Central Banking, Economic Instability & Hyperinflation: Historical Evidence

With the FED & other central banks racing to engage in monetary pumping (e.g., Quantitative Easing), there are real reasons to be concerned about price inflation, & in the extreme, hyperinflation.

(Following Philip Cagan’s definition, hyperinflation begins when monthly increases in the price level are at least 50% & when monthly inflation rate goes below 50% & stays there for at least a year, the episode is over.)

In a Cato Institute working paper (World Hyperinflations), Steve Hanke & Nicholas Krus examine 56 episodes of hyperinflation over 250 years. It appears that almost all occurred under a centrally-controlled monetary arrangements, either by a central bank or government treasury.

In these instances, there was neither a de jure nor de facto commodity standard based on either gold or silver nor was there a constraints based on a foreign-exchange standard whereby the local currency was redeemable at a fixed rate aginst foreign currency(s).

This undermines arguments against “sound money” under either a gold standard or “free banking” on the grounds that they cause more monetary instability than is experienced with a fiat money monetary system guided by central banks.

This entry was posted in Uncategorized by christopher. Bookmark the permalink.

About christopher

Content of "Natural Order" attempts to reflect the commitment of Universidad Francisco Marroquin to support the development of a society of free & responsible individuals. The principal commentator for this blog is Christopher Lingle.

Leave a Reply

Your email address will not be published. Required fields are marked *