Economics

What Is Hyperinflation?

Stalina
4min

We have all heard older generations complain about the price of products "nowadays", talking about how $1 used to buy them a movie ticket and popcorn, compared to the average price of $10 for just a ticket today. They aren't complaining about nothing, this is a very real issue the world is currently facing and it's known as inflation.

Although with the way the economy has been going, hyperinflation is a far more accurate term. In basic terms, hyperinflation is referring to a very high and accelerating inflation rate. Let's cover what inflation is, and how this differs from hyperinflation.

What Is Inflation?

Inflation refers to a decrease in purchasing power related to a specific currency. This means there is a progressive increase in the price of goods and services resulting in a certain amount of money being able to buy less over time.

As already stated above, what $1 used to buy back in the day is merely a fraction of what the product or service now costs. Usually, inflation occurs at a gradual rate, however, there have been instances where inflation rates have accelerated at much faster rates. This rapid acceleration rate leads to the real value of a country's currency being diminished at an alarming rate. This is then referred to as hyperinflation.

What Causes Hyperinflation?

You may be wondering how hyperinflation occurs, and that's a great question. From an economic standpoint, there are two main causes, although external factors can also come into play. External factors might include war, natural disasters, a pandemic, and more, however here we will be covering the two main causes.

Number one is an increased money supply. Most think that an excess supply of money sounds great, but it can have colossal impacts on a currency if not backed by economic growth. Countries usually grow through trading, businesses, and bringing money into the country from outside the borders.

This issue comes into play when countries print money at an accelerated rate, putting them in debt with central banks who they then have to pay back with interest. This additional interest and the debt gets placed on citizens, expected to pay more tax and pay more for products.

The second is demand-pull inflation. This can also be described as supply vs demand. While some small businesses see this as a benefit, able to increase prices due to their unique products, the same can not be said for common household items. This inflation occurs when the demand for products goes up, especially as capitalism rises, yet the production of said products can not contend.

This creates a gap within the supply, making it hard for businesses and economies to make money unless they raise their prices. So again, we see product prices rising thus reducing the purchasing power of a currency.

The Effects Of Hyperinflation

One of the most common effects of hyperinflation is the devaluation of currencies, moving those who hold it to switch to more valuable assets. Whether it is investing in stock or another currency, this takes additional money out of the currencies' economy and proceeds to make hyperinflation worse. Luckily those who have invested in other means of value are not as affected by this additional pressure.

We saw inflation get so bad in Zimbabwe that they completely wrote off their national currency and switched over to the US dollar. At one point, their currency was so hyperinflated that their $100 trillion Zimbabwe dollar banknote could only buy a few loaves of bread. This impact saw banks, foreign trading, and basic government services affected, creating yet another ripple effect leading to rising inflation. It's a problem that continues to occur, ravaging countries and livelihoods around the world.

There are far more issues that come from hyperinflation, but this piece is not made to scare you about your economic wellbeing, but rather offer you a solution to the problem. The solution to hyperinflation is cryptocurrency, and we will tell you why.

The Cryptocurrency Solution

Blockchain technology, the backbone of cryptocurrency, has provided the transparency and incorruptibility that banks and governments have not yet mastered. The main reason why cryptocurrency proves to be a solution to hyperinflation is its scarcity.

Cryptocurrencies are generally created with a predetermined amount of coins that can ever exist. Bitcoin, for example, was designed to be a deflationary currency with a maximum of 21 million coins to ever exist. Today, there are already roughly 18.89 million Bitcoins in circulation, and with basic supply-demand economics, the price of the digital asset is set to increase in value in the coming years.

Bitcoin can not just go out and print more Bitcoins, combating excessive money supply inflation. This, on top of its deflationary approach, makes cryptocurrencies more of a scarcity and provides a more stable supply vs demand rate. As stated above, inflation often leads currency holders to find better means of value and cryptocurrency has proven to tick this box (and then some).

Cryptocurrencies have been changing the world, and hyperinflation is no different, people from around the world can find value in holding digital assets without the worry of their governments affecting the prices. To fight hyperinflation and provide yourself with a more valuable future, consider putting your money into cryptocurrencies as many investors did following the fiat-ravaging pandemic.