern equivalent of governments printing more money, like the Centrelink stimulus packages and mortgage repayments on hold for six months?

If history repeats, inflation will follow and people who save money will be the losers. Those who don’t understand what’s happening to their currency will be sitting there wondering how their money lost all its value. What happened to my superannuation? Who stole my money?

Knowledge is power

Knowing the history of hyperinflation is going to be important moving forward.

You have the power to educate yourself, understand what’s happening and take action to protect yourself and your family.

It’s important you get yourself protected and make sure you’re not sitting there over the course of the next five years wondering what happened.

There are ways to take advantage of the situation, collect the assets you need and be the strongest on the block.

If you need help, reach out to the Binvested team, who can help you survive and prosper through this changing economy.

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