Effects Of Hyperinflation On The People In Developing Countries (Essay Sample)

Hyperinflation in Developing Countries Name Institution Affiliation Hyperinflation in Developing Countries The presence of hyperinflation is the case when the inflation (a rise in prices) reaches to an uncontrollable level and the value of money declines to a major extent. Hyperinflation is one of the most devastating economic phenomenon that any country can confront, and also has a strong potential to affect the economic stability of the affected country (O'Sullivan & Sheffrin, 2003). It prevalence is widespread in the developing part of the world that also tends to affect its economic growth and sustainability. There are several examples available in the history when the developing countries faced hyperinflation. In 1945, the inflation condition in Hungary got worse and turned into a hyperinflation when its inflation rate raised to 207%. The condition was so worse that prices just took 15 hours to double. The citizens of the country suffered a lot due to the problem and their living standard rapidly fell due to the economic constraints. In 1994, Yugoslavia’s hyperinflation rate reached to 64%. China confronted a hyperinflation in 1949 when its inflation rate was 14% and the rate of price-doubling was five days (The Journal, 2013). There are several effects of hyperinflation on the people living in these developing countries. The most common and prompt effects are that as the value of money decreases, the living standard of people deteriorates and their purchasing power parity also declines. This leads them to enjoy fewer facilities than they used to before the hyperinflation. The savings of the people of these developing countries are distorted and the economy of the developing country that is already in a dire need of economic and financial stability starts dwindling. As a result, people have to rely more on the money that they had saved for future while the public spendings on the welfare of the citizens also reduce or start depending on financial assistance from external sources (Andenkan & Nwanna, 2004). Although several developing countries including Argentina, Brazil, Bolivia, Peru, Ukraine, China and many others have recovered from the episodes of hyperinflation, their economies are still dealing with the aftermaths of the experience. It has been argued that the effects of hyperinflation also lead to a fiscal deficit and can distort the policy making of the victim country. As these developing countries aim to achieve a more stable economic outlook, reducing the inflation has always been the economic target of these countries as it represents how the wellbeing level of the citizens of these countries (Fischer, Sahay, & Vegh, 2002). Hyperinflation is when the inflation rate swells more than a certain level and the prices of goods ...