Samina Ali Asghar. Reg # 740.

March 21,2011

What is hyperinflation aside from its destructive redistribution effects, it may cause economic collapse. Do you agree? Hyperinflation is an important economic term, which refers to the unrestrained rise in the rate of inflation. In fact, Hyperinflation is nothing but an economic condition characterized by rapid escalation in the prices, at a time when the value of the currency goes down. The term 'Hyperinflation' is used to denote highly low rates, on an unofficial level. Since Hyperinflation is a very rapid process, escalation in the price levels automatically takes place at equally fast pace. Measurement of Hyperinflation is therefore, impossible because it is hardly noticed. Hyperinflation is expressed as multiples, instead of percentages. Hyperinflation starts as a result of opposing forces. These include the destruction of suppliers capacity to produce and the consumers accelerating preference for and hoarding of the essential necessities of life such as food, shelter, electricity, fuel, transportation, clothing, and medicine. As a rare economic phenomenon, Hyperinflation is born out of a handful of factors, as stated below: The main reason contributing towards Hyperinflation is a massive inequality which exists between the supply and demand of a particular currency. These kinds of inequalities spring up in a country's economy, when the population lacks confidence on the currency. Decline in the purchasing power of money of private and public savings, coupled with economical disruptions causes Hyperinflation. It has direct impact of the financial infrastructures of a country, taking the value of both specie and hard currencies to zero. This exerts tremendous negative influence on the nationwide investments. A scarcity of central banks is also an important reason for the emergence of Hyperinflation. The lack of central banks in a particular nation tends to create a fearful effect on the other banks, resulting in the decline of the available monetary supply. This is a condition which first leads to depression in the economy, and ultimately Deflation. Over-printing of paper notes is taken to be another relevant reason for Hyperinflation to affect the economic conditions of a nation. Since, printing of paper currency is much easier, compared to other forms of currencies, its supply becomes equally easy and smooth. This is done by putting new stamps on old currencies, or adding several zeros to the plates prior to printing. However, most hyperinflationary cases go back to hard money.

Yes I agree, hyperinflation causes economic collapse due to certain reasons; Causes of Hyperinflation: A hyperinflation is mainly caused by an extremely rapid growth in the supply of paper money. This occurs when the monetary and fiscal authorities of a nation regularly issue large quantities of money to pay for a large stream of government expenditures. In fact, inflation is a form of taxation in which the government gains at the expense of those who hold money while its value is declining. So many economists consider hyperinflation as a very large taxation scheme. Here are some factors that could cause or trigger hyperinflation: Rapid and massive increase in the amount of money printed. The growth in the output of goods and services is exceedingly inferior to the money printed out. Imbalance between supply and demand caused by the above events. Total loss of confidence in the money (because of its ever decreasing value). Enactment of legal tender laws and price controls to prevent discounting the value of paper money relative to gold, silver, hard currency, or commodities. Failure of the above measures to force acceptance of a paper money which lacks intrinsic value. If the entity responsible for printing a currency promotes excessive money printing, with other factors contributing a reinforcing effect, hyperinflation usually continues. Often the body responsible for printing the currency cannot physically print paper currency faster than the rate at which it is devaluing, thus neutralizing their attempts to stimulate the economy.