Lost your password?
Don't have an account? Sign Up

Hyperinflation CASE STUDY Yugoslavia 

Case study written by: Arsim.Ajeti

editor in chief; arsim@thejournalbiz.com

Nearly three decades ago when ex- YU’s currency (dinar) massively depreciated, the treasury, simply couldn’t afford to produce more banknotes, they started to issue vouchers

Today I will try to take you on a journey from the past to elaborate on the present, so we can  come to terms with economic stagnation, chip shortage, and supply chain disruption

Inflation is always lurking around in times of peace & crisis, thus, the probability to lose is high, but as we are in a ‘state of a limbo’ currently  we may as well witness a ‘ Black Swan” phenomenon, as coined by Nassim Nicholas Taleb who argues ‘ the certain events are unlikely to happen, but if they do, they will cause severe consequences”

– How precisely, inflation will affect the broader market?

– How long will this pandemic last?

As an analogy, I will elaborate on the role of hyperinflation, the most severe in modern history

Back in 1988/9…Milosevic came to power, and soon after everything started to fall apart (financially wise)

According to Cato Institute Milosevic, through abuse of power & authority, ordered the Yugoslavian National bank to issue 1.4 billion $ to his associates, the move that completely wrecked the economy, (according to ex-Yu national bank, the total sum of currency for the fiscal year 89/90 was foreseen to be circa 4 billion)

What