What is Hyperinflation?

What is hyperinflation?

Hyperinflation is essentially a higher level of inflation that renders the price of goods and services to increase exponentially becoming increasingly difficult to manage. Even though inflation is similar, the results left by hyperinflation are totally different as inflation can be efficiently controlled and utilized to boost the overall state of an economy. 



Therefore, in comparison, hyperinflation can yield much worse results as nothing good ever comes about when there is too much of something present (except for money in your pocket.) Today we will be exploring the point of causes and effects of hyperinflated situations.





What causes hyperinflation?



According to the past, hyperinflation becomes active after inflation growth rates rise to around 50 percent or more when there is an economic depression. Nations will try to print more banknotes to prevent demand shock, but if gross domestic products (GDP) are not going the same way, there will be a high chance of a great loss to the economy.



If the situation continues its damaging effects, yield imbalance may take its toll to the economy. Value and trust in the national currency will potentially decrease, further leading inflation to rapidly move up the scale into hyperinflation. 





Effects of hyperinflation



Hyperinflation occurs when financial institutions are unable to efficiently control the growth rate of inflation, resulting in radically altered costs of goods and services, wherein proprietors are required to ensure profit based on production’s cost.



When consumers are forced to spend more on the cost of products and services, they choose to stockpile their supplies in preparation for upcoming price change caused by hyperinflation. 



While financial institutions are printing additional currency, a vicious cycle occurs, greatly harming the economy, such as the cost of living increasing from 10,000 Baht per month to 15,000 Baht and 22,500 Baht afterward. 



If hyperinflation persists, every industry would be unable to keep up with the pace of change, possibly even leading to shutdowns and increased unemployment rates. Currency value will decrease compared to other countries. In the meantime, if the situation is not resolved, the nation would enter into an economic collapse.





Hyperinflation in Cryptocurrency



Cryptocurrency is also one of the options to invest as means to manage risks and changes in terms of value. Due to hyperinflation,  a currency can be devalued and rendered nearly worthless.



Decentralized finance (DeFi) has attracted many people to invest in digital assets because centralized finance (CeFi) might not be managed efficiently by financial institutions, possibly continuously causing harm to the nation’s economy.





Conclusion

HyperInflation is genuinely one of the worst things that can happen to an economy. Every country needs to stay on their toes because once it occurs, it becomes incredibly difficult for nations to control the situation at hand. 

Investing can potentially provide a beneficial solution, instead of saving money and waiting for it to be depreciated. However, before investing, you should conduct extensive research to fully understand the risks involved, along with allocating assets in a well-strategized manner.





Reference



Binance academy, Investopedia, Wikipedia, The balance, CFI