Hyperinflation in History ; Money Supply and Hyperinflation

I found an interesting table listing out the hyperinflation in history in the 2011 Annual Report of Globalization and Monetary Policy Institute (Federal Reserve Bank of Dallas).

There is an important reason why I wanted to discuss this in the current economic and financial scenario. 

Before I discuss more, below is a table on the list of hyperinflation experienced in the history of paper money

List of hyperinflation in the history of paper money system

I specifically highlighted Germany because the current resistance to Euro bonds and relatively more quantitative easing comes from their experience during 1923. 

However, a more critical observation comes from the recent hyperinflation in Zimbabwe and the trend of money supply and inflation growth during the crisis.

The chart below gives the inflation and money supply trend in Zimbabwe and it clearly shows that inflation has moved in tandem with the growth in money supply

Hyperinflation and money supply growth in Zimbabwe

The point I want to stress on here is the growth in monetary base for all countries after the recent crisis. Further, with continued sluggish economic growth, Central Bankers will go ahead with more quantitative easing and the global financial and economic system will be flooded with more and more liquidity. 

I am not suggesting a scenario where we see hyperinflation in the United States or the Euro Zone. The reason is that The Dollar (to a large extent) and Euro (to some extent) is a global currency. Had all the Dollar been in the United States, we would already have had hyperinflation. 

Having said that, the current policies policies will certainly lead to high inflation in the medium to long-term.

As evident from the table above, the history of paper money is full of examples of creation and destruction of currencies. I wonder what will be the fate of a currency, which has lost 95% of it's value in the last 100 years. As mentioned in one of my earlier articles, in absence of any other better option, Dollar will remain the king. But like all currencies of the past, the Dollar is destined to perish one day. 

The implications for the world will however be pretty scary because no other currency in the history of capitalism has been so much globally accepted as a reserve currency.

For those who are betting on deflation, my guess is that we will see high inflation, which will be followed by deflation when the current financial system is on a verge of collapse. 

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