San José State University
Department of Economics
Thayer Watkins
Silicon Valley
& Tornado Alley

Episodes of Hyperinflation

Hyperinflation is just inflation at an extremely high rate. Usually this also means the inflation is out of control and its level is not precisely predictable.

For material on the dynamics of hyperinflation
see Inflation Dynamics.

Episodes of HyperinflationMaximum Monthly
Price Increase
U.S. Civil War
World War I 
3.25 million percent
2. Russia 1921-1924213 percent
3. Austria 1921-1922134 percent
4. Poland 1922-1924275 percent
5. Hungary 1922-192498 percent
World War II 
1. Greece 1943-19448.55 billion percent
2. Hungary 1945-19464.19 quintillion percent
East Asia

Latin America

Eastern and Southeastern Europe

Middle East


Sources: Martin J. Bailey, "The Welfare Costs of Inflationary Finance," in A.E.A. Readings in Welfare Economics, Kenneth Arrow and Tibor Scitovsky (eds.) 1969

Phillip Cagan, "The Monetary Dynamics of Hyperinflations," in Studies in the Quantity Theory of Money, Milton Friedman (ed.).

Julio Harold Cole, Latin American Inflation: Theoretical Interpretations and Empirical Results, Praeger: New York, 1987.

Pierre L. Siklos, War Finance, Reconstruction, Hyperinflation and Stabilization in Hungary, 1938-48, St. Martins Press: New York, 1991.

Luiz Bresser Pereira and Yoshiaki Nakano, The Theory of Inertial Inflation: The Foundation of Economic Reform in Brazil and Argentina, Lynne Rienner Publishers: Boulder, Colorado, 1987.

Jim Powell, The Gnomes of Tokyo: The Positive Impact of Foreign Investment in North America, American Management Association: New York, 1989. William Greider, Secrets of the Temple: How the Federal Reserve Runs the Country, Simon & Schuster Inc.: New York, 1987.

The Worst Episode of Hyperinflation in History:
Yugoslavia 1993-94


Under Tito Yugoslavia ran a budget deficit that was financed by printing money. This led to rates of inflation of 15 to 25 percent per year. After Tito the Communist Party pursued progressively more irrational economic policies. These irrational policies and the breakup of Yugoslavia (Yugoslavia now consists of only Serbia and Montenegro) led to heavier reliance upon printing or otherwise creating money to finance the operation of the government and the socialist economy. This created the worst hyperinflation in history up to this time.

By the early 1990s the government used up all of its own hard currency reserves and proceeded to loot the hard currency savings of private citizens. It did this by imposing more and more difficult restrictions on private citizens' access to their hard currency savings in government banks.

The government operated a network of stores at which goods were supposed to be available at artificially low prices. In practice these store seldom had anything to sell and goods were only available at free markets where the prices were far above the official prices that goods were supposed to sell at in government stores. In particular, all of the government gasoline stations eventually were closed and gasoline was available only from roadside dealers whose operation consisted of a parked car with a plastic can of gasoline sitting on the hood. The market price was the equivalent of $8 per gallon.

The combination of the shortage of gasoline and the government confiscation of German Deutsche mark deposits created a bizarre episode. A man after repeated attempts to get the government to let him withdraw his Deutsche mark deposits as Deutsche marks announced the was going to commit suicide in front of a government building by dousing himself with gasoline and igniting it. On the appointed day he showed up with a canister of gasoline. The media was there to film his protest. The police were also there and arrested the man. Afterwards the television station got numerous phone calls asking what had happened to the canister of gasoline.

Most car owners gave up driving and tried to rely upon public transportation. But the Belgrade transit authority (GSP) did not have the funds necessary for keeping its fleet of 1200 buses operating. Instead it ran fewer than 500 buses. These buses were overcrowded and the ticket collectors could not get aboard to collect fares. Thus GSP could not collect fares even though it was desperately short of funds.

Delivery trucks, ambulances, fire trucks and garbage trucks were also short of fuel. The government announced that gasoline would not be sold to farmers for fall harvests and planting.

Despite the government desperate printing of money it still did not have the funds to keep the infrastructure in operation. Pot holes developed in the streets, elevators stopped functioning, and construction projects were closed down. The unemployment rate exceeded 30 percent.

