The Georgian Hyperinflation and Stabilization

IMF Working Papers, May 1, 1999

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The Georgian Hyperinflation and Stabilization

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Bibliographic details

• Authors: Jian-Ye Wang
• Published: May 1, 1999
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451848663.001

Summary

• This paper anlayzes the Georgian hyperinflation of 1993-94, which featured endogenous fiscal expenditures and the money supply, depreciation, and currency substitution.
• Hyperinflation was stopped by removing generalized consumer subsidies and tightening of monetary policy, and not by a sudden rush of credibility or imposition of an exchange rate anchor.
• A de facto exchange rate anchor served ex post as a vehicle for building credibility, which ensured a dramatic reversal of currency substitution when the currency reform was implemented.
• The paper also discusses the relatively rapid output recovery in Georgia.

Major findings and analysis

• Hyperinflation period: 1993-94.
• Key drivers and features identified:
  • Endogenous fiscal expenditures.
  • Endogenous money supply dynamics.
  • Exchange rate depreciation.
  • Currency substitution.
• Mechanism for stopping hyperinflation:
  • Removal of generalized consumer subsidies.
  • Tightening of monetary policy.
  • Not driven by a sudden rush of credibility or by imposing an exchange rate anchor ex ante.
• Role of exchange rate anchor:
  • A de facto exchange rate anchor operated ex post as a vehicle for building credibility.
  • This credibility-building ensured a dramatic reversal of currency substitution upon currency reform implementation.
• Additional discussion:
  • Relatively rapid output recovery in Georgia following stabilization measures.

Policy implications and recommendations (as presented)

• Eliminate generalized consumer subsidies to curb fiscal-driven inflationary pressures.
• Tighten monetary policy to accompany fiscal adjustments in halting hyperinflation.
• Recognize that a de facto exchange rate anchor can function ex post to build credibility and support reversal of currency substitution during currency reform.

Subject classifications and keywords

• Subject: Currencies, Exchange rates, Foreign exchange, Hyperinflation, Inflation, Monetary base, Money, Prices
• Keywords: broad money, central bank, coupon economy, coupon exchange rate vis-à-vis, coupon inflation, coupon price inflation, coupon vis-à-vis, Currencies, exchange rate, exchange rate depreciation, exchange rate vis-à-vis, Exchange rates, Georgia price liberalization, Hyperinflation, Inflation, Monetary base, nominal exchange rate, real value, ruble exchange rate, unit of account, WP

Content in this bundle

• The Georgian Hyperinflation and Stabilization - WP/99/65
  • The Georgian Hyperinflation and Stabilization - WP/99/65 (Markdown version)
  • The Georgian Hyperinflation and Stabilization - WP/99/65 (PDF)