How money loses value: 5 historical examples

Everyone can become a millionaire, and without installing an application, registration and SMS messages. It is enough to be in a country experiencing hyperinflation

How money loses value: 5 historical examplesHow money loses value: 5 historical examplesRus’ in the XII – XIV centuries. She survived the non -humority period, that is, she did not actually use coins of her own or foreign origin for their almost complete absence. The own silver deposits were not yet open, and the coins that came from abroad were used as a means of accumulation and settled in stocks. Gradually, the money exchange gave way to commodity. For large purchases, they began to use such silver bars (hryvnias, here – Novgorod) and livestock, for small – fur, glass bracelets, beads, spinning and other products of traditional fishing. Source: APEC / Wikimedia Commons

Why the money is depreciated

Actually, a short course of economics, in particular the theory of money, or at least a few encyclopedic articles, can fully answer this question. But in short, then it can be described something like this: initially the cost of money was determined by their real value – the ability to use with benefit, if we are talking, say, about metal tips for arrows used in the 7th century BC. e. In the Black Sea region as money, or the content in them (if money is coins, bars, etc.) valuable metal.

With the advent of so -called fiat money, that is, money that does not have expression in precious metals, their nominal value began to be established and guaranteed by the state, regardless of the cost of the material used for their manufacture. Now, most often in a market economy, the reason for a decrease in the value of money is an increase in their quantity in the economy faster than the amount of goods and services produced, or a decrease in the amount of goods and services while maintaining the amount of money, that is, due to violation of the normal, natural balance sheet. The first can occur, for example, due to the fault of the state, which, faced with a lack of money in the budget, begins to print it, creating funds “from the air”. The second occurs due to a decrease in production (in a crisis, war, for other reasons).

Inflation is a long and stable decrease in the number of goods and services that can be bought for a monetary unit, expressed in raising prices. Moreover, unlike the rise in price of a particular product, such an increase in prices occurs for all goods and services in general. In other words, during inflation, money loses part of their value, and the consumer needs more money to buy the same amount of goods and services that before. Inflation is considered for a certain period and is measured as a percentage, and when its pace becomes very large, it is called hyperinflation. It can be, according to various estimates, about prices over 100% in 3 years (that is, over 2% per month for 3 years), more than 50% per month (that is, 129.7 times a year) or over 10once (900% or more) per year. Moreover, if a little inflation, 3-5% per year -, according to a large number of economists, is a normal phenomenon for a modern market economy, then hyperinflation is very dangerous, including because it is well noticeable for everyone and entails the collapse of the goods-money-circulation and financial system of the country due to loss of trust in money.

At the same time, inflation should not be confused with devaluation. In the modern world, when the value of money is not attached to the amount of gold by the issuer of money, devaluation is a controlled decrease in the exchange rate of the national currency in relation to solid currencies, carried out by a national regulator, usually a central bank. At the same time, in the past, when the purchasing power of money depended on the content of a directly valuable metal (copper, gold, silver) in them, the word “devaluation” was a decrease in the share of this metal in the material of money while maintaining the face value, and therefore the same decrease in the cost of eachspecific coins. Our first story is about this.

Roman denarius in the III century

The silver coin of the Roman denarius was first minted in Rome, then the Republican, in 268 BC. e. About 4.55 g of silver of the 980th sample. In addition to it, other silver, bronze, and a little later gold coins also included in the monetary system of ancient Rome. This system was stable and very convenient and contributed to the development of trade and economic growth in the state, which increased and increased.

How money loses value: 5 historical examplesSilver denarius, minted in 210 N. e. At the end of the reign of the Emperor Septimium Sevéra, with the image of the emperor itself on one side and the goddess Victoria, in honor of the victories of Septimium in the British Isles (where he died in the 211st);Before the start of the acute phase of the crisis of the empire, three more decades. By the beginning of the III century. e. The share of silver in the coin decreased from the original about 95% to about 85%. However, up to 5% of silver remaining in Denaria by the eighth decade of the same century, it was still far away. Source: Classical Numismatic Group/ Wikimedia Commons

