Root causes of

Root causes of hyperinflation The main cause of hyperinflation is a massive and rapid increase in the amount of money that is not supported by growth in the production of goods and services. This results in an imbalance between supply and demand for money (including currency and bank deposits), accompanied by a complete loss of trust in money, similar to situations in which bank customers withdraw their money simultaneously. The approval of laws of legal currency and price controls to prevent the loss of value of paper money relative to gold, silver, currencies or commodities, fails to force acceptance of a paper currency has no intrinsic value. If the entity responsible for printing currency promotes excessive money printing, with other factors contributing reforzatorio effect, hyperinflation usually continues.Often the entity responsible for printing currency can not physically print paper currency faster than the speed at which it is devaluing, thus neutralizing their attempts to stimulate the economy. Hyperinflation is generally associated with paper money because means to increase the supply of paper money is the simplest: add more zeroes to the plates and print, or even stamp old notes with new numbers. There have been numerous episodes of hyperinflation, followed by a return to the “hard currency”. Some economies in the past revert to hard currency and barter when the average circulation was devalued in excess, usually after a precipitous withdrawal of the deposit value. Hyperinflation effectively eliminates the purchasing power of private and public savings, distorts the economy in favor of extreme consumption and accumulation of real assets, causes the drain of the country of the monetary base, and makes the affected area anathema to investment.Hyperinflation is treated with drastic remedies, either by imposing a shock therapy to reduce public spending as altering the currency basis. An example of the latter is to put the nation in question under a currency board like that of Bosnia-Herzegovina in 2005, which allows the central bank to print only the quantity of money in foreign currency reserves. Another example is the dollarization of Ecuador officially launched in September 2000 in response to the loss of a massive 75 of value of the sucre in early January 2000. Dollarization is the use of a foreign currency (not necessarily the U.S. dollar) as a national currency unit. The consequences of hyperinflation is equally complex. As hyperinflation has always been a traumatic experience for the area it affects, the next policy regime almost always sets up to prevent recurrence.Often this involves having the central bank is very aggressive in maintaining price stability as in the case of the German Bundesbank, or move any hard monetary base as a currency board. Many governments have adopted very strict control of prices and wages as a result of hyperinflation, which is, in effect, a form of forced savings.