trillion dollar zimbabwe note

What is HyperInflation? Why is Venezuela having Hyper Inflation?

In Venezuela, Prices rose 41 per cent in 2013, 63 per cent in 2014, 121 per cent in 2015, and 481 per cent in 2016. Venezuela is amidst its worst economic crisis and is suffering from HyperInflation. More than two million people have fled Venezuela’s economic and political crisis since 2015, according to the UN. Venezuela is a democracy and under Hugo Chávez, who served as president from 1999 to 2013,  was one of the most financially stable countries in all of South America. How did such an oil-rich state collapse so catastrophically? What is Hyperinflation? Ten most severe hyperinflations in world history. And look at some of Biggest Currency Notes Ever Printed.

What is HyperInflation?

Inflation means a certain amount of money buys you much less today than it did years ago. Inflation is defined as an increase in the level of prices for goods and services in a country and is measured as an annual percentage change. Say you buy a veg thali today for INR 100. The yearly inflation is 10%. Next year, the same veg thali will cost you INR 110. Inflation is one of the most important concepts in economics. Central banks throughout the world use monetary policy to control inflation.

What is Inflation? How is it Calculated? WPI, CPI in India, HyperInflation ,Inflation covers Inflation in detail.

Hyperinflation is when the prices of goods and services rise more than 50 per cent a month. At that rate, a loaf of bread could cost one amount in the morning and a higher one in the afternoon.

Hyperinflation starts when a country’s government begins printing money to pay for its spending. As it increases the money supply, prices rise as in regular inflation. An increase in the money supply is one of the two causes of inflation. The other is demand-pull inflation. It occurs when a surge in demand outstrips supply, sending prices higher.

But, instead of tightening the money supply to stop inflation, the government keeps printing more. With too much currency sloshing around, prices skyrocket. Once consumers realize what is happening, they expect continued inflation. They buy more now to avoid paying a higher price later. That excessive demand aggravates inflation. It’s even worse if they stockpile goods and create shortages.

The most recent example of hyperinflation is in Venezuela. Prices rose 41 per cent in 2013, 63 per cent in 2014, 121 per cent in 2015, and 481 per cent in 2016. In 2017, the government increased the money supply by 14 times

Ten most severe hyperinflations in world history

Highest monthly inflation rates in history
Country Currency name Month with highest inflation rate Highest monthly inflation rate Equivalent daily inflation rate Time required for prices to double Highest denomination
Hungary Hungarian pengő July 1946 4.19×1016 % 207.19% 15.6 hours 100 Quintillion (1020)
Zimbabwe Zimbabwe dollar November 2008 7.96 × 1010 % 98.01% 24.7 hours 100 Trillion (1014)
Yugoslavia Yugoslav dinar January 1994 3.13 × 108 % 64.63% 1.4 days 500 Billion (5×1011)
Republika Srpska Republika Srpska dinar January 1994 2.97 × 108 % 64.3% 1.41 days 10 Billion (10×1010)
Germany (Weimar Republic) German Papiermark October 1923 29,500% 20.87% 3.7 days 100 Trillion (1014)
Greece Greek drachma October 1944 13,800% 17.84% 4.3 days 100 Billion (1011)
China Chinese yuan April 1949 5,070% 14.1% 5.34 days 6 Billion
Armenia Armenian dram and Russian ruble November 1993 438% 5.77% 12.5 days 50,000 (ruble)
Turkmenistan Turkmenistan manat November 1993 429% 5.71% 12.7 days 500
Taiwan Taiwanese yen August 1945 399% 5.50% 13.1 days 1,000

Why did Venezuela have Hyperinflation?

Founded by Christopher Columbus, Venezuela or “little Venice” because of its resemblance to the Italian city became a Spanish Colony. Venezuela became independent in 1830 but political unrest followed the oil prices.

Timeline: Venezuela’s tumultuous history

From 1950 to the early 1980s, the Venezuelan economy experienced steady growth.

