Essay Sample about Hyperinflation

Hyperinflation is a flourishing topic in Global Managerial economics. Academic faculties as well as economist has expressed significant concerns for decades, but due to the unfamiliar economic events witnessed around the world due to Covid 19 pandemic in 2020 and the simultaneous popularity of “The Deficit Myth” by Professor Stephanie Kelton, where she argues that “The government monetary budget is not like household budgets.” 

The assumption of Modern Monetary Theory (MMT) is that for strong currencies like the United States, United Kingdom, Canada, and Chinese dollar, could create currencies not limited by the outdated gold standard or any other financial limitation. The only limit to currency creation is the ability to spend this currency into their economy. However, if any smaller economy dares to venture down this path and spend too much currency, relative to the resources for sale in that currency, then they are at risk of causing hyperinflation and will fall prey to the “Dutch Disease.” 

The “Dutch Disease” subsequently destroyed the economies for the countries of Weimar, Zimbabwe, and Venezuela. Dutch disease is a financial phrase that is used for the negative impacts that can occur from a surge in the value of a national currency. This phenomenon is primarily connected to the exploitation and discovery of a valuable natural resource consequently, leading to the unexpected repercussions that such discoveries can have on the complete economy of an independent nation. 

Hyperinflation decreases the price competitiveness of exports of the affected country's manufactured goods hence, increasing imports which leads to and result in higher local currency. Eventually, this undesired monetary mismanagement will contribute to unemployment, as manufacturing jobs move to countries with lower production cost. In the meantime, the industries that are non-resource based suffer due to the rapid increase of wealth generated by resource-based activities. When trying to dismiss or critique inflation theories, many people direct their concerns that if government spending increases, the additional currency in the economy will lead to hyperinflation. Hyperinflation can be summed up into these categories, Insufficient adjustment of taxes to balance the economy, Reduced manufacturing output, Debt owed in foreign currency and continued deficit spending.