Worst Cases of Hyperinflation in History

Consumer prices in Venezuela grew at an astounding average rate of 3,608.8% per year during the 40 years from 1980 until 2020. That meant that a product that cost 100 bolivar digitals in 1980 cost 104,800 trillion bolivar digitals by the start of 2021. By 2023, inflation had tapered off to 400% annually.

Considering that central banks such as the U.S. Federal Reserve (Fed) and the European Central Bank (ECB) aim for annual inflation targets of 2%, Venezuela’s currency and economy were clearly in crisis and its people were in deep distress.

And yet, Venezuela's crisis isn't unique in modern world history.

The conventional marker for hyperinflation is 50% per month, a number first proposed in 1956 by Phillip Cagan, a professor of economics at Columbia University.

Below we review three other historical cases of hyperinflation, how they began, and how they ended. The "Routledge Handbook of Major Events in Economic History," edited by Randall Parker and Robert Whaples, is a primary source.

Hungary: Aug. 1945 to July 1946

• Highest monthly inflation rate: 4.19 x 10¹⁶%
• Equivalent daily inflation rate: 207%
• Time required for prices to double: 15 hours
• Currency: Pengő

Hyperinflation is generally seen as a consequence of government ineptitude and fiscal irresponsibility. The hyperinflation of postwar Hungary was engineered by government policymakers as a way to get a war-torn economy back on its feet.

The government used inflation as a tax on its citizens to help pay its postwar reparations and make payments to the occupying Soviet army. Inflation also was meant to stimulate aggregate demand and thus restore productive capacity.

Government Moves to Restore Industrial Capacity

World War II had a devastating effect on Hungary’s economy, leaving half of its industrial capacity destroyed and its infrastructure in shambles.

This reduction in productive capacity arguably created a supply shock that, combined with a stable stock of money, sparked the beginning of Hungary’s hyperinflation.

Rather than try to dampen inflation by reducing the money supply and increasing interest rates—policies that would have weighed down an already depressed economy—the government decided to channel new money through the banking sector towards entrepreneurial activities.

The hope was that this would help to restore productive capacity, infrastructure, and economic activity.

The plan was apparently a success, as much of Hungary’s pre-war industrial capacity was restored by the time price stability finally returned with the introduction of the forint, Hungary's new currency, in Aug. 1946.

Zimbabwe: March 2007 to Mid-Nov. 2008

• Highest monthly inflation rate: 7.96 x 10¹⁰%
• Equivalent daily inflation rate: 98%
• Time required for prices to double: 24.7 hours
• Currency: Zimbabwean Dollar

Zimbabwe's economic system was in trouble long before its hyperinflation period began in 2007. The nation's annual inflation rate hit 47% in 1998, and the trend continued almost unabated until hyperinflation set in.

By the end of its hyperinflation period, the value of the Zimbabwean dollar had eroded to the point that it had to be replaced with various foreign currencies.

Government Abandons Fiscal Prudence

After gaining its independence from Great Britain in 1980, the Zimbabwe government initially resolved to follow a series of economic policies marked by fiscal prudence and disciplined spending.

This resolve didn't last. By late 1997, the government's profligate spending began to spell trouble for its economy. Politicians were confronted by a growing number of challenges, including mass protests against higher taxes and large payouts owed to war veterans.

The government also faced resistance to its plan to acquire white-owned farms for redistribution to the nation's black majority.

In time, the government's fiscal position became untenable. A currency crisis began to unfold.

The exchange rate depreciated due to numerous runs on the country's currency. This caused a spike in import prices, which in turn sparked hyperinflation. The country experienced cost-push inflation, a syndrome caused by higher prices for labor or raw materials, or both.

Things got worse in 2000 after the impact of the government's land reform initiatives reverberated through the economy. Implementation of the initiative was poor and agricultural production suffered greatly for several years. Food supplies were low, sending prices spiraling upward even higher.

Zimbabwe Implements Tighter Monetary Policy

The government's next move was to implement a tight monetary policy. Initially deemed a success because it decelerated inflation, the policy had unintended consequences.

It caused an imbalance in the country's supply and demand of goods, generating a different kind of inflation called demand-pull inflation, the upward pressure on prices that is caused by supply shortages.

Zimbabwe's central bank continued to try various ways to undo the destabilizing effects of its tight monetary policy. These policies were largely unsuccessful. By March 2007, the country was experiencing full-blown hyperinflation.

It was only after Zimbabwe abandoned its currency and started using foreign currency as a medium of exchange that the country's hyperinflation diminished.

Yugoslavia: April 1992 to Jan. 1994

• Highest monthly inflation rate: 313,000,000%
• Equivalent daily inflation rate: 64.6%
• Time required for prices to double: 1.41 days
• Currency: Dinar

Following the disintegration of Yugoslavia in early 1992 and the outbreak of fighting in Croatia and Bosnia-Herzegovina, monthly inflation would reach the benchmark for hyperinflation of 50% in the new Federal Republic of Yugoslavia, formerly known as Serbia and Montenegro.

The initial breakup of Yugoslavia sparked hyperinflation as inter-regional trade was dismantled, leading to declining production in many industries.

Further, the size of the old Yugoslavia's bureaucracy, which included a substantial military and police force, remained intact in the new Federal Republic despite the fact that it now comprised a much smaller territory.

With war escalating in Croatia and Bosnia-Herzegovina, the government opted out of reducing this bloated bureaucracy and the large expenditures it required.

Government Inflates Money Supply

Between May 1992 and April 1993, the United Nations imposed an international trade embargo on the Federal Republic. This only exacerbated the declining output problem, which was akin to the decimation of industrial capacity that kicked off hyperinflation in Hungary following World War II.

With declining output decreasing tax revenues, the government’s fiscal deficit worsened, increasing from 3% of GDP in 1990 to 28% in 1993.

In order to cover this deficit, the government turned to the printing press, massively inflating the money supply.  By Dec. 1993, the Topčider mint was working at full capacity, issuing around 900,000 banknotes monthly that were all but worthless by the time they reached people’s pockets.

Unable to print enough cash to keep up with the dinar’s rapidly falling value, the currency officially collapsed on Jan. 6, 1994. The German mark was declared the new legal tender for all financial transactions, including the payment of taxes.

The Bottom Line

Hyperinflation has terrible consequences for a nation’s economy, its government, and its people.

It is often a manifestation of crises that are already present, and it reveals the true nature of money. Rather than being just an economic object used as a medium of exchange, a store of value, and a unit of account, money is a symbol of underlying social realities.

The stability and value of money depend upon the stability of a country's social and political institutions.