We touched on the basic economic principle, that is, excessive money printing leads to dramatic rise in price level - inflation. Don’t get me wrong here. Inflation may also be caused by other factors, but we will only stick to money printing as one of the sole factors. In addition to inflation, the idea of printing more money to be rich is a complete fallacy. We also envisioned a country with extreme money printing and what easy money can do on the price of our beloved sedan Mercedes, clothes, phones, food and other available goods on the market that you can name it. The envisioning is not real and there are a few times when an economic theory and model sounds perfect on the paper but it just does not work in real life due to unrealistic assumptions and other reasons. So as promised we are back again to find examples in real life whether printing more money does indeed bring turmoil to the economy. Before we get into some of the worst inflation, I have to make it clear that the economic notion of money growth and inflation is so complex that economists exchange argument back and forth and I am nowhere near the economists’ status. With that being said, it is possible to learn it the intuitive way by studying previous hyperinflations in the past.
Probably the most well-known hyperinflation in history, at least to me, Weimar Germany’s hyperinflation was a disaster to the economy pioneered by wild money printing. You must have heard of World War I and it is one of the deadliest war of the modern era due to the modernization of weapon and the massive scale of the war. It is dubbed by historians “The War to End all Wars”, but this world war was followed by another world war began in 1941. Following the end of WWI, Germany was obliged to pay war reparation to other countries. Weimar Germany’s government resorted to money printing to exchange with foreign currency and as a result Germany’s Papiermark’s value fell significantly. A down-to-earth economic concept can be used to explain the devaluation of Papiermark. According to the Working Paper of Steve Hanke and Nicholas Krus, the daily inflation rate was approximately 21% and it took only 3 days and 17 hours for price to double. To put this data into context, price of goods on the market must be changed every hour or even every 10 or 15 minute. The German Mark depreciated to a point when people would use the notes for toilet paper, since it was cheaper to directly use the notes than to purchase the toilet paper.
German’s hyperinflation might be the most well-known but it didn’t earn the title of the worst hyperinflation in history. One of the worst hyperinflation in recent memory was Zimbabwe in 2008 when the inflation rate was 79.6 billion percent following the infamous land reform designed by non other than the chief architect President Robert Mugabe. The land redistribution from the rich white farmers to the local people, many economists believe, led to a dramatic fall in agricultural and manufactured outputs due to the lack of experience and training. I remember quite vividly when my Corporate Finance Professor showed the class the trillion dollar Zimbabwe dollar note. There were so many zeros that I lost count. Price of goods doubled every 24 hours which must be a headache for those who hold the money. Moneyholders would buy needed items immediately in lunchtime before the price doubled during dinner. So what is the solution to combat this hyperinflation? Well, Zimbabwe ditched their “beloved” Zimbabwe Dollar for other foreign currency such as the US Dollar to restore people's confidence.
The title of the worst hyperinflation in history goes to Hungary after the WWII. Hungary was obliged to pay war reparation to the Soviet Union. At its peak, the monthly inflation rate in Hungary was 13.6 quadrillion percent which means price doubled every 15 hours.
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