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Monetary Regimes and Inflation

History, Economic and Political Relationships

Peter Bernholz

This book explores the characteristics of inflations, comparing historical cases from Roman times up to the modern day. High and moderate inflations caused by the inflationary bias of political systems and economic relationships – and the importance of different monetary regimes in containing them – are analysed.
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Chapter 8: Currency Reforms Ending Hyperinflations

Peter Bernholz


Then something strange happened [in Germany in November 1923]. One day the incredible story began to circulate that soon there would again be money of a ‘stable value’, and this became reality some time later: small ugly green-blue notes with the inscription ‘eine [one] Rentenmark’. When somebody first used them for payment, he waited somewhat surprised to see what might happen. But indeed they were accepted and he received his goods – goods with a value of one billion [marks]. The same happened the following day and the subsequent days. Incredible. The dollar no longer rose, nor did share prices. And if one changed the latter into Rentenmark, behold, they amounted to nothing, like everything else. . . . But suddenly wages and salaries were paid in Rentenmark, and what a miracle, there even appeared ten and five pfennig pieces, strong, shining coins which maintained their value. It became possible to still buy something on Thursday with the money which one had received last Friday. The world was full of surprises. (Sebastian Haffner, German political journalist writing in early 1939; posthumously published in 2000, pp. 65f., my translation) 8.1 INTRODUCTION We turn now from the problem of ending moderate inflations to that of stabilising currencies which have suffered hyperinflation. Hyperinflations are, as mentioned, according to the definition by Cagan (1956), high inflations in which the monthly rate of inflation reaches 50 per cent or more at least during one month. The borderline drawn by this definition is of a somewhat dubious quality, since other...

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