What are the causes of Hyperinflation is the developing countries?

Whatare the causes of Hyperinflation is the developing countries?

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Whatare the causes of Hyperinflation is the developing countries?

Abstract

Theterm hyperinflation is used to refer to abnormal inflation that tendsto reach the extreme form in a country’s economy. However, based onthe researchers’ opinion, hyperinflation is not a process that iscontinues (Frenkel, 1999). In the field of macroeconomics,hyperinflation is treated as a rare phenomenon that affects theeconomy of the developing countries to factors that are specific inthe field of economy. Consequently, there are various factors thatcollectively influence hyperinflation in the developing countries. As a result, there is a need to examine what is causing thehyperinflation among the developed and developing countries such asChina, United States, Arabia and others. The scope of the study canbe so broad because the factors that cause inflation in a country arealso broad.

Firstly,the first reason to investigate the factors that cause hyperinflationis know the reason that causes mergence of the hyperinflation in acountry’s economy. Additionally, both qualitative and quantitativeresearch can be used to examine the disparity that exists between acountry’s supply and demand when it comes to money issues. According to Robinson(2008),disparities in a country’s economy is cause by lack or littleconfidence when handling a given country that is parallel to thecountry’s biggest bank that control the money market. As asituation can be caused by a number of factors such as ratificationof the country’s laws that are associated with tenders that arelegitimate. Moreover, Acemoglu,Johnson, Robinson, &amp Thaicharoen (2003)confirm that when the tenders are overrated it reduces the value ofthe money that is paper money, as compare to hard money.Hyperinflation happens in a country when everything becomesmaterializedthrough forceful use of paper notes that has nofundamental value. Additionally, if the country’s printingcurrency entity becomes more and supports the surplus printing, then,this aspect can cause hyperinflation to the country’s economy.

Accordingto Frenkel (1999), hyperinflation is something that affects theeconomy of a country especially in the country that do not havecentral banks. If a country does not have central bank, the issue ofindependent banking is carried out within the country’s fullfledge. However, most of the developing countries are against suchtype of banking systems most the developing countries has gone anextra mile to permit other banks to participate in the banking sectorto achieve a stable convertibility of money. However, despite suchefforts, there are still violation of both the absolute and hard-corepromises and contracts that are made by the national governments.This behavior has caused immense hyperinflation that is frighteningto both developed and developing countries. Additionally, thisproblem has affected the overall operations of most of bankingsectors across the globe. Consequently, a good number of thecountries are experiencing reduced supply of money that is availablein the banking sector. These factors results to pressures in theeconomy of a country and also results to deflation.

Lastly,negative impacts such as virtual demolition in the country purchasepower and economic distortion in both private and public sectors areresults of hyperinflation in a country. This implies that there is aneed to investigate the factors that contribute to hyperinflation. There is a need to know the negative impact created by hyperinflationand ho such factors can be controlled or avoided. Smith(1992)affirms that hyperinflationary circumstances can be improved bychanging the monetary issues of a country or through country’sconvolution of its expenditures.

Reference

Acemoglu,D., Johnson, S., Robinson, J., &amp Thaicharoen, Y. (2003).Institutional causes, macroeconomic symptoms: volatility, crises andgrowth. Journalof monetary economics,50(1),49-123.

Frenkel,J. A. (1999). Further evidence on expectations and the demand formoney during the German hyperinflation. Journalof Monetary Economics,5(1),81-96.

Robinson,J. (2008). The economics of Hyper-inflation. J.Robinson: Collected Economic Papers,1,69-77.

Smith,W. C. (1992). Hyperinflation, macroeconomic instability, andneoliberal restructuring in democratic Argentina. EPSTEIN,Edward C., The New Demo-cracy in Argentina, Nueva York, Praeger.