Hyperinflations can end quickly, given the right sort of regime change

BANKNOTES USED as toilet paper. Wheelbarrows of cash exchanged for a loaf of bread. Prices in supermarkets revised upwards each hour. These vignettes of hyperinflation would be funny if they did not cause such hardship. This is now Venezuela’s situation, in what may be the final days of the ill-starred regime of Nicolás Maduro. An estimate by Steve Hanke of Johns Hopkins University put the country’s inflation rate last year at 100,000%, with prices doubling roughly once a month. The IMF reckons that in 2019 it may reach 10,000,000%.

Hyperinflations are not an exclusively modern problem. Rome suffered one under the emperor Diocletian. But the spread of fiat currencies, backed by the credibility of a government rather than a physical commodity such as gold, has made them more common. They came in devastating bursts over the past century: in the aftermath of the first and second world wars, during the post-Soviet transition from communism to capitalism, and more recently in misgoverned poor countries, mostly in Africa and Latin America. They are not cases of garden-variety inflation run amok. Rather, they demonstrate a catastrophic breakdown in a state’s capacity to govern. In a narrow sense, they are a monetary phenomenon, with printing presses running nonstop. Yet the...

via The Economist: Finance and economics Business Feeds

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