1 Milliard Pengo — A dark tale of Hyperinflation
Hyperinflation is a condition where the price rise is so much out of control that the concept of inflation is meaningless. It is an extremely rapid period of inflation, and is usually caused due to uncontrolled printing of currency, thus rapid increase of money supply.
In the record of world’s history, the country which has suffered worst out of hyperinflation is Germany.
Post World War I, Germany faced not one but three situations of hyperinflations: Hungary in 1946, Yugoslavia in 1992–1993 and Zimbabwe from 2004 to 2009. Of these three, Hungary’s condition was the worst.
Post the World War I, the new nation of Hungary lacked the proper government structures, so it turned to printing money to fill the hole in its budget. Before World War I, there were 5 Kronen to the US Dollar, but by 1924 the value dropped to 70,000 Kronen per US Dollar. So Hungary replaced the Kronen with Pengö at the rate of 12,500 Pengö to the Kronen in 1926.
Later during World War II, in 1944, Hungary became a battleground between Russia and Germany, following which it suffered loss of 90% of its industrial capacity. Consecutively, due to the fall in production capacity, prices in Hungary went up. To make it worse, due to lack of tax base to depend on, the Hungarian government decided to fuel the economy by printing more money.
To see how quickly the money supply rose, consider the fact that the currency in circulation stood at 25 billion Pengö in July 1945, rose to 1.646 trillion by January 1946, to 65 quadrillion (million billion) Pengö by May 1946 and to 47 septillion (trillion trillion) Pengö by July 1946.
How bad was the inflation?
Something that cost 379 Pengö in September 1945, the cost of same was:
- 72,330 Pengö by January 1946
- 453,886 Pengö by February
- 1,872,910 Pengö by March
- 35,790,276 Pengö by April
- 11.267 billion Pengö by May 31
- 862 billion Pengö by June 15
- 954 trillion Pengö by June 30
- 3 billion billion Pengö by July 7
- 11 trillion billion Pengö by July 15 and
- 1 trillion trillion Pengö by July 22, 1946.
At the height of the inflation, prices were rising at the rate of 150,000% PER DAY. By then, the government had stopped collecting taxes altogether because even a single day’s delay in collecting taxes wiped out the value of the money the government collected.
Birth of 1 Milliard Pengo
In March 1941, 5 Pengö were equal to a US Dollar, by June 1944, it dropped to 33 Pengö to the USD and in August 1945 with the actual start of hyperinflation the value of Pengo further dropped i.e. 1320 Pengö to the USD. Thereafter, it was only a downward journey for the currency. So much so, by July 1946 the currency stood at 460 trillion trillion to the USD.
However, it didn’t stopped the government from printing more money. As a result the hyperinflation didn’t let the government collect taxes, due to which they introduced the Adopengö, which too succumbed to the inflation. By July 1946 there were 2 million trillion Adopengö to the Pengö.
In order to handle the increasing number of zeroes in the currency, the government renamed it. The Pengö was renamed as Milpengö (1,000,000 Pengö) which further changed to the Bilpengö (1,000,000,000,000 Pengö) followed by the inflation-indexed Adopengö.
The Milliard Bilpengö (shown above) is the highest denomination note ever printed since it was equal to a Billion Trillion Pengö. However, with the end of the inflation, it also lost its value and was only worth about twelve cents USD.