You would have definitely heard of the term 'inflation' but what is 'hyperinflation'? Find out here 👇
, which occurs when the average price of goods increases, as the purchasing power of that currency decreases. Usually, governments and financial institutions work together to ensure inflation occurs at a smooth and gradual rate. However, there have been many instances in history where inflation rates have accelerated at such an unprecedented degree that it caused the real value of that country's currency to be diminished in alarming proportions.
Despite the debate about the causes of Germany’s hyperinflation, some commonly cited causes include the suspension of the gold standard, the war reparations, and the reckless issuance of paper money. The decision to suspend the gold standard at the beginning of the war meant that the amount of money in circulation bore no relation to the value of gold the country owned.
In 2018, president Nicolás Maduro announced that a new currency would be issued in order to fight the hyperinflation, replacing the existing bolivar at a rate of 1/100,000. Thus, 100,000 bolivares became 1 sovereign bolivar. However, the efficacy of such an approach is highly questionable. Economist Steve Hanke stated that cutting zeros is “a cosmetic thing” and “means nothing unless you change economic policy.
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