But since the reserves of silver and other precious metals (and generally national wealth) are limited, and the ambitions of the rulers are often not, already during the time of Nero, after more than three centuries, corruption of the coin began, including denaria, by reducing the share of precious metalsIn them while maintaining the face. Nevertheless, the Roman empire has now continued to develop and expand. Until the 3rd century. e., When a huge state, which had the Mediterranean Sea with its domestic pond and stretching from the Atlantic to the Caucasus and from the British islands to Sahara, faced a severe crisis, which was called the “third century crisis” and almost killed the empire. There were several reasons for him: the attack of neighbors, civil wars, frequent change of emperors and even the plague. However, we talk about money here, and the destruction of the monetary system of the empire has become one of the reasons for the socio-political and economic crisis. It led to the latter-along with the cessation of normal trade between cities and regions due to the above-depreciation of coins. It, in turn, caused him from the beginning of the III century. e. Unrestrained reduction in the fraction of silver in coins. Emperors of that time can be understood: in their hands (mainly briefly) there was a huge power, which was attacked from all sides, and the army was the basis of power. The army had to be paid, and a lot, and it had to be expanded more and more. And silver, we recall, is a limited resource and final. Therefore, by the end of the III century n. e. The once silver Roman denarios and other silver coins began to mint entirely from copper and only covered with silver outside. The result is a radical decrease in their purchasing power and the destruction of economic relations, largely the former basis of the empire. The empire was saved in the consequence (relative) world and monetary reform.

Paper Chau in the state of hulaguids in the XIII century

The first paper money appeared, as it is believed, in the VIII century in China. They were called Jiazi and, in fact, were not money, but bills, that is, securities, giving the holder the right to receive a certain amount in the coins from the drawer. The purpose of introducing such papers was to simplify trade between regions of the country. The fact is that in large trade operations it was inconvenient to use coins: there could be too many of them;It was even less convenient to carry them in half. Therefore, papers were invented, at first a thousand coins weighing 25 kg. Numismatics today consider them the first paper money in history.

How money loses value: 5 historical examplesThe prototype for the Chuu state of the Hulaguid state was such Chinese paper money printed on paper with colored ink and certified by special seals confirming their authenticity. Source: John E. Sandrock/ Wikimedia Commons

Jiazi, having undergone serious inflation, lasted until the next monetary reform of 1235, to give way to analogues. The example of China was in the 13th century the Hulaguids contagious to the state (also known as Ilkhanat)-a huge power that occupied the space from the Caspian Sea to the Indian Ocean and from the Mediterranean to the Indus, the southwestern part of the broken Mongol Empire, controlled by the descendants of the grandson of the Genghiskhan named Hulagu (Hence the name). The fifth of the rulers of the state, Ilhan Gayhat, three years after the accession faced the difficulty: to further implement his concept of strengthening the state, which assumed the uncontrolled distribution of money from the treasury to friends, allies and everyone who asks, as well as to bribe competitors and enemies, is not enoughMeans: The treasury is empty. At the same time, the first impulse of any autocratic ruler in such a situation-to impose the population with new taxes and/or increase the existing ones-it would not be possible to realize: in 1294, a massive case of livestock due to the demon, and the population, without that, occurred in the countrypoor, impoverished finally. What to do? Conduct a monetary reform, of course, as has been done for many centuries before and after Gayhat to this day.

The reform Ilkhan and the courtiers decided to carry out, relying on Chinese experience: by issuing paper money a seas, which were introduced forcibly with a fixed exchange rate instead of gold and silver coins. Dragmetals were at the disposal of the treasury, it was forbidden to manufacture even vessels and jewelry from them, and those economic entities that refused to hand over coins and/or accept the chau were paid to the death penalty.

An easy “reform” was not successful: in a matter of days after the publication of the decree on the introduction of Chau in September 1294, prices in the markets in Tabriz, the capital of the country, and then in other cities rose more than ten times, merchants stopped selling goods for a seasAnd soon the trade stopped, and the inhabitants began to leave the tebriz, riots began. Two months later, the authorities allowed the sale of food for coins, then they completely abolished the chau. Already in March of next year, Gaikhat was superimposed and killed. And the word “chau” has been used in Persian for several centuries in the meaning of “spoiled coin”.

