The Fruits of Civilization (26-10-2) Hyperinflation


Historically, governments have stoked inflation by printing money with no asset backing (such as gold).

Loss of confidence that the money can be redeemed at face value propels hyperinflation: rapid debasement of a currency. Hyperinflation wipes out a currency’s purchasing power.

War presents a risk of hyperinflation as an outcome, especially for the losing side. Among the many historical examples include Confederate dollars toward the end of the US Civil War (1864–1965); French Assignats following the French Revolution (1789–1796), when the post-revolutionary government printed money to prop itself up and finance its worthless wars; and the German mark following World War 1 (1921–1924), when Germany could not repay the reparations debt imposed on it.

As the first user of fiat currency, China has a long history of episodic hyperinflation. The Yuan Dynasty printed massive volumes of money to fund their wars. The resulting hyperinflation facilitated the dynasty’s demise at the hands of a revolution.

The Communist takeover of China in 1949 was partly an outgrowth of hyperinflation caused by the Republic of China (1912–1949), which printed yuan to finance resistance to Japanese occupation, then to fight the communist insurgents who eventually won. The new Communist government staunched the hyperinflation by issuing a new currency, the renminbi.