Highest inflation rate (ever)

The highest recorded rate of inflation occurred in Hungary during July 1946. The consumer price index inflation rate for that month was 4.19 x 10^16 percent (41,900,000,000,000,000%, or 41 quadrillion percent). This works out to a daily inflation rate of 207%, meaning that prices denominated in Hungarian pengö doubled every 15 hours.

The Hungarian economy was left devastated at the end of World War II; an estimated 40 percent of the nation's assets had been destroyed or removed (either by Nazi Germany or by the Soviet Red Army that drove them out) and it had lost a large portion of its working-age population to either the holocaust, battlefield losses or prisoner-of-war camps in the Soviet Union. Furthermore, as it was one of the Axis powers allied with Nazi Germany, it received little aid and was ordered to pay $300 million in reparations. It was also required to pay for the living costs of the 700,000-strong Soviet occupying force.

While these circumstances led to the start of this period of hyperinflation, it became as extreme as it did because the postwar coalition government gambled on being able to use it as an economic tool. Rather than raising interest rates and reducing money supply – two policies that would have dampened the effect, but at the cost of damaging the economy in the long term – the government tried to harness the inflation as a way of escaping its unsustainable financial obligations.

The result was that between July 1945 and August 1946, the number of Pengö needed to achieve the same purchasing power increased by 3 x 10^25, meaning that something that cost 1 pengö in June 1945 would have cost 30,000,000,000,000,000,000,000,000 pengö (30 septillion pengö) by July 1946.

To try and maintain some semblance of a functioning monetary system, a secondary currency called the adópengő ("Tax Pengö") was created. The value of the adópengő was indexed to the inflation rate, and it was initially used by the government. Later, banks began to offer adópengő accounts, in which a customer's deposits were indexed to the inflation rate. This led to a situation where companies and individuals would withdraw pengő from their indexed bank accounts and frantically try to do their business as quickly as they could before the cash they had withdrawn had become worthless.

On 1 August 1946, the Hungarian government announced an ambitious programme of financial reforms. This included the creation of a new currency – the forint – major tax and banking reforms, and a rescheduling of reparations and payments to the Soviet occupying force. The government also succeeded in persuading the United States to transfer the $32 million in gold reserves that had been taken by Nazi Germany in 1945. This, when combined with other sources, gave the Hungarian government $44 million in gold reserves, enough to provide collateral for the entire value of the first print run of forint banknotes.

The publicity surrounding the return of the gold and the other measures undertaken won back public confidence in the value of the currency, stabilizing the economy.