Foundations
Hyperinflation
What are we talking about?
There is no formal technical definition of hyperinflation.
Economists usually reserve the term hyperinflation for an inflation rate exceeds 50% in one month and/or 1000% in a year. Below that rate, we simply talk about very high & rapid inflation.
The transition from high and rapid inflation to hyperinflation is not defined by an inflation rate per se. It is actually related to a change in behaviours in the population that is characteristic of people losing faith in their economic and political institutions. They start spending money as fast as they receive it because they don't 'believe' in it anymore, and that makes the inflation / depreciation 'spiral' shoot up.
Why do we care?
The main driver of rigidities in hyper-inflationary environment is high and unpredictable transaction costs: each money movement, transfer, payment will not only be significantly more expensive, but they will also often take a long time and sometimes will simply eventually never go through.
Compared to high and rapid inflation, hyperinflation further affects the macroeconomic stability of a country and the stability of its political & financial institutions.
With people running to the banks to get their deposits back, at least some of financial institutions are likely to fail, including some of the major banks. In some extreme cases, hyperinflation has lead to the complete breakdown of financial intermediation in a country for a while. In most cases though, some financial actors and financial mechanisms remain active or new ones emerge rapidly, especially for digital banking and mobile money as well as other alternative payment mechanisms and financial services. as well as increased mistrust in the political system.
Hyperinflation also typically leads to a general lack of public & private investments as well as new distortionary effects in the population, which further increases mistrust in the political system. There are in particular increased risks of extortion and crime. Beyond purchasing power, it also typically disproportionately affects the purchasing capacity of poorer segments of the population, while richer people have alternative ways to handle commodity shortages & are the first to access new and alternative financial inclusion mechanisms and have more access to functional supply chains.
In general, the economy becomes a lot less liquid as cash doesn't have value anymore. Large vendors, providers and suppliers will fall back on digital payment mechanisms outside of the country, which may be exclusive of poorer segments of the population. Smaller vendors, providers and suppliers sometimes have recourse to a bartering economy.
This has a massive impact on humanitarian interventions: (1) the breadth and depth of needs increases exponentially, which in turn makes narrow targeting strategies a lot harder to implement and less accepted by the population; (2) every expense we make is more complicated, with increased transaction costs and delays in payments.
How do we monitor it?
Hyperinflation is actually characterized by a change in behaviours: when you see people starting to spend money as fast as they receive; when daily workers start to ask to be paid several times during the day and go spend their salary immediately. When you need a bag full of cash to make daily expenses. That said, even if it is not a limit per se, an inflation rate that exceeds 50% in one month and/or 1000% in a year is fairly likely to be correlated to hyperinflation.