What is Hyperinflation?

Hyperinflation is a particularly high and usually accelerated process of inflation. P. Cargan once defined hyperinflation as a condition where the general price level rose by more than 50% per month. He later said: "... is an extremely rapid rise in the general level of prices of goods and services." If the notion that inflation is a subjective perception (Helmut Frich) is accepted, it would not be surprising that there is no precise definition of hyperinflation. P. Kagan believes that in hyperinflation, currency loses its value-storage function, and at least partially loses its function as an exchange medium. Although the public cannot completely abandon the depreciating currency, it must make expensive efforts to reduce the rapid depreciation Money holdings. ^[1]

Hyperinflation

In economics, hyperinflation is an uncontrollable inflation

The hyperinflation recorded in world history occurred in the 20th century. Hyperinflation of the 20th century

I. Western scholars believe that the common characteristics of all hyperinflation

The current International Accounting Standard 29 indicates that hyperinflation has four characteristics:

The public is reluctant to hold cash, preferring to invest money in foreign currency or non-monetary assets.

The public uses foreign currencies to settle assets in their own currency.

Credit is based on the borrowing period

In daily life, the public can easily feel the effects of hyperinflation. In some well-known cases

Stopping hyperinflation requires a special set of policies that involves

Western scholars have also learned a lot from hyperinflation,

After World War I, Germany experienced one of the most dramatic hyperinflation in history. At the end of the war, the Allies demanded that Germany pay huge sums of compensation. This payment caused a German fiscal deficit, and the German government eventually funded the indemnity by issuing large amounts of currency. From January 1922 to December 1924, German currencies and prices rose at an alarming rate. For example, the price of each newspaper rose from 0.3 mark in January 1921 to 1 mark in May 1922, 8 mark in October 1922, 100 mark in February 1923 and 1,000 mark in September 1923. In the fall of 1923, prices actually flew up: a newspaper costs 2,000 marks on October 1, 120,000 marks on October 15, 1 million marks on October 29, and 5 million marks on November 9 until November 17. 70 million marks a day. In December 1923, the money supply and prices suddenly stabilized.

Just as finance caused Germany's hyperinflation, so did fiscal reforms to end hyperinflation. At the end of 1923, the number of government employees was reduced by a third, and payment of compensation was temporarily suspended and eventually reduced. At the same time, the new central bank, Deutsche Bank, replaced the old central bank, the German National Bank. The government has asked Deutsche Bank not to raise money by issuing currency.

According to our theoretical analysis of money demand, as the cost of holding money decreases, the end of hyperinflation will cause the real money balance to increase. As inflation rises, Germany s real currency balance decreases, and then, as inflation decreases, real currency balances increase again. But the increase in real currency balances is not immediate. Perhaps the adjustment of the actual currency balance to the cost of holding money is a gradual process. Perhaps it will take some time for the German people to believe that inflation has really ended, so that the expected inflation has fallen a little slower than the actual inflation.

In 1923, the value of the German mark plummeted and has grown beyond control. At the beginning of 1923, the value of the mark reached US $ 2.38, but in the summer of the same year, an American could exchange it for US $ 7 to 4 billion marks. At the height of the crisis, inflation rose by 2,500% per month. The workers' wages are paid twice a day. In the evening, the price of a loaf is equal to the price of a house in the morning.

At the end of the Anti-Japanese War in August 1945, the amount of fiat currency issued was 556.9 billion yuan (Note: Yang Peixin: "Inflation in Old China", Life. Reading. Xinzhi Sanlian Bookstore, 1963 edition, page 60.), than 1937 The 1.41 billion yuan in June increased by 392 times, the increase is not small, but compared with the subsequent circulation, it is almost a whack. At the end of 1945, the issuance of fiat currency had exceeded the 1 trillion yuan mark, reaching 1.0319 trillion yuan, almost doubled compared with August; it had increased to 3.762 trillion yuan at the end of 1946, an increase of 2.6 times over the end of last year. ; In December 1947, it reached 33.188 trillion yuan, an increase of nearly 8 times on the basis of 1946; on August 21, 1948, it was as high as 663.6694 trillion yuan, which increased 19 times in just 8 months. " The value of the currency has fallen below the value of its own paper and printing costs. " So the authorities desperately issued a new currency gold coupon to replace the fiat currency, and redeemed the infinitely expanded fiat currency at a ratio of 1: 3 million. Put into effect on August 19, 1948, the gold content of each yuan of the new currency was 0.22217 cm, and the total issuance limit was 2 billion yuan. However, the government authorities quickly stated that in December 1948, the issuance of gold coupons reached 8.32 billion yuan, more than four times the limit, and in January 1949, it increased to 20.8 billion yuan, which is equivalent to 10.4 times the highest issue amount. 1949 On the eve of Shanghai s liberation in May of this year, it soared to 67,948.5 billion yuan, which is 33,972 times the issuance limit of golden round coupons. If converted into fiat currency at an exchange rate of 1:30 million, the number will reach astronomical figures of 2,038,374 billion, equivalent to 1937 144,565,531,900 times in June. The denomination is also getting bigger and bigger, from 100 yuan to 10,000 yuan, 100,000 yuan, and finally a huge ticket of 500,000 yuan, 1 million yuan. The gold coupon was eventually rejected by the people. Long before the implementation of the currency reform plan, experts in the financial industry pointed out that fiat currencies had been in circulation for more than 10 years. "Although they have depreciated, they are at least familiar to and accepted by the people, but new currencies cannot." History of Inflation, Literature and History Press, 1986 edition, p. 57.). Due to the extremely turbulent political and economic situation at that time, and the government's reliance on the printing press to make up for the huge deficit, there was no change, so the fate of the gold coupons could only end in short life and accelerate the complete collapse of the currency system.

100 yuan of legal currency can buy 2 oxen in 1937, only 2 eggs can be bought in 1945 after the war of resistance against Japan, 1/6 pieces of solid soap in 1946, only 1 briquette in 1947, 1948 On August 19, only 0.002416 two rice (16 two per catty) can be bought. In May 1949, only one grain of rice was 2.45 parts per thousand. This is simply heaven and earth. The serious devaluation of the internal value of currency will inevitably lead to a sharp decline in external value. Due to the crazy rise in prices, the real value of currencies continued to fall, driven by expectations and panic. In order to maintain value and increase value, in addition to materials, people also raced to chase gold and foreign exchange, resulting in excess demand for gold and foreign exchange. Rising high.