The government tried to counter the inflation by imposing price controls. But when inflation continued the government price controls made the price producers were getting ridiculous low they stopped producing. In October of 1993 the bakers stopped making bread and Belgrade was without bread for a week. The slaughter houses refused to sell meat to the state stores and this meant meat became unavailable for many sectors of the population. Other stores closed down for inventory rather than sell their goods at the government mandated prices. When farmers refused to sell to the government at the artificially low prices the government dictated, government irrationally used hard currency to buy food from foreign sources rather than remove the price controls. The Ministry of Agriculture also risked creating a famine by selling farmers only 30 percent of the fuel they needed for planting and harvesting.

Later the government tried to curb inflation by requiring stores to file paper work every time they raised a price. This meant that many of the stores employees had to devote their time to filling out these government forms. Instead of curbing inflation this policy actually increased inflation because the stores tended increase prices by a bigger jump so that they would not have file forms for another price increase so soon.

In October of 1993 the monetary authorities created a new currency unit. One new dinar was worth one million of the old dinars. In effect, the government simply removed six zeroes from the paper money. This of course did not stop the inflation and between October 1, 1993 and January 24, 1995 prices increased by 5 quadrillion percent. This number is a 5 with 15 zeroes after it.

In November of 1993 the government postponed turning on the heat in the state apartment buildings in which most of the population lived. The residents reacted to this withholding of heat by using electrical space heaters which were inefficient and overloaded the electrical system. The government power company then had to order blackouts to conserve electricity.

The social structure began to collapse. Thieves robbed hospitals and clinics of scarce pharmaceuticals and then sold them in front of the same places they robbed. The railway workers went on strike and closed down Yugoslavia's rail system.

In a large psychiatric hospital 87 patients died in November of 1994. The hospital had no heat, there was no food or medicine and the patients were wandering around naked.

The government set the level of pensions. The pensions were to be paid at the post office but the government did not give the post offices enough funds to pay these pensions. The pensioners lined up in long lines outside the post office. When the post office ran out of state funds to pay the pensions the employees would pay the next pensioner in line whatever money they received when someone came in to mail a letter or package. With inflation being what it was the value of the pension would decrease drastically if the pensioners went home and came back the next day. So they waited in line knowing that the value of their pension payment was decreasing with each minute they had to wait in line.

Many Yugoslavian businesses refused to take the Yugoslavian currency at all and the German Deutsche Mark effectively became the currency of Yugoslavia. But government organizations, government employees and pensioners still got paid in Yugoslavian dinars so there was still an active exchange in dinars. On November 12, 1993 the exchange rate was 1 DM = 1 million new dinars. By November 23 the exchange rate was 1 DM = 6.5 million new dinars and at the end of November it was 1 DM = 37 million new dinars. At the beginning of December the bus workers went on strike because their pay for two weeks was equivalent to only 4 DM when it cost a family of four 230 DM per month to live. By December 11th the exchange rate was 1 DM = 800 million and on December 15th it was 1 DM = 3.7 billion new dinars. The average daily rate of inflation was nearly 100 percent. When farmers selling in the free markets refused to sell food for Yugoslavian dinars the government closed down the free markets. On December 29 the exchange rate was 1 DM = 950 billion new dinars.

About this time there occurred a tragic incident. As usual pensioners were waiting in line. Someone passed by their line carrying bags of groceries from the free market. Two pensioners got so upset at their situation and the sight of someone else with groceries that they had heart attacks and died right there.

At the end of December the exchange rate was 1 DM = 3 trillion dinars and on January 4, 1994 it was 1 DM = 6 trillion dinars. On January 6th the government declared that the German Deutsche was an official currency of Yugoslavia. About this time the government announced a new new dinar which was equal to 1 billion of the old new dinars. This meant that the exchange rate was 1 DM = 6,000 new new dinars. By January 11 the exchange rate had reached a level of 1 DM = 80,000 new new dinars. On January 13th the rate was 1 DM = 700,000 new new dinars and six days later it was 1 DM = 10 million new new dinars.

The telephone bills for the government operated phone system were collected by the postmen. People postponed paying these bills as much as possible and inflation reduced their real value to next to nothing. One postman found that after trying to collect on 780 phone bills he got nothing so the next day he stayed home and paid all of the phone bills himself for the equivalent of a few American pennies.

