Perspective

by Steve Hanke

Hyperinflation:
Mugabe versus
Milosevic
When a country’s monthly inflation
rate exceeds 50% – that is close to an
annual rate of 13,000% – it qualifies
as a hyperinflation.
pisodes of hyperinflation are rare. they have
only occurred when the supply of money has been gov- The official portrait of President Robert Mugabe hangs on
erned by discretionary paper money standards. No hy- the wall as Zimbabwaen dollar bank notes are shown
perinflation has ever been recorded when money has been
commodity-based or when paper money has been convertible into
a commodity. The first hyperinflation occurred during the French Absent current data, we don’t know exactly what today’s infla-
Revolution (1789-96). As the accompanying table indicates, the tion rate is. However, we do know the course of the Zimbabwe dol-
French episode was followed by 28 additional hyperinflations—all lar against the US dollar (see chart). The destruction of Mugabe’s
in the twentieth century. dollar is approaching that which visited the German mark in the
Perhaps the most well-known was the great German hyperin- 1920s but it’s not yet close to the ruin of Milosevic’s Yugoslav di-
flation of the 1920s, when the monthly inflation rate peaked at ap- nar. Everyone knows that
proximately 30,000% in October 1923. The two most virulent hy- The highest daily high inflation rates inflict
perinflations ever recorded – Hungary (1945-46) and Yugoslavia untold damage on a coun-
(1992-94) – curiously remain little known. Perhaps this is because inflation rate try’s economy and misery
the peak monthly inflation rates were so high as to be incompre- ever recorded on its suffering citizens.
hensible. This problem can be overcome by thinking in terms of was in Hungary Zimbabwe’s inflation has
daily inflation rates, however. On that metric, the highest daily pushed its inhabitants into
inflation rate ever recorded was in Hungary on July 10, 1946, when on July 10, 1946, poverty and forced millions
the daily rate was 348.46%. when the daily of Zimbabweans to emi-
The accompanying chart plots the destruction of the German rate HIT 348.46%. grate. Between 1997 and
mark against the US dollar during the world’s most well-known 2007, cumulative inflation
hyperinflation. It also plots the decimation of the Yugoslav dinar was nearly 3.8 billion per-
against the US dollar during the last great hyperinflation of the cent, while living standards
twentieth century. Under Slobodan Milosevic’s rule, Yugoslavia fell by 38%.The source of
recorded the second-highest monthly inflation rate in history, Zimbabwe’s hyperinflation is the Reserve Bank of Zimbabwe’s
a whopping 313 million percent in January 1994. While much money machine. The government spends, and the RBZ finances
higher than the German peak-monthly rate, the Yugoslav rate was the spending by printing money.
much lower than the record monthly rate which was chalked up by The RBZ has no ability in practice to resist the government’s
Hungary in July 1946. This brings us to the world’s thirtieth, and demands for cash. Accordingly, the RBZ cannot hope to regain
GETTY IMAGES

this century’s first, hyperinflation. Robert Mugabe’s Zimbabwe credibility anytime soon. To stop hyperinflation, Zimbabwe needs
has been engulfed in a hyperinflation since March 2007. to immediately adopt a different monetary system.

