Best exchange rates in the uk: What causes hyperinflation?

January 17th, 2013

Best exchange rates in the uk and hyperinflation – it is widely believed that hyperinflation is the end result of too much lending. In actual fact this is not the cause of hyperinflation – excessive government spending is the main cause and the current euro crisis could leave many European countries down the rocky road to hyperinflation (many are guilty of public sector extravagance).

The pattern looks a little like this – Government and public sector spending exceeds what is retuned through taxes. A bit like a bank account, your salary should cover outgoings; if it doesn’t you soon end up overdrawn and charges begin to mount up.  This is what happens to governments if they overspend, they are pushed into a situation where they must borrow. Interest and deficits expand, until they get to a point where there is no longer the readiness to lend. This works in much the same way for individuals and businesses, who will begin to face refusals on credit cards and bank loans if they are no longer seen as ‘attractive’ lenders and become a financial risk that outweighs any perceived benefits of lending. It’s the ‘will we get it back’ scenario. This begins to have a knock affect to the economy as a whole, so for the UK, this would affect getting the best exchange rates in the uk.

When this happens to governments, generally the central bank offers help. This is often described as ‘pulling money off a money tree’; the correct terminology is ‘quantitative easing’. Essentially the bank prints more money – this happened in the 1920’sWeimarGermanyhyperinflation situation and not so long ago inZimbabwe. In countries where cash is not the most widely used currency, like the UK where cards, cheques and wire transfers are the most common method of payment, money goes directly into the government’s account.

When this happens, the foreign currency in question suffers a blow, as purchasing power is lost, this is referred to as inflation, which is essentially an increase in money into the economy with no equivalent boost in output. This forces the price of products in an economy up.  Hyperinflation becomes apparent when general prices increase to such a degree, usually 50% or more and there becomes a reluctance to buy goods and currency to avoid loss of ‘real value’. This economic situation not only impacts on foreign money exchange rates like getting best exchange rates in the uk  but even forces countries to steer clear of their own currency.  Hyperinflation often occurs after major incidents like a war, revolutions and major political unrest and often takes countries decades to recover.