## Hyperinflation is a financial collapse that changes lives

Every currency in the world experiences certain fluctuations in value – this phenomenon is called inflation. However, when this process goes out of control, when prices rise not by a few percent per year, but by hundreds or thousands of percent per month, then we are talking about a phenomenon that radically changes the economy of a country. Hyperinflation is a state when the purchasing power of a currency falls so rapidly that citizens stop using it.

Economist Philip Keegan in his work "The Monetary Dynamics of Hyperinflation" proposed a clear criterion: the process of hyperinflation begins when goods and services increase in price by more than 50% in a single month. At first glance, this sounds like an abstract figure, but for the average person, it means extraordinary changes. If rice cost $10 at the beginning of the month and $15 at the end, then by the next month the same amount may cost $22.50. After six months, the price reaches $114, and after a year, it exceeds $1000. But hyperinflation never stops at the 50% level – the rates accelerate exponentially.

### Mechanism of Economic Destruction

What starts as rising prices turns into a real catastrophe. Prices for food, housing, and essential goods can change several times a day. Consumers lose confidence in the currency, companies shut down, unemployment rises, and tax revenues to the budget decline. This creates a vicious cycle that is difficult to stop with traditional monetary policy methods.

### Causes of hyperinflation: lessons from history

**Germany after World War I**

The Weimar Republic became a classic example of how civil arrangements can lead to financial catastrophe. Berlin borrowed large sums to finance military actions, counting on victory and subsequent reparations from the victors. When the scenario did not materialize, Germany found itself in a debt trap with billion-dollar reparations payments to the Allies.

The government made a controversial decision: to suspend the gold standard. This meant that the amount of money in circulation was no longer directly linked to the country's gold reserves. At the same time, the German mark lost credibility in international markets. Allies refused to accept paper in settlement of debts, so Berlin began printing vast amounts of its own currency to purchase foreign currency. The result was predictable: the mark devalued to absurd levels. Inflation surged by 20% daily at its worst period. The German currency lost so much value that some people burned paper to heat their homes – it was cheaper than buying wood.

**Zimbabwe's step down**

After gaining independence in 1980, Zimbabwe had a stable economy. However, in 1991, President Robert Mugabe launched the Economic Structural Adjustment Program (ESAP), which became one of the biggest mistakes in the country's history. Along with land reforms, this led to a sharp decline in food production. Hyperinflation began in the early 2000s. In 2004, the annual inflation rate was 624%, in 2006 it was 1730%, and in July 2008 it reached 231 million 150 million 888%. Professor Steve Hanke calculated that in November 2008 hyperinflation peaked at 89.7 sextillion percent per year, equivalent to 98% per day. In 2008, the national currency was officially abandoned, replaced by foreign currencies.

**Venezuela: Oil and Political Chaos**

Thanks to its large oil reserves, Venezuela was one of the most developed economies in the Latin American region. However, the oil surplus in the 1980s, coupled with poor management and systemic corruption at the beginning of the 21st century, led to a socio-economic crisis that has lasted for over a decade. The inflation rate skyrocketed: 69% in 2014, 181% in 2015, 800% at the end of 2016, 4000% in 2017, and over 2.6 million percent at the beginning of 2019.

President Nicolás Maduro tried to tackle the problem by issuing a new currency – the sovereign bolivar, which replaced the previous currency at a rate of 1 to 100 thousand. Thus, 100 thousand bolivars became one sovereign bolivar. However, economist Steve Hanke called this step a "cosmetic thing" that "means nothing without changes in economic policy."

### Cryptocurrencies as a way out of the crisis

Against the backdrop of the collapse of traditional currencies, cryptocurrencies have gained unexpectedly significant importance. Unlike government money, Bitcoin and other digital assets are not controlled by centralized institutions. Blockchain technology ensures that the number of coins is issued according to a predetermined schedule, and each unit is unique and protected from counterfeiting.

In countries with hyperinflation – from Venezuela to Zimbabwe – citizens are increasingly turning to P2P transactions in digital currencies as an alternative. This has prompted central banks in various countries to seriously consider the development of their own state cryptocurrencies. Sweden, Singapore, Canada, China, and the USA are already experimenting with blockchain technologies. However, even if these central banks issue their digital currencies, they are unlikely to have a hard limited supply like Bitcoin, which makes them less protected from traditional inflation.

### Conclusion

Hyperinflation is not a rare phenomenon – it is the result of a sequence of political mistakes, social unrest, and a deficit in the country's export capacity. A short period of disorder can quickly devalue a traditional currency. Once the process begins, the cycle is self-perpetuating: a decrease in export demand, currency devaluation, price spikes, loss of trust, non-production, company closures. Some governments have tried to combat the problem by printing more money, but this has only exacerbated the crisis.

It is interesting to observe how, as trust in fiat currencies declines, trust in cryptocurrencies tends to rise. This could have far-reaching consequences for the global attitude towards money in the future and how the world will manage the monetary system.