In the recent history, there have been many countries which have been hit by hyper inflation. Of them, the most prominent case has been the hyper-inflation in Germany after the First World War, where inflation accelerated to 1,000,000 % per annum. Other noteworthy examples are Bolivia (25000 % p.a.); Russia (2000 %); Israel (1500 %); Turkey (again 1500 %) and currently Zimbabwe (3700 % and still rising).
When prices rise at these high rates, the first casualty would be the currency of the country. No one would like to accept the domestic currency, because its value would fall by the minute. Instead, people would start to accept other types of hard currencies like the US Dollar. If there is a shortage of those hard currencies, people would invent their own currencies. In Germany, with that hyper-inflation in which prices rose by 2 % every minute, the German Mark ceased to function as money. Instead, people started to use cigarettes, chocolate bars or empty bottles as the medium of exchange.
Then, there is the story of those two brothers who inherited a sizable wealth from their father. One being a reputed investor used his endowment to build a substantially large portfolio of investments. The other was a drunkard and used the entire amount for drinking. Thus, he ended up with a houseful of empty bottles. The story goes to say that Germany was hit by hyper-inflation reducing the value of the entire investment of the son who adopted prudential policies to zero. But, the drunkard became a millionaire overnight, because his empty bottles now became money.
A similar amusing story relating to Bolivian inflation in mid 1980s takes a different form. Since prices are rising at such a high rate, it became necessary to negotiate and agree on a price before undertaking even a very simple transaction. The story says that before a person takes a haircut, he would agree a price with the barber. But, halfway through, the barber would stop cutting the hair and renegotiate the price. That was because by that time, hyper inflation has raised the prices to a still higher level. As a result, the original contract price no longer becomes valid.
When prices rise at these high rates, the first casualty would be the currency of the country. No one would like to accept the domestic currency, because its value would fall by the minute. Instead, people would start to accept other types of hard currencies like the US Dollar. If there is a shortage of those hard currencies, people would invent their own currencies. In Germany, with that hyper-inflation in which prices rose by 2 % every minute, the German Mark ceased to function as money. Instead, people started to use cigarettes, chocolate bars or empty bottles as the medium of exchange.
Then, there is the story of those two brothers who inherited a sizable wealth from their father. One being a reputed investor used his endowment to build a substantially large portfolio of investments. The other was a drunkard and used the entire amount for drinking. Thus, he ended up with a houseful of empty bottles. The story goes to say that Germany was hit by hyper-inflation reducing the value of the entire investment of the son who adopted prudential policies to zero. But, the drunkard became a millionaire overnight, because his empty bottles now became money.
A similar amusing story relating to Bolivian inflation in mid 1980s takes a different form. Since prices are rising at such a high rate, it became necessary to negotiate and agree on a price before undertaking even a very simple transaction. The story says that before a person takes a haircut, he would agree a price with the barber. But, halfway through, the barber would stop cutting the hair and renegotiate the price. That was because by that time, hyper inflation has raised the prices to a still higher level. As a result, the original contract price no longer becomes valid.
