Scatty.com

5 Biggest Currency Collapses In History

The basic economic law of supply and demand applies as much to national currencies as it does to rare natural resources and popular market products. As governments mint more coins and print more banknotes, this legal tender tends to have less and less worth.

Expanding the supply of money may be quite necessary, particularly in emergency situations. However, financial leaders must be aware that flooding the economy with currency is likely to have a pronounced negative effect on its relative value.

When a currency devalues too dramatically or too quickly, it can often spell economic disaster. In an effort to learn from history lest we repeat it, let’s briefly examine the five biggest currency collapses in history.

1. The Zimbabwean Dollar

After achieving independence in 1980, the African country of Zimbabwe established a strong dollar with a value that exceeded the US dollar by roughly 25 percent. But over the next several years, political corruption, economic mismanagement, race-based land seizures, and foreign sanctions led to an overproduction of the Zimbabwean dollar and rampant inflation nationwide. By 2004, this hyperinflation reached a record high of 624 percent. The Zimbabwe government effectively abandoned the dollar as its official currency in 2009. Since that time, Zimbabwe has recognized a range of foreign currencies as well as the new Zimbabwean dollar (also known as the (Real Time Gross Settlement) RTGS dollar.

2. The Peruvian Sol

To court foreign investment in the early 1980s, Peru embraced economic policies that stressed trade liberalization and increased public spending. As part of these policies, the Peruvian government began printing large amounts of the national currency: the sol. Unfortunately, government officials failed to adequately plan for the resulting inflation and debt. When overseas investors began to flee, the government decided to replace the sol with a new currency called the inti at the exchange rate of 1,000 to 1. However, inflation continued to rise under the inti, reaching a rate of 400 by 1990. In 1991, Peru abandoned the inti, returning to the sol (now the new or “neuvo” sol) at the staggering exchange rate of 1,000,000,000 to 1.

3. The Argentinian Peso

The economy of Argentina was enjoying record growth before the Organization of the Petroleum Exporting Countries (OPEC) created worldwide financial turmoil with its mid-1970s oil embargo. While coping with civil and political unrest, the Argentinian government faced severe budgetary and trade deficits. To avoid a devastating recession, it began printing money, thereby spiking inflation and destroying the nation’s gross domestic product (GDP). Between 1983 and 1992, Argentina would replace its national currency three times, exchanging 10,000 original pesos for one peso Argentino, then 10,000 peso Argentinos for one austral, and then, finally, 10,000 australs for one new peso.

4. The Chilian Escudo

When Marxist Salvador Allende became president of Chile in 1970, he began printing legal tender to make good on his promises of increased social spending and wealth redistribution to poor populations. Unfortunately, this practice had contributed to rampant hyperinflation that reached 600 percent by 1972 and 1200 percent by 1973. After the overthrow of the Allende government later that year, the Chilean escudo partially recovered but continued to experience fluctuations for more than a decade. It was ultimately replaced by the new Chilean peso in 1985 at a rate of 1,000 to 1.

5. The German Papiermark

Described by Forbes as “the original poster child for failed currencies,” the fall of the German papiermark occurred at the end of World War I. As a condition of the Treaty of Versailles, Germany was forced to pay war reparations to the allied nations. Among other pressing economic issues, this pressured Germany to print more and more papiermarks, triggering hyperinflation to the point that the currency was essentially worthless. In fact, when Germany replaced the papiermark with the reichsmark in 1924, the annal inflation rate was roughly 325,000,000 percent and the exchange rate was an astounding trillion to one.

Leave a Reply

Your email address will not be published. Required fields are marked *