Waymar Germany paper brand in the 1920s

One of the most famous examples of paper hyperinflation was shown by Germany after the First World War. The problems of the German economy, one of the strongest in Europe and in the world, began almost simultaneously with the war, because the campaign, as is known since ancient Roman times, is an expensive and normally working in peacetime, it is usually not able to function without failures for a long timeconditions of hostilities and withstand the expenses associated with them. Exactly this happened in the German Empire: there was not enough money for war in the treasury, the government, led by Kaiser, could increase taxes, as, say, neighboring France, but instead decided to occupy. And planned to pay debts from the income received as a result of the victory. But here’s a nuisance: victory did not happen, the war ended in defeat and renunciation of Kaiser, and debts remained.

How money loses value: 5 historical examplesA bill of 5 trillion marks, released in November 1923, is not the largest denomination: five months later a bill of 100 trillion was released. Source: National Numismatic Collection, National Museum of American History/ Wikimedia Commons

How to pay them? Print new brands, by that time no longer tied to the gold standard. But the trouble does not pass alone: reparations imposed on the country under the Versailles Peace Treaty were added to national duty. They should have been paid, among other things, in foreign currency and gold. Germany rushed to buy currency at any price, which caused a further depreciation of the brand: if by the end of 1919 the American dollar cost 48 marks, then by the spring of 1922 320 marks were already asked for the dollar, but this was only the beginning of a granditting fall.

By 1922, Germany stopped paying reparations with money, as it ended with money, and switched to payments by goods, but they could not produce them in the required quantity. In response to this, France and Belgium occupied the Ruri region industrialized and rich in minerals – one of the most important economic regions of Germany. Ruhr workers announced a general strike so as not to help the invaders. The German government could not but provide them with financial assistance – printing more paper brands. The result was indicative: if at the end of 1922 a loaf of bread in Berlin cost 160 marks, then a year later 200 billion marks were already asked for it. Monthly inflation in October 1923 amounted to 29,500%. In the end, in 1923, the paper brand was replaced by a rental brand, indirectly tied to gold, and then the Reichsmarka, which existed until 1948. This stopped inflation.

Hungarian Penigo in the 1940s

In 1945, the next war ended in Europe and the next loser of the country falls as a difficult situation – this time Hungary, the currency of which Péngo overtook even the pace of inflation even a paper brand of Weimar Germany. But it all started very well: Penge was introduced in 1927 instead of the strong inflation of the Hungarian crowns, the currency of Hungary after the collapse of the Austro-Hungarian Empire, and in the early years was binding to gold (was 1/3800 kg of pure gold), being considered itselfstrong currency of the region. But already in 1930 to Hungary, waves of great depression rolled up, which weakened the local currency. Then, preparations for the war began, which will subsequently be called World War II, which also demanded an increase in government departments that decided to cover the printing of money. Finally, the first and second Viennese arbitrations ended with the transmission of Hungary of the unusable regions of neighboring countries, which also needed budget money for the assimilation. All this first weakened financial discipline in the country, and after this peg. And that was only the beginning.

How money loses value: 5 historical examplesA bill of 10 million Milpenge, or 10 trillions of Pengio, printed on May 24 and was circulated on June 18, 1946, is not the largest nominal value of the currency, which survived the greatest inflation in history. Source: Magyar Nemzeti Bank/ Wikimedia Commons

Government expenses with the beginning of World War II have increased many times, and income has decreased significantly, the prominent regime received almost complete control over the central bank – the issuer of the currency – and it began to print money that was not secured and in all increasing volumes. At first, silver and bronze coins were brought out of the circulation-they were replaced by analogues of cheaper metals, and then they disappeared, since at the end of the war in 1945 the inflation finally got out of control: if at the end of the summer of 1945 the US dollar was worth1320 Penge, by the end of October – already 8200, and by the end of the year – 128,000 pegs. Banknotes with a dignity of 5-10,000 pegs were gradually replaced by new ones – 100 thousand, 1 million and 10 million. By April 1946, they were replaced by bills with a dignity of 100 million and 1 billion Penge;For 1 dollar they already asked for 59 billion pens.

