The Risks of Hyperinflation

🔗The Risks of Hyperinflation

Hyperinflation is an extreme form of inflation, generally defined as a rapid and uncontrolled increase in prices at a rate higher than 50% per month. It leads to severe economic, social, and political consequences.

🔗Economic Risks

  • Loss of currency value:
    The national currency becomes almost worthless, pushing people to use foreign currencies or tangible goods as a medium of exchange.
  • Drop in consumption and investment:
    Uncertainty drives households to spend quickly and businesses to avoid investments.
  • Collapse of the financial system:
    Banks lose the trust of depositors, and credit becomes inaccessible.
  • Disruption of domestic trade:
    Prices constantly change, making business management extremely difficult.
  • Capital flight and dollarization of the economy:
    People convert their savings into foreign currencies and send them abroad.

🔗Social Risks

  • Impoverishment of the population:
    Real incomes fall, especially for employees and retirees.
  • Increased inequalities:
    Those who own tangible assets or foreign currencies fare better.
  • Growth of the informal economy:
    Barter and the black market become alternatives to the official system.

🔗Political Risks

  • Political instability:
    Protests, riots, increased social crises.
  • Rise of authoritarian regimes:
    Populist or authoritarian governments may emerge by promising stability and price control.

🔗Historical Examples of Hyperinflation

  • Germany (1923)
  • Zimbabwe (2000s)
  • Venezuela (2010s)
  • Hungary (1945–1946), the worst recorded case