Hyperinflation

The Hungarian forint celebrated its 70th birthday on 1 August this year. It is true and false at the same time: Hungary had already had forint earlier, in another form, but the forint has been the official money of Hungary since the summer of 1946. It is a rather melancholic story, regarding the antecedent, its reason.

Hungary held a not really positive record for decades. The hyperinflation of 1945 was the largest-scale inflation of history until 2008, when the Zimbabwean dollar crashed down. This period started in Hungary after the Second World War. The devastation of the war was one of the reasons, because there were huge damages in industrial sites, factories, houses and in the agricultural production too. These factors launched pengő down the slope at the end of 1944. It was aggravated the following year by the lack of money, goods, the war indemnity levied on the country and the uncontrolled and unfunded money creation of the Red Army.

Money devaluation can be best introduced by the often-used example, the price of one kilo of bread. It was 6 pengős in August 1945, but at the end of June in 1946 it cost 6 billion pengős. Inflation hit the residents of towns and mainly Budapest seriously. Rural people in small settlements could purchase basic provisions easier or they produced them themselves, but the capital city could not obtain them. Barter was prospering and the public safety deteriorated badly. Burglary, theft and loot became common; burglars took away the necessary things: clothes, foods and objects fit for barter. Denominations of banknotes became higher and higher: milpengő (billion pengős), bilpengő (trillion pengős). The denomination of a hundred million of the latter was issued in July 1946, so it was worth a hundred million multiplied by a thousand billion. During that time, prices were doubled in every 15 hours. The government decided to introduce new money in the summer of 1946 and launched the forint on 1 August. The exchange rate of pengő was decided this way: 1 forint = 400.000 quadrillion (10^24) pengős.

The new currency

In August, shops were full of goods detained so far and farmers also started selling their crops when the new currency arrived. Black-market prices of sugar, lard and salt started decreasing and so did the rate of foreign currencies and gold.

Appearance of forint was a great success and only a few pieces of the newly printed banknotes (made of French and Finnish paper) were stored for the future generations. The money press did not start to issue money unlimitedly, because the government controlled the quantity strictly. They counted with about 40 forints per person and they also introduced a food-rationing system for purchasing necessary provisions.

But how much is the 70 year-old forint worth today? It is difficult to tell. On the basis of the annual inflation calculations of KSH (Hungarian Central Statistical Office), many people tried to calculate it. Nevertheless, calculation is made more difficult due to the fact that consumer customs, product supply and goods have changed significantly. It is certain that prices of essential provisions increased in a smaller rate relatively, unlike the prices of gold (x900) or a cinema ticket (x745). Surprisingly the wages increased 6-700 times as well compared to wages in 1946.

So how long are we going to have forint and what is going to be afterwards? It is difficult to tell, because the possible date of introducing euro is delayed further and further. The other question is, whether we still want it, if we reach that point once. And whether there will be a demand for a common European currency. Till then, let’s earn as much of it as we can (legally) and long live the forint!

KF

Translated by Zita Aknai