By 1982, Venezuela was still the richest major economy in Latin America. The country used its vast oil wealth to pay for social programs, including health care, education, transport, and food subsidies. Workers in Venezuela were among the highest paid in the region.

In the mid-1980s, an oil glut and a free-falling oil price ended up decimating the Venezuelan economy, which was unable to diversify away from energy.

After the oil glut in the 1980s, Venezuela’s oil revenues dropped significantly. It was then that Venezuela had its first bout with inflation, where rates peaked in 1989 (84.5% inflation) and later in 1996 (99.9% inflation). Without sufficient money coming in, the country had to rely on its printing presses in an attempt to maintain living standards.

In 1998, Hugo Chávez was elected with the promise that Venezuela could reduce poverty and step up living standards by leaning even more heavily on its energy wealth. The recovery of oil prices helped this come true in the 2000s.

Ref: From Richer to Poorer: Venezuela’s Economic Tragedy Visualized

Oil prices , inflation and Venezuela
Oil prices, inflation and Venezuela

Hugo Chávez who served as president of Venezuela from 1999 until his death in 2013, spearheaded the country’s experiment with socialism. He transformed the country’s political and economic landscape by nationalizing industries and funnelling enormous amounts of government money. Chávez introduced the new constitution and numerous elections placed nearly all government institutions under the control of the ruling Socialist party. Venezuela’s unemployment rate halved, income per capita more than doubled, the poverty rate fell by more than half, education improved, and infant mortality rates declined. The country relies on imports for many of its most basic goods and services, including food and medicine.

While Chávez sparked ferocious opposition among the country’s elites and conservatives, who at one point attempted a coup against him, he was loved by the country’s poor and working classes.

He also won plaudits at home for his willingness to stand up to the United States — in 2009, he famously called then-President George W. Bush “the devil” during a speech at the United Nations.

This concentration of power was aided by a feuding opposition which carried out ineffectual campaigns and electoral boycotts. After Chávez died of cancer in 2013, he was succeeded by Nicolás Maduro who is even less tolerant of dissent.

Since late 2014, low oil prices and stifling government regulations on currency have produced huge shortages of those basic items — including food and medicine. The country is suffering from a malnutrition crisis. And malaria is ravaging the population despite the fact that Venezuela was the first country in the world to eliminate the disease in its populated areas. The resulting fiscal crisis has prompted the government to print more money, which has led to hyperinflation and a collapse of the currency.

Video on What’s happening in Venezuela?

This 6-minute video explains how did such an oil-rich state as Venezuela collapse so catastrophically?

Germany and Hyper-Inflation

The most well-known example of hyperinflation was during the Weimar Republic in Germany in the 1920s. First, the German government printed money to pay for World War I. From 1913 to the end of the war, the number of Deutschmarks in circulation went from 13 billion to 60 billion. The government also printed government bonds. It has the same effect as printing cash. Germany’s sovereign debt went from 5 billion to 100 billion marks. At first, this fiscal stimulus lowered the cost of exports and increased economic growth.

When the war ended, the Allies saddled Germany with another 132 billion marks in war reparations. Production collapsed, leading to a shortage of goods, especially food. Because there was excess cash in circulation, and few goods, the price of everyday items doubled every 3.7 days. The inflation rate was 20.9 per cent per day. Farmers and others who produced goods did well, but most people either lived in abject poverty or left the country.

Zimbabwe and Hyper-Inflation

Zimbabwe had hyperinflation between 2004 and 2009. The government printed money to pay for the war in the Congo. Also, droughts and farm confiscation restricted the supply of food and other locally produced goods. The inflation rate was 98 per cent a day, and prices doubled every 24 hours. It finally ended when people started accepting other currencies instead of the Zimbabwe dollar.

Infographic on Biggest Currency Notes Ever Printed

Biggest Currency Notes Ever printed
Biggest Currency Notes Ever printed

Related Articles:

1 Comment

  1. Excellent Article about hyperinflation!!!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.