Here is another illustration of the irrationality of the government's policies. James Lyon, a journalist, made twenty hours of international telephone calls from Belgrade in December of 1993. The bill for these calls was 1000 new new dinars and it arrived on January 11th. At the exchange rate for January 11th of 1 DM = 150,000 dinars it would have cost less than one German pfennig to pay the bill. But the bill was not due until January 17th and by that time the exchange rate reached 1 DM = 30 million dinars. Yet the free market value of those twenty hours of international telephone calls was about $5,000. So the government despite being strapped for hard currency gave James Lyon $5,000 worth of phone calls essentially for nothing.

It was against the law to refuse to accept personal checks. Some people wrote personal checks knowing that in the few days it took for the checks to clear inflation would wipe out as much as 90 percent of the cost of covering those checks.

On January 24, 1994 the government introduced the super dinar equal to 10 million of the new new dinars. The Yugoslav government's official position was that the hyperinflation occurred "because of the unjustly implemented sanctions against the Serbian people and state."

Soon after the inflation rate became extreme the monetary authorities stopped putting the picture of known people on the bills because those bills would soon become virtually worthless and this was considered an affront to the person depicted. Instead the monetary authorities began using generic figures such as that of the young girl shown on the above bill.

Source: James Lyon, "Yugoslavia's Hyperinflation, 1993-1994: A Social History," East European Politics and Societies vol. 10, no. 2 (Spring 1996), pp. 293-327.

Inflation in the Roman Empire

The episodes of extreme inflation took a standard form. First the government started building up the army and undertaking public works projects. These projects increased expenditures drastically and the government raised tax rates. But the higher tax rates encouraged tax evasion and discouraged economic activity. The tax base diminished and soon the tax needs exceeded the tax capacity of the government. The government then resorted to debasing the coins of the realm. This took the form of replacing the gold and silver in coins with copper and other cheaper metals. Over the period 218 to 268 A.D. the silver content of Roman coins dropped to one five thousandth of its original level. Sometimes the size and weight of coins were reduced. It also meant vastly increasing the amount of coins in circulation. There was a corresponding increase in prices. The emperors usually blamed the price increases on the greed of merchants.

One famous episode occurred during the reign of the Emperor Diocletian in last part of the third century AD. Diocletian's predecessors had been issuing tin-plated copper coins for what had once been a silver coin. Diocletian tried to bring back some honesty to the coinage by issuing copper coins that were not purporting to be something they were not.

Diocletian ordered a vast increase in the armed forces to guard against further attacks by the barbarians. Taxes were increased to pay for defenses but much of the funds raised went to pay for public monuments as well as rebuilding his new capital of Nicomedia in western Anatolia. When he ran out of funds Diocletian resorted to the use of forced labor for his projects. But Diocletian had issued vast amounts of copper coins. This led to price increases. When prices rose Diocletian attributed the inflation to the greed of merchants. In 301 AD Diocletian issued an edict declaring fixed prices; i.e., price controls. His edict provided for the death penalty for anyone selling above the control prices. There was also penalties (less severe) for anyone paying more than the control price. Irate consumers sometimes destroyed the businesses of those who sold higher than the control prices.

In the short-run these draconian measures may have curbed inflation but in the long-run the results were disaster. Merchants stopped selling goods but this led to penalties against hoarding. People went out of business but Diocletian countered with laws saying that every man had to pursue the occupation of their father. The penalty for not doing so was death. This was justified on the basis that leaving the occupation of ones father was like a soldier deserting in time of war. The effect of this was to turn free men into serfs.

John Law and
the Hyperinflation
and Speculative Bubble
in France c. 1719

The public and private extravagances of Louis XIV left France with a debt of 3 billion livres when the Regime of Louis XV came to power. Even with an excellent system of centralized administration and finance created by Colbert the new regime was finding it hard to meet the interest payments on the debt. John Law, a Scottish adventurer, was promoting policies which might help the Regime.

John Law was the son of a banker from Scotland. In London John Law was a gambler and playboy who killed a man in a duel. Law was arrested and convicted of murder but he escaped from prison and fled to the Continent. In Amsterdam he studied financial institutions and in 1705 he published a treatise entitled Money and Trade Considered in which he argued that the more money in circulation the greater the prosperity of a country. In his words,

Domestic trade depends upon money. A greater quantity employs more people than a lesser quantity. An addition to the money adds to the value of the country.

