Hyperinflation is usually caused by an extremely rapid growth in the currency supply of an economy. When the monetary and fiscal policy allows the issuance of new money to accommodate government spending, the money supply grows faster than the real output of the economy, thus causing inflation. In this context, hyperinflation occurs as a result of uncontrollable inflation. Although hyperinflation is a rare event for advanced economies, it has occurred many times throughout history in countries such as Venezuela, Zimbabwe, and Argentina.
With the rising interest in cryptocurrencies and alarming signs of hyperinflation in the economy, it’s about time for people to revisit history for signs of hyperinflation and potential ways to combat it. For Bitcoin and other cryptocurrencies are not based on centralized systems, their worth cannot be determined by regulatory or economic institutions. Blockchain technology assures that the issuance of new coins follows a predefined schedule and that each unit is unique and immune to duplication.
These are some of the reasons why cryptocurrencies are becoming increasingly popular particularly in countries that are dealing with hyperinflation, such as Venezuela. Similar occurrences can be seen in Zimbabwe, where digital currencies peer-to-peer payments have seen a dramatic increase. Positively, as cryptocurrency matures that volatility will calm down. In the meantime, people with guaranteed losses in their home currency are willing to take a chance that cryptocurrency will be more stable than the local fiat currency.
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