Hyperinflation

Well, there is a natural inflation rate to any economy, which means an increase in rates in rates, goods and services over time.  As inflation rolls along, there has to be a matching increase in good and services produced in the country to justify the climb.  Inflation is usually measured with a core set of goods and services (i.e., milk, oil, bread, health insurance), and the two most popular indexes are the Consumer Price Index (CPI), which measures prices that affect typical consumers, and the GDP deflator, which measures prices of locally-produced goods and services.

Now, there is no clear definition of how high inflation has to be to make it "hyper," but definitions range from 50% in one month to 100% in three years.  What happens to spin this inflation into its ugly "hyper" version is that inflation goes up, but the value of the currency goes down.  It's two levers, working in conjunction, that lead to 500,000,000,000 Dinar bills.  It's reeeeaally easy to print money with more zeroes on it, which is why this usually happens in economies with paper money.

The most extreme example was Hungary after World War II.  (War is a very common reason for hyperinflation since the country is usually less productive and has to do whatever it can to keep paying the bills.  The U.S. underwent hyperinflation during the Revolutionary and Civil Wars.)  Back to Hungary, though.  In 1946, they had one month with the inflation rate of 41,900,000,000,000,000%.  No joke.  They were printing bills that were 100 quintillion pengo (100,000,000,000,000,000,000).  The number was so big, they didn't put it on the bill, subsituting it with a simple "B":

They even printed a banknote for ten times that (1,000,000,000,000,000,000,000), but it never made it into circulation.

I felt motivated to explore hyperinflation because it's hitting Zimbabwe now.  That country's such a mess that they actually haven't had real currency since 2003.  Instead, they issue promissory notes they call bearer cheques that actually have expiration dates.  Ay yay.  The most recent bearer cheques were issued a couple of weekends ago and are worth $100 billion ($100,000,000,000).  They expire December 31st of this year.  Their value?  That $100 billion note is worth about $1 U.S.  It isn't enough to buy a loaf of bread.  It can purchase about 4 oranges.  The only way for Zimbabwe to get out of this is to produce more goods and services.  They have to match demand to curtail the rising costs.  That, or wave a magic wand.

My lordie, what a mess.

Hyperinflation?  There's nothing fun about it.  It's not HAWTaction [hot ak-shuhn].

7/30/08 UPDATE:  Turns out Zimbabwe's central bank governor has announced a plan to combat the inflation.  As of August 1, you can say goodbye to ten zeroes!  Yes, $100 billion dollars will now be worth $10.  On Friday, the central bank will issue $500 bearer cheques to replace the $5,000,000,000,000 ones.  Ay yay.