If you’re stuck indoors right now, you’re not alone. Over half of the world’s population is under some form of lockdown while coronavirus spreads across the globe. Maybe you’ve already run out of series to stream or books to read, and you’re entertaining yourself with some online casino games while all your local shops have shut their doors. It’s natural in these circumstances to start worrying about what the next step will be. In most countries under quarantine, there doesn’t seem to be an end in sight – and every day that businesses are shut could lead to financial disaster.
What is hyperinflation?
It doesn’t take a genius to recognise that the word “hyperinflation” just means inflation happening at an extreme level. In a developed country like New Zealand, inflation rates waver from year to year, but they tend to remain somewhere around 2%. Developing countries often have a far more chaotic economy, but even then, they rarely enter into the state of hyperinflation. The inflation rate needs to exceed 50% for hyperinflation to be officially declared. What causes hyperinflation? It happens when the government is spending more than it can afford, so prints more money. Over time, this money becomes worthless. Hyperinflation often comes about because of war or civil unrest, so tackling it can be difficult.
Zimbabwe is infamous for economic mismanagement. Under the leadership of Robert Mugabe, the country entered hyperinflation multiple times, eventually reaching a mind-boggling inflation rate of 79,600,000,000% in November 2008. Things have improved a bit in the decade since then, with currencies being changed in an effort to start fresh, but the economy is far from stable. In recent years, Venezuela has snatched Zimbabwe’s hyperinflation crown. Once one of Latin America’s most flourishing economies, this country suffers whenever the price of oil fluctuates. Since entering hyperinflation in 2016, the Venezuelan economy has been on a rollercoaster ride. In 2019, inflation hit 10 million per cent – and things don’t look like they’ll stabilise anytime soon. The most famous examples of hyperinflation are from the first half of the 20th century. You may remember seeing imagines of German hyperinflation in your history books at school. In the time between the First and Second World Wars, the German economy crashed, leading to those famous pictures of people carrying wheelbarrows full of banknotes to buy their groceries. The worst hyperinflation ever came in nearby Hungary, just after the Second World War, as the government struggled to return to a state of normality.
Are we heading for hyperinflation? It’s hard to say. Economic activity has ground to a halt in many countries, but governments continue to support their citizens with financial assistance. This could be the first step to hyperinflation. However, it’s also an essential step in keeping people alive and well. The alternative – refusing to offer any financial help to workers who suddenly find themselves jobless – can have equally dire consequences, leading to a depression. Governments will have to strike the right balance to avoid either of these two situations. It seems clear that the global economy will suffer in the age of coronavirus, but we can at least take comfort from the fact that we’re all in the same boat. Unlike Zimbabwe or Venezuela, we’re not isolated nations. Instead, every country in the world faces the same threat from the disease. Agreements between nations could lead to a bestcase scenario as we move forward. The most frustrating thing for many of us is that, as individual citizens, there’s almost nothing we can do. In fact, the best thing we can do for our country is to stay at home: the more of us that comply, the sooner quarantine will be lifted. So get streaming, get reading, and open up your favourite online games – we could be here a while!