What Factors lead to hyperinflations and what can be done to eliminate Essay

What Factors lead to hyperinflations and what can be done to eliminate them - Essay Exampleral cause of hyperinflation may be described as follows an unprecedented rise in money supply that is bereft of every growth in output or services creates a disparity between the demand and supply of money. This imbalance leads to a loss of confidence in the value of the money and fin anyy, hyperinflation. The situation becomes such gruesome that any kind of legal tender laws, price controls, fail to return the confidence on the value of the paper money, which is without any intrinsic value to the consumer. If the government resorts to inordinate printing of money and if it gets a friendly environment to foster inflation, hyperinflation keeps on sustaining and in a cumulative manner, erodes the economy day by day. The government in such case often fails to match the pace of its currency printing mechanism with that of the devaluating currency (the rate at which the currency is losing its valu e). (Hyperinflation causes, cures)The incident of hyperinflation is almost of all time associated with the paper form of money. This is because it is the simplest way to increase money supply. In most of the cases after experiencing hyperinflation, an economy reverts to hard money. An investigation into the basic causes of hyperinflation will offer much questions than answers. According to the monetarists and the classical economists, a hyperinflation is always led by irresponsible borrowing of money by the government in order to pay all of its expenses. The monetary and classical theory regarding the hyperinflation center on the untamed seignorage on behalf of the monetary authority and the gains they can reap off the inflation tax. The neo liberals, on the other hand, explain hyperinflation in terms of the confidence crisis. The neoliberal theory of hyperinflation is known as the quantity theory of hyperinflation. According to them loss of confidence of the large number on the c apability of paper money to readily transform into hard currency like gold, silver or other form of