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Hyperinflation: when a currency collapses
· Concept
Fact, law or dataA rule, statute, definition or measured number.
Hyperinflation is extreme, runaway inflation, classically defined as prices rising more than 50% in a single month.
See it on the Money & Finance map →How it works
It usually starts when a government cannot tax or borrow enough, often after war or lost output, and pays its bills by printing money. As prices rise, people spend cash as fast as possible, which speeds prices further. Famous cases: Weimar Germany (1923), Hungary (1946, the worst, with prices doubling about every 15 hours), Zimbabwe (2008) and Venezuela (2016–19). It ends with fiscal reform and a new currency, or adopting a foreign one, as Zimbabwe did with US dollars in 2009.
Why it matters
Savings in cash and bonds are wiped out, the middle class is hit hardest, and governments can fall. It is why central bank independence is guarded.
Facts, rules and data
Economist Phillip Cagan set the 50%-a-month definition in 1956. Steve Hanke and Nicholas Krus catalogued 56 historical episodes (2012) from official and market price data.
Debates and risks
Economists debate whether printing is the root cause or a symptom of deeper fiscal and political collapse; the two usually come together.
Inside this (2)
Connections (3)
▸Fiat money: currency backed by law and trust, not metal can collapse into Hyperinflation: when a currency collapsesMainstream view
The connection
Because nothing physical limits fiat money, a government that cannot tax or borrow can keep printing. If people lose faith, they spend the money as fast as possible and prices spiral. Every recorded hyperinflation has involved paper money, usually amid war or fiscal collapse.
When and why
Weimar Germany 1923, Hungary 1946 and Zimbabwe 2008, among 56 episodes catalogued by Hanke and Krus in 2012; Venezuela followed in 2016–19.
How solid is the link?
The Hanke–Krus data show recorded hyperinflations all involved paper money, typically financing large government deficits.
Debates and risks
Most fiat currencies never hyperinflate; why some governments lose control, and how well institutions protect the rest, is still argued.
▸Weimar Germany hyperinflation (1923) is the classic case of Hyperinflation: when a currency collapsesFact, law or data
The connection
Weimar Germany shows every step of the standard pattern: a government unable to tax or borrow enough after a war prints money, people dump cash as fast as they can, prices outrun the printing presses, and only a new currency backed by budget reform ends it.
When and why
Germany, 1921–1923; at the October 1923 peak, monthly inflation was about 29,500% and prices doubled roughly every four days.
How we know
Price and exchange-rate data from Reichsbank statisticians, analyzed in economist Phillip Cagan's classic 1956 study that defined hyperinflation as over 50% a month.
Debates and risks
Whether Weimar fits other cases is debated; it is often invoked in modern arguments about money printing, sometimes loosely.
▸Zimbabwe hyperinflation (2008) is a modern case of Hyperinflation: when a currency collapsesFact, law or data
The connection
Zimbabwe followed the classic sequence in a modern setting: land seizures crushed output and exports, the government printed money to pay its bills, people fled to dollars and goods, and the episode ended only when the currency itself was abandoned.
When and why
Zimbabwe, 2007–2009; peak monthly inflation in November 2008 was an estimated 79.6 billion percent, with prices doubling about every 25 hours.
How we know
Steve Hanke and Alex Kwok's 2009 estimates from parallel-market exchange rates; official data stopped in July 2008 at 231 million percent a year.
Debates and risks
Whether it ranks second-worst, after Hungary's 1946 episode, depends on which estimates are used, since official data stopped before the peak.