On This Day: Hungarian hyperinflation sets world record with prices doubling every 11 hours

JULY 10, 1946: Hungary set the all-time world record for hyperinflation – with prices doubling there every 11 hours - on this day in 1946.

Inflation reached 41.9 quintillion per cent – dwarfing Germany’s 1923 record of 29,525 per cent and even topping Zimbabwe’s 2008 figure of 7.96 billion per cent.

In the space of two years, the highest denomination of Hungary’s then currency, the pengő, rose from 1,000 to 100,000,000,000,000,000,000, or 100 quintillion.

The crisis was caused by an economic meltdown fuelled by the ravages of World War II when the country allied itself with Nazi Germany.

Six per cent of the its population were killed, including at least half a million Jews, of whom 438,000 were killed at Auschwitz in the space of 56 days in 1944.

After the war, the Soviet Union occupied Hungary and dismantled much of its industry and took it back to Russia to exact reparations and rebuild its own economy.

With the exception of agricultural products, including its wine harvest shown in a British Pathé newsreel, the country had little to export and could not pay its bills.

So, with a huge shortfall in revenue, Hungary’s new communist puppet government resorted to printing money to make payments – causing the pengő’s value to plunge.

Price rises were further fuelled by food a shortage that was caused by the nation’s desperate need to export what it had to earn foreign currency to rebuild its industry.

High inflation soon turned into hyperinflation and by July 1946, the cost of goods was rising 348.46 per cent a day.

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Prices for a typical item such as a loaf of bread would double every 11 hours – compared to every 3.7 days in Weimar Germany.

It wiped out people’s savings, so they demanded bigger and bigger wage increases to match the rapidly rising cost of living, which also rose due to panic buying.

It was so bad that some Hungarians resorted to going shopping with wheelbarrows full of cash, due to the vast sums of ordinary notes required to buy every-day items.

To combat the problem, the government introduced a new currency, the forint, at a rate of one to 400,000 quadrillion pengős - essentially knocking 29 zeroes off.

So worthless was the old unit that many people simply threw away their small sums of pengős – and street cleaners were photographed sweeping notes into the gutters.

On top of this, the government in Budapest also pledged to stop printing money and became more fiscally cautious.

But, although it stopped hyperinflation, Hungary remained plagued by ordinary inflation.

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The continual economic decline and anger over Soviet domination eventually led to the 1956 Hungarian Uprising, the first threat to Moscow’s rule in Eastern Europe.

Hundreds of thousands of people took to the streets to demand that former Prime Minister Imre Nagy, who was a liberal communist, be returned to power.

Violence began when they tried to storm the state radio building to broadcast to the people after communist party Chairman Ernö Gerö vowed to maintain Soviet ties.

But Moscow sent the Red Army in 18 days later and brutally crushed the revolt, leading to the deaths of 3,000 civilians.

The failed uprising deterred reform elsewhere in Eastern Europe, until the Prague Spring in Czechoslovakia in 1968, which again was halted by a Soviet invasion.

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Communism did not end in Hungary and the other satellite states until reformist Kremlin leader Mikhail Gorbachev vowed not to intervene in 1989.

Beginning with Poland and Hungary – and ending with Bulgaria – they all collapsed within a year.

The forint remained Hungary’s currency. But after suffering economic decline, it set a record low inflation of 0 per cent set in 2013, which was also considered a problem.

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Its central bank has tried to boost demand and prices with quantitative easing, which is virtually the same as printing money, except it is created out of thin air.

Central banks simply digitally add money to their balance sheets and then buy bonds from financial institutions, which then inject real cash into the economy.