July 15, 2008
Yugoslavia's Hyperinflation

Hyperinflation is a common concept, but an illustrative example is necessary to show just how quickly it can wreak its havoc. A recent example would be the early 1990s in Yugoslavia when the nation was slipping into civil war. If you plotted Yugoslavia’s retail prices, money supply and the black market exchange rate for its currency using a base of 100 in 1991, you’d see that all these measures inflated to 10,000,000,000,000,000,000,000 or more by 1994. It can happen that fast.

Compare this to today: while U.S. inflation runs between 4 – 10 % per year (depending on whom you believe), Yugoslavia’s inflation in 1993 reached 2% per hour, with retail prices doubling every two days.

The destroyed Yugoslavian dinar was finally pegged to the German Deutsche Mark on a one-to-one basis in 1994, secured by Yugoslavia’s scant foreign reserves and renamed the “novi dinar.”

But even though this move stemmed hyperinflation, it required 1.2 x 1027 of the pre-1990 currency to purchase just one novi dinar. So much for your dinari-denominated life savings. This hyperinflationary tsunami wiped out generations of accumulated wealth in three short years.

 

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