Could be worse? Oh yeah! It was not for nothing that Penge underwent the greatest inflation in history: it reached about 400% per day, that is, prices grew daily by 5 times. In order not to cover new bills with an increasing number of zeros, Milpenge, that is 1 million pegs, and 1 bilpenge, that is, 1 trillion of Penge, were introduced. We think you are already guessing that this did not end and the nominal nominal has continued to grow as they depreciate the money. When, on August 1, 1946, Hungary introduced a new currency, Forint, Penge exchanged at the rate of 400 octillions (octillion – a number with 27 zeros) per forent;The dollar cost 460 octillions pend.

Zimbabvian dollar in the first decade of the XXI century

It seems that having the basic knowledge of the economy and the history of commodity-money relations, people who are appointed to lead the bodies responsible for the economic state of the country will not make the same mistakes in the 21st century that their predecessors many decades ago, and examples from the present should not fallIn textbooks like “How to arrange record hyperinflation”. But no. One of the most famous examples of hyperinflation, recorded in recent decades, gave us the South African country Zimbabwe.

How money loses value: 5 historical examplesAt the peak of hyperinflation in mid -January 2009, such bills of 100 trillion Zimbabvian dollars were released in Zimbabwe – the largest denomination. Immediately after release for one such one, you could (try) to buy 100 American dollars – a huge amount for the vast majority of Zimbabvians. However, after half a month the situation has changed: for three such bills you could buy only one dollar. Source: Reserve Bank of Zimbabwe/ Wikimedia Commons

In the first decade after gaining independence from the UK, Zimbabwe (the former Southern Rhodesia) felt very good: in the country, the basis of the economy of which was agriculture, the production of basic cultures grew, in particular wheat and tobacco, welfare and standard of living increased, and the Zimbabvian dollar was increasedquite strong, although inflation was from 7% to 17% annually. But in the early 1990s, the local president Robert Mugaba, who, in fact, managing the country from the day of independence, came up with a wonderful idea: to take land and other property from the farmers of European origin in the country since the beginning of the 20th century and transfer it to the black Zimbabvians (who did not have neither that had neitherknowledge, no experience in managing the farm), thus correcting centuries -old injustice and finally delivered the one from colonial oppression.

Instead of correcting the injustice of Zimbabwe, at the end of the reform in the first decade of the 21st century, it received a sharp drop in agricultural and industrial production, collapse of the banking system, an increase in unemployment up to 80% and, of course, hyperinflation. And how else could the Government of Mugaba cover the budget deficit, participate in the civil war in the neighboring democratic Republic of the Congo, maintain an extremely corruption and ineffective regime? Only printing more unprocessed money. And so that no one could prevent the construction of a bright future, almost all twenty years of his reign Robert Mugaba brutally dealt with political opponents, dissatisfied, free press and other obstacles on the path to prosperity, for which the United States and Europe imposed about two hundred keyfigures of the Mugabe regime, and in particular, their numerous assets in developed countries froze.

Who, according to the Zimbabwe government, was to blame for record hyperinflation? Of course, the USA and the European Union. But what was hyperinflation? Her peak fell in November 2008 – she reached 79.6 billion percent. The response of the Mugabe regime was harsh and accurate: inflation was declared illegal, and price increase was prohibited. By that time, the population had already finally lost faith in the Zimbabvian dollar and switched to the US dollar, the British pound and the South African Rand, which were on the Black Market. The turnover of goods went there. The nominal entities of the Zimbabvian dollar bills grew, the government carried out one denomination after another, cutting off zeros, but this was not successful. In April 2009, Zimbabwe officially abandoned its currency in favor of a group of foreign currencies, the main role among which was played by the US dollar (for which 300 trillions of Zimbabvian) played by that time). When last year, two years after Robert Mugaba from the authorities as a result of the coup, the Zimbabwe government decided to return again to the release of its own currency, called the “dollar RTGS “(From Real Time Gross Settlement – “Range calculations in real time”), she also underwent hyperinflation of 300-500% per year. This example shows how important not only the security of the currency and the commodity-money balance, but also the confidence of the population to it and the government that issues this currency.

Photo in the announcement: Getty images

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