When money breaks: hyperinflation

Ask Slovenians who were adults in 1989 about money, and many remember prices on shop shelves changing every week, and savings kept in Deutsche Marks. That was a short taste of hyperinflation. A few years later, in Serbia and Montenegro, prices rose by more than half every single day. How can money lose its value so fast, and what do people do when it happens?

What hyperinflation is

Hyperinflation is inflation so fast that money stops working. Economists usually say it starts when prices rise more than 50% in a single month. That sounds modest, but it compounds: after a year at 50% a month, prices are about 130 times higher.

It is extremely rare. The euro area’s 3.8% a year in September 2026 is above the 2% target, but thousands of times smaller than hyperinflation.

Why it happens

The pattern is similar almost everywhere:

1. A government spends far more than it collects in taxes. This gap is a budget deficit.
2. It cannot borrow enough, so it pays the gap with newly created money.
3. At the same time, production falls because of war, sanctions or economic collapse. More money chases fewer goods.
4. People lose trust in the money. They spend it the moment they get it, which pushes prices up even faster.

Once trust is gone, money fails as a store of value first, and soon as a unit of account too.

Five famous cases

Germany, 1922–23. In 1914 a US dollar cost 4.2 marks. By November 1923 it cost 4.2 trillion marks. A loaf of bread in Berlin went from about 160 marks at the end of 1922 to about 200 billion marks in late 1923. War debts, reparations and money printed to pay striking workers in the occupied Ruhr region all played a part.

Hungary, 1945–46. The worst hyperinflation ever recorded; the table shows its peak. The new forint replaced the pengő on 1 August 1946.

Yugoslavia. In 1989 prices in Yugoslavia, Slovenia included, rose more than tenfold. On 1 January 1990 a new dinar replaced 10,000 old ones. Slovenia introduced its own currency, the tolar, in October 1991. In Serbia and Montenegro, a far worse episode followed from 1992 to January 1994. In January 1994 prices rose about 313 million percent in one month. A 500-billion-dinar note was printed.

Zimbabwe, 2007–09. At the peak prices doubled roughly every day, and a 100-trillion-dollar note appeared. In 2009 people were allowed to use foreign currencies such as the US dollar instead.

Venezuela, about 2016–21. Prices rose more than 50% a month for long periods. The country removed zeros from its currency three times (2008, 2018, 2021), and millions of people left.

What people did, and how it ends

People protected themselves in the same ways each time: they spent wages at once, saved and priced in a foreign currency, and swapped goods directly. Using a foreign currency instead of the local one is called currency substitution.

The losers were savers, pensioners and anyone paid a fixed amount. The winners were borrowers with fixed debts, which melted away.

Hyperinflation ends only when the money creation stops and people believe it has stopped. Removing zeros from a currency is called redenomination. It is part of most cures, but it is not the cure itself. The Yugoslav “new dinar” of 24 January 1994 worked because it was tied one-to-one to the Deutsche Mark, and new money could no longer be created freely.