Law tried to interest the governments of several countries in his monetary schemes, but only the financially strapped regime of Louis XV gave him an opportunity to implement them. In 1716 Law was granted authority to create the Banque Generale with a capital of 6 million livres. Law raised only 25 percent of the capital in cash and covered the other 4.5 million livres with government debt (billets d'etat) which was worth only one fourth of its face value. So Law capitalization of the Banque Generale really only amounted to about 2.6 million livres.

Law's Banque Generale was authorized to issue interest-paying bank notes payable in silver on demand. It soon had 60 million livres in notes outstanding. The Regime required regional tax payments to be in the form of Banque Generale banknotes so there was a ready market for Law's banknotes. Because these banknotes paid interest and were convenient they sold at a premium over their face value.

The Regime also wanted to develop the territories of Louisiana in North America. Law was granted a charter for the Compagnie de la d'Occident and it was given a 25 year lease on the French holdings of Louisiana. In return the Compagnie was required to settle at least 6,000 French citizens and 3,000 slaves. The Compagnie was also granted a monopoly on the growing and sale of tobacco.

The Compagnie acquired the Compagnie de Senegal, which operated in West Africa, as a source of slaves. It then merged with the French East India Company and the French China Company to form Compagnie de Indes. This company had a virtual monopoly on French foreign trade.

Law's Banque Generale, under the new name of Banque Royale, was added to the combination which Law called his "System."

The Compagnie de Indes issued 200,000 shares at a price of 500 livres each. By 1718 the share price had fallen to 250 livres. In 1719 the Banque pumped up the supply of notes by 30 percent. It also acquired the right to act as the national tax collector for nine years. The Compagnie stock then doubled and redoubled in price.

Law then came with a plan to pay off the troublesome state debt. The Regime would issue notes paying 3 percent interest to its debtors. These debts could then be used to buy stock in Law's Compagnie de Indes. The Compagnie share price rose to 5,000 livres in August 1719 and 8,000 livres in October. People flooded into Paris to buy stock in Law's Compagnie. Speculation in Compagnie stock went wild. Stock was being purchased with only 10 percent downpayment. Fortunes were being made right and left. One beggar made 70 million livres.

John Law became an international celebrity. The Pope sent an envoy to the birthday party of Law's daughter. Law converted to Catholicism and was appointed Controlleur des Finances by the Regime.

Compagnie de Indes shares peaked at a price of 20,000 livres at the end of 1719. In January 1720 two royal princes decided to cash in their shares of the Compagnie. Others decided to follow their example. Law had to print 1.5 million livres in paper money. As Controlleur of Finances, John Law tried to stem the tide by making it illegal to hold more than 500 livres in gold or silver. He devalued banknotes relative to foreign currency to encourage exports and discourage imports. Nevertheless Compagnie de Indes stock fell from 9,000 livres to 5,000 livres. Law was denounced and stripped of his office of Controlleur. As head of the Compagnie de Indes and the Banque Royale he bought up stock and banknotes to try to raise their price, but by June 1720 he had to suspend payments.

John Law fled to Holland in 1720 and his properties in France were seized by the Regime. He lamented,

Last year I was the richest individual who ever lived, today I have nothing, not even enough to keep alive.

Hyperinflation in France After the Revolution

In the spring of 1789 the French Assemblee decreed the issuance of 400 million livres of notes, called assignats, secured by the properties which had been confiscated from the Church during the revolution. By the fall of 1789 the Assemblee approved the issuance of 800 million of noninterest-bearing notes and decreed that the limit on such notes was to be 1.2 billion livres. Despite this stated limit, nine months later another 600 million livres was approved and in September 1791 another 300 million. In April of 1791 another 300 million was approved.

Prices rose, but wages didn't keep up and in 1793 a mob plundered 200 stores in Paris. Price controls were imposed (Law of the Maximum). Output decreased and rationing had to be implemented. To force acceptance of its money the French government imposed a 20 year prison sentence on anyone selling its notes at a discount and dictated a death sentence for anyone differentiating between paper livres and gold or silver livres in setting prices.

By 1794 there were 7 billion livres (assignats) in circulation. In May 1795 this total reached 10 billion livres and by July 1795 it had gone up to 14 billion livres.

When the total reached 40 billion livres the printing plates for assignats were publically destroyed. A new type of note, called a mandat, was issued, but within two years these also lost 97 percent of their value. The printing plates for mandats were also publically destroyed. In 1797 both assignats and mandats were repudiated and a new monetary system based upon gold was instituted.

