## The Georgian Hyperinflation and Stabilization

_IMF Working Papers, May 1, 1999_

## Source details

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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

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### 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

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/the-georgian-hyperinflation-and-stabilization-3020_