Umer 1 Adeel T. Umer 28 May 2010 Hyperinflation in Zimbabwe Inflation is defined as a general rise in prices of goods and services produced within the boundary of the country over a fixed time period. The rise in prices leads to a fall in the purchasing power of money i.e. the same amount for money can now be used to buy a lesser amount of goods and services. Similarly, hyperinflation is defined as a situation in which the price level rises very fast, causing severe damage to a country's economy and particularly to its currency. In other words, hyperinflation is when the rate of inflation is so high that it has to be calculated monthly, weekly or even daily, because the prices rise at a huge pace. Hyperinflation usually precedes a long drawn out inflation period, paired with an increase in the supply of money in the economy. This report will discuss hyperinflation in Zimbabwe, mainly the reasons and causes of hyperinflation and the ways to combat it. Hyperinflation was never recorded before the use of paper currency as money, instead metals such as gold were used which never lost their value. The first recorded instance of hyperinflation was during the French revolution, when the rise in monthly price level was estimated to be greater than double. The 20 th century has shown the world nearly 30 examples of hyperinflation destroying the economy, a scenario commonly witnessed after the two World Wars. The deadliest monthly inflation rate was witnessed by Hungary, when halfway through the year 1946; prices took a little more than half a day to double (see Table 1). Other countries namely Yugoslavia, Germany, Greece and China respectively join Hungary in the list of top five countries in terms of the highest monthly inflation rates in the 20 th century (see Table 1). Similarly, the 21 st century
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Umer 1
Adeel T. Umer
28 May 2010
Hyperinflation in Zimbabwe
Inflation is defined as a general rise in prices of goods and services produced within the
boundary of the country over a fixed time period. The rise in prices leads to a fall in the purchasing
power of money i.e. the same amount for money can now be used to buy a lesser amount of goods
and services. Similarly, hyperinflation is defined as a situation in which the price level rises very fast,
causing severe damage to a country's economy and particularly to its currency. In other words,
hyperinflation is when the rate of inflation is so high that it has to be calculated monthly, weekly or
even daily, because the prices rise at a huge pace. Hyperinflation usually precedes a long drawn out
inflation period, paired with an increase in the supply of money in the economy. This report will
discuss hyperinflation in Zimbabwe, mainly the reasons and causes of hyperinflation and the ways to
combat it.
Hyperinflation was never recorded before the use of paper currency as money, instead
metals such as gold were used which never lost their value. The first recorded instance of
hyperinflation was during the French revolution, when the rise in monthly price level was estimated
to be greater than double. The 20th century has shown the world nearly 30 examples of
hyperinflation destroying the economy, a scenario commonly witnessed after the two World Wars.
The deadliest monthly inflation rate was witnessed by Hungary, when halfway through the year
1946; prices took a little more than half a day to double (see Table 1). Other countries namely
Yugoslavia, Germany, Greece and China respectively join Hungary in the list of top five countries in
terms of the highest monthly inflation rates in the 20th century (see Table 1). Similarly, the 21st century
Umer 2
has been unfortunate enough to witness its first hyperinflation recorded in Zimbabwe, during the 21
month period starting from March 2007 till November 2008, leading to an extinction of the