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Perspective
History of Hyperinflation convertible into the reserve currency
Highest Inflation Highest Inflation
at a fixed rate on demand.
No Country Year(s) per month (%) No  Country Year(s) per month (%) Third is free banking. This op-
1 Argentina 1989-90 196.60 16 Hungary 1945-46 1.295 x 1016 tion would allow commercial banks
2 Armenia 1993-94 438.04 17 Kazakhstan 1994 57.00 to issue their own private notes and
other liabilities with minimum gov-
3 Austria 1921-22 124.27 18 Kyrgyzstan 1992 157.00
ernment regulation.Central bank-
4 Azerbaijan 1991-94 118.09 19 Nicaragua 1986-89 126.62
ing is the only monetary system that
5 Belarus 1994 53.40 20 Peru 1988-90 114.12 has ever created hyperinflation and
6 Bolivia 1984-86 120.39 21 Poland 1921-24 187.54 instability in Zimbabwe. Prior to
7 Brazil 1989-93 84.32 22 Poland 1989-90 77.33 central banking, Zimbabwe had a
8 Bulgaria 1997 242.70 23 Soviet Union 1922-24 278.72 rich monetary experience in which a
free banking system and a currency
9 China 1947-49 4,208.73 24 Taiwan 1945-49 398.73
board system performed well. It is
10 Congo(Zaire) 1991-94 225.00 25 Tajikistan 1995 78.10 time for Zimbabwe to adopt one of
11 France 1789-96 143.26 26 Turkmenistan 1993-96 62.50 these proven monetary systems and
12 Georgia 1993-94 196.72 27 Ukraine 1992-94 249.00 discard its failed experiment with
13 Germany 1920-23 29,525.71 28 Yugoslavia 1990 58.82 central banking.
14 Greece 1942-45 11,288.00 29 Yugoslavia 1992-94 313,000,000.00 Will this happen any time soon?
The answer is not clear. It is surpris-
15 Hungary 1923-24 82.18
ing how long the perpetrator of a hy-
Note: 1.295 x 1016 equals 12,950,000,000,000,000
Sources: Peter Bernholz, Monetary Regimes and Inflation, Cheltenham, UK: Edward Elgar Publishing, 2003; and Steve H. Hanke
perinflation can stay in power. Yu-
goslavia’s hyperinflation peaked in
Mugabe vs Milosevic January 1994 but Yugoslavs suffered
1,000, 000, 000, 000, 000, 000, 000, 000 for nearly eight more years of high
inflation until Milosevic reluctantly
1,000, 000, 000, 000, 000, 000, 000 conceded defeat after the September
2001 elections.
Marks, Dinars, ZWD per USD (Logarithmic Scale)

1,000, 000, 000, 000, 000, 000

Yugoslavia’s experience with
currency destruction, hyperinflation
1,000, 000, 000, 000, 000

Germany (Marks/USD)
and a determined dictator is sobering.
1,000, 000, 000, 000 Those who believe hyperinflation
Zimbabwe
(ZWD/USD)
will bring down Robert Mugabe
1,000, 000, 000 rapidly might, unfortunately, be
engaging in wishful thinking.
1,000, 000
That said, there is room to
end on an optimistic note: the life
1,000
Yugoslavia (Dinar/USD) of most governments that have
1
used the printing presses to create
Germany 1921 Germany 1922 Germany 1923 Germany 1924 hyperinflation have been much
Yugoslavia 1990 Yugoslavia 1991 Yugoslavia 1992 Yugoslavia 1993
Zimbabwe 2005 Zimbabwe 2006 Zimbabwe 2007 Zimbabwe 2008 shorter than Milosevic’s. And
Sources:
(Marks/USD) - Thomas J. Sargent, Rational Expectations and Inflation, 2nd ed. there are proven remedies to bring
(New York: Harper Collins, 1993); (Dinar/USD) - Steve Hanke; (ZWD/USD) - Imara Asset Management Zimbabwe hyperinflations to an abrupt halt.

Steve H. Hanke is a Professor of Applied Economics at The Johns Hop-

Three choices kins University in Baltimore and a Senior Fellow at the Cato Institute in
Any one of three options can rapidly slash the inflation Washington, D.C.
rate and restore stability and growth to the Zimbabwean economy.
First is “dollarization.” This option would replace the discredited (For a diagnosis of Zimbabwe’s hyperinflation and a comprehensive treat-
Zimbabwe dollar with a foreign currency, such as the US dollar or ment of the alternatives for stopping it, see Steve H. Hanke, “Zimbabwe:
the South African rand. Second is a currency board. Under that Hyperinflation to Growth”, Cato Center for Global Liberty and Prosperity
system, the Zimbabwe dollar would be credible because it would Development Policy Analysis, No. 6, Washington, D.C.: The Cato Institute,
be fully backed by a foreign reserve currency and would be freely June 25, 2008. http://cato.org/pubs/dpa/dpa6/pdf.

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