The Inflation in the
Confederate States of America

From October of 1861 to March of 1864 the commodity price index rose an average rate of 10 percent per month. When the Civil War ended in April 1865 the cost of living in the South was 92 times what it was before the war started. This inflation was obviously caused by the expansion of the money supply. The role of the money supply in establishing the price level is confirmed even more strongly by the results of an attempt to curb the growth of the money supply in 1864.

In February the Confederate Congress decreed a currency reform. All bills greater than five dollars were to be converted into bonds paying 4 percent interest. All bills not converted by April 1 would be exchanged for a new issue at a ratio of 2 for 3. Prior to the reform people spent wildly and drove prices up 23 percent in one month. But, by May 1864, the reform had been completed and the stock of money was reduced by one third. The general price index declined. Eugene Lerner, an economist who studied this inflation, commented on this result:

This price decline took place in spite of invading Union armies, the impending military defeat, the reduction of foreign trade, the disorganized government, and the low morale of the Confederate army. Reducing the stocks of money had a more significant effect on prices than these powerful forces.

The increase in the money supply came as a result of the Confederacy inability to collect funds through taxes. Only 5 percent of its expenditures were covered by taxes. Initially the Confederate government tried to borrow extensively. This failed because the planters had funds only after the fall harvest, but the war started in April. The war interferred with the harvest and export of the cotton crop so the planters were asking the government for help instead of loaning it funds. Consequently less than 30 percent of the funds for the Confederacy came from bonds. Thus, the Confederate government saw printing money as an unavoidable method for financing the war. The Confederate Congress was reluctant to use this measure and stated in the act which authorized the printing of money that it was "not to exceed at any one time one million of dollars." Actually 1500 times this amount was printed.

The printing of such large sums created a major problem. Paper, engravers and printers were hard to find. In desperation, the Secretary of the Treasury recommended that counterfeit money be utilized. Anyone holding a counterfeit bill was supposed to exchange it for a government bond and the government would stamp it "valid" and spend it.

The stock of money and the general price index are shown in Tables 1 and 2.

When the Union army captured sections of the Confederacy people took or sent their Confederate money to the areas where it still could be used. Thus the effect of the capture of Confederate territory was like an increase in the money stock in the remaining Confederate territory. The disruptions of the war also decreased production so it was a matter of more and more money chasing fewer and fewer goods.

The German Hyperinflation of the Early 1920's

Some say the German hyperinflation started when Germany entered World War I in 1914. At that time Germany opted to finance the war by borrowing rather than increasing taxes. The German policy makers chose borrowing because they expected to win the war and intended to force the losers to pay for the cost of the war. It was thus logical to the policy makers to use borrowing rather than taxation.

But Germany lost the war and the victors imposed heavy reparation payments upon her. The reparation payments were perceived as unfair in Germany and the social democratic government was reluctant to impose the burden of their payment upon the German population. In retaliation for the nonpayment France and the other allies occupied the industrial area of the Ruhr on the western border of Germany. Germany was forced to buy more using foreign currencies, while at the same time the occupation of the Ruhr area made it impossible to collect tariff on imported goods. The government, strapped for funds, resorted to printing money. The value of the mark relative to other currencies fell thereby increasing the cost of imported goods. Prices rose increasing the cost of running the government. This necessitated the printing of even more money. Prices rose further and the exchange rates for the mark dropped even more. The result was hyperinflation.

At first, Germans reacted to the higher prices by economizing and reducing their consumption. But when they realized that it was not just a matter of some things being more expensive but instead that the mark was losing value they reacted by spending their marks as fast as possible. This meant that there was little constraint on prices.

There were winners as well as losers in this hyperinflation. Those on fixed incomes and who were owed a specific amount of money found that the real value of their holdings reduced to zero. But those who owed money found their debt effectively wiped out.

Inflation in China 1939-1950

A state bank for China, called the Hu-pu (Board of Revenue) Bank, was established in 1905. By 1907 two other government banks, the Bank of China and the Bank of Communications, were established and authorized to issue bank notes. The imperial government and all subsequent governments looked upon these banks as vehicles for creating money for the government to use to cover its deficits or for any other reason. There were severe penalties imposed for anyone discounting provincial government banknotes.

Despite attempts on the part of governments to abuse their control of the banking system, the banks were able to resist these attempts until the 1930's and the war with Japan.

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