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Bolivian Hyperinflation and Currency Collapse of the 1980s

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Trevor Williamson

on 21 October 2013

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Transcript of Bolivian Hyperinflation and Currency Collapse of the 1980s

What caused it?
The hyperinflation in Bolivia was due to large government spending in public investment programs.
The government spent all this excess money because there was a large gap between the rich and the poor.
The rich people had enough political power to avoid large raises in taxes while the poor pushed for more government spending.
Furthermore, the government spent lots of money and didn’t tax people enough to compensate for it.
As this debt piled up over a long time, the Bolivian government had to choice but to print excess money.
What happened to the value of paper money?
The value of paper money was almost worthless.
In 1985, a Bolivian note for 1 million pesos was worth 55 cents in US dollars.
In the 1987 currency reform, the Peso Boliviano was replaced by the Boliviano at a rate of 1,000,000 : 1.
What happened to the prices?
Prices raised dramatically.
From August 1984 to August 1985, prices rose by 20,000 percent.
At the hyperinflation peak, prices rose by 60,000 percent from May 1985 to August 1985.
During 1985 the inflation rate was up to 14,700 percent.
What were the effects of it?
The poor and the middle class were mostly unable to keep up with the rising prices.
Some of the rich people were able to leave the country before things got really bad.
People spent their money as soon as they got their paycheck because they knew that in a few hours, items would become more expensive.
They tried to collect items to use as an alternate currency to money; the currency had become totally worthless and the country was in chaos.
What did people use as alternative currencies?
When people realize that hyperinflation is occurring they, usually as soon as possible, will use what money they have to buy anything that will hold value.
As the paper money in Bolivia rapidly became more and more worthless, due to hyperinflation, people without electricity began to buy electronic goods because these goods had value to them.
Another item that Bolivians used as money was a mentholated rub that reduces pain. People used this as money because it was something that everyone used and needed, so it had value to Bolivians.
Bolivian Hyperinflation and Currency Collapse of the 1980s
How long did it last?
It began in April of 1984 and peaked in February of 1985.
It ended in September of 1985.
In 1978, $40,000 would trade for 1,000,000 pesos, and in 1985, you could 1,000,000 pesos with just $5.
The price level increased by 23,500%.
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