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Economic conditions are characterized by rapidly rising prices of goods and declining purchasing power; it threatens economic stability and the ability to repay the foreign debt; This term is often used when the price of consumer goods rises by more than 50% per month, especially in developing countries (hyperinflating runaway inflation).
According to economics, hyperinflation is uncontrolled inflation, a condition when prices rise so fast and the value of money drops drastically. Formally, hyperinflation occurs when the inflation rate is more than 50% in a month.
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| Hyperinflation |
What is Hyperinflation?
Hyperinflation is uncontrolled inflation, where there is a rapid and sudden spike in prices, without a general increase in income, so that there is too much money in circulation, but the value of the currency drops drastically. Hyperinflation occurs when the inflation rate is more than 50%, even reaching 100% in a month.
Factors Causing Hyperinflation
- War – Countries that are at war spend huge sums of money, for the procurement of weapons and fighting equipment, as well as compensation for the services of the fighters. The government also tends to focus less on the country's economy, and productivity will decline. This has an impact on national income which will also decline.
- Heating Socio-Political Conditions – The prolonged heating of socio-political conditions will hamper the rate of economic growth because the production process is not optimal so that the level or volume of production decreases. This has an impact on the low national income.
- Economic Depression – The government budget deficit which is overcome by the government by printing new money will cause the money supply in the community to increase, thus triggering hyperinflation. The price level has increased, but the value of money has decreased. People have a lot of money, but their purchasing power has decreased because the value of the money they have does not match the level of commodity prices in the country.
Examples of Hyperinflation Cases
Among the list of countries that have experienced hyperinflation are China, Nicaragua, Hungary, Yugoslavia, Greece, Peru, France, and Zimbabwe. Indonesia also experienced this severe condition in the early years of independence. Germany, which is one of the developed countries and synonymous with high technology, experienced hyperinflation at the end of 1923 (then the German Weimar Republic, under the rule of Adolf Hitler).
At that time, Reichs, the official bank of the Weimar state government issued a lot of banknotes worth a face value of 100 trillion marks. This had to be done because at the height of hyperinflation the value of 1 US dollar was almost equal to 4 trillion German marks.
However, recently, around 2007, Zimbabwe also experienced very severe hyperinflation. At that time, the local currency was boosted by much more stable foreign currencies including the South African rand and the United States dollar. At its peak, the hyperinflation experienced by Zimbabwe reached 115% which resulted in the scarcity of food availability, fuel supply, and health facilities for the people.
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