Pretend you run a lemonade stand. A cup costs 2 coins.
Ali looks after the class coins. Her box is empty, but Ben and Cara want paying for their work.
What should Ali do?
Now everyone has lots more coins, but there are still the same lemons. Your cup costs 4 coins. Then 8.
You hold 10 coins. A cup costs 8 now, and the price keeps jumping.
When do you buy?
Weak money makes everyone rush.
Nobody wants coins that buy less each day. So people spend them fast, and that pushes prices up even more.
France and Belgium took over the Ruhr, part of Germany. Workers there stopped work in protest. The government paid them with newly printed banknotes.
Germany's money, the mark, was already losing worth. Germany had borrowed to pay for its war. The printing made it much worse. A loaf of bread in Berlin cost about 160 marks at the end of 1922, and 200 billion marks by late 1923. Some people even used banknotes as wallpaper. In November 1923, a brand-new money, the Rentenmark, replaced the worthless marks.
Put what happened in Germany in the right order.
Last week, Cara lent Ben 10 coins. Now coins buy almost nothing. Today Ben hands back 10 coins.
Who came out ahead?
Zimbabwe's central bank kept printing bigger and bigger notes. One said 100 trillion Zimbabwe dollars. It could not even pay a bus fare.
At its worst, one expert's guess says money lost half its worth about every day. Printing was a big part. Farm output also fell, and Zimbabwe sold less to other countries. In 2009, Zimbabwe gave up using its own dollar. People used other countries' money instead, like the US dollar.
Source: Zimbabwean dollar, 1980 to 2009 (Wikipedia) · Hyperinflation in Zimbabwe (Wikipedia) · Hyperinflation in Venezuela (Wikipedia), used on the next screen
This is the extreme case, but it still happens. In Venezuela, prices soared from 2016. By September 2019, one survey found about half of purchases were paid in US dollars.
Savings in broken money can vanish.
The faster prices rise, the less a jar of coins can buy. In the worst cases, it took only months. Saylor calls money a battery for your work.
Your coins are breaking. Which moves help, and which don't?
Good money is like a good boat. It wobbles, then tips back upright. Broken money keeps rolling over.
People ran to other countries' money, and to things that keep their worth. Could there be money that nobody can print more of?
First, a puzzle about waiting: one sweet now, or two later? Find out in chapter 8.
🧠 What you learned
- Too many new coins can make prices jump
- Savings in broken money can vanish
- People look for money or things that keep their worth
🎯 Question 1 of 10 · Easy
Ali's box was empty. What did she do?
Everyone had more coins, but the same lemons. What happened to the price of a cup?
In the true story, what did some people in Germany do with banknotes?
About how much did a loaf of bread cost in Berlin by late 1923?
When prices rise very fast, what do people tend to do with their coins?
Cara lent Ben 10 coins. Now coins buy almost nothing. Who came out ahead?
In 2009, Zimbabwe gave up its own dollar. What did people use instead?
How did Germany stop prices from shooting up?
What did the story say about Germany's money before the Ruhr was taken over?
Which is the fairest way to explain why Zimbabwe's money broke?
Well done!
You earned a badge: When money breaks
Education, not financial advice. Never put in money you can't afford to lose.
👩🏫 Grown-up corner · 1 of 8
What counts as broken money?
Cagan's yardstick says hyperinflation starts when prices rise more than 50% in a month, about 12,875% over a year. Almost all cases came from governments financing deficits by creating currency. Wars, lost confidence and supply shocks also play a part. This differs from ordinary bank loans (chapter 4), which create money together with a debt, and from a central bank buying existing bonds from investors.
👩🏫 Grown-up corner · 2 of 8
Who gains and who loses?
Savers are often hit hard, because money in the bank or a jar buys less and less. Lenders lose too, since they are repaid in weaker money. Debtors can gain. In Germany, inflation let the government pay off its large domestic debts, war debts included, in devalued marks. Some mortgages were later revalued so lenders won back part of their money. Whoever gets new money first can spend it before prices rise (chapter 6).
👩🏫 Grown-up corner · 3 of 8
More than the Ruhr
The Ruhr printing made things much worse, but the mark was already weak. Germany paid for the First World War by borrowing, and its debt reached 156 billion marks by 1918. By December 1922, before the Ruhr was occupied, the mark had fallen to 7,400 per US dollar. Historians and economists still disagree about the causes, especially how much reparations mattered. They tend to agree that the Ruhr printing contributed.
👩🏫 Grown-up corner · 4 of 8
Where people ran
People spend quickly, switch to steadier foreign money and buy real things such as property, shares or art. They do this when their own money has a bad track record. After Zimbabwe's dollar was effectively abandoned on 12 April 2009, people used the rand, pula, pound, euro, US dollar and others. Wikipedia lists Argentina and Lebanon as places where US dollars are used alongside the local money.
👩🏫 Grown-up corner · 5 of 8
Why the dollar?
In a money crisis, many people turn to US dollars. Wikipedia's article on reserve currencies says banks tend to pick the main reserve currency for the strength and stability of the economy behind it. It says the dollar stays the favourite because of its stability, which comes from its scale and liquidity (how easily it can be swapped). Many have argued for a network effect: when trade is priced and debts are written in one currency, everyone has a reason to use it too. The same page says the dollar's place is often questioned, including doubts about its long-term stability.
👩🏫 Grown-up corner · 6 of 8
How Germany stopped it
Germany ended its hyperinflation by changing the rules. After 12 November 1923 its central bank could no longer discount government Treasury bills, which stopped new paper marks. On 16 November the Rentenmark replaced the worthless marks, and by 1924 the currency had stabilised, with reparations restarting under the Dawes Plan. Some economists point out that a money with a fixed supply would take the printing choice away, so a government short of cash would have to tax, borrow or default. Chapters 9 and 10 look at both sides.
👩🏫 Grown-up corner · 7 of 8
The calm end of the scale
Hyperinflation is the far end of a scale. At the calm end, the UK Government sets the Bank of England a 2% inflation target (chapter 5's Grown-up corner explains why central banks aim for 2%). So prices do not only go up, and a small rise is not a collapse. Whether small, steady rises stay small is still argued.
👩🏫 Grown-up corner · 8 of 8
Saylor's view: the boat that rolls over
Michael Saylor compares money to a boat or aircraft. A stable one tips back to level after a wobble. An unstable one spirals or rolls over. He argues that weak money pushes its instability onto the next person, and that the bill comes due however powerful the ruler. He also likens inflation to toxins pumped through blood. The Saylor Series says hyperinflation arrives "gradually, then suddenly", and notes that Rome's political rules broke down before its money did. The Hyperinflation article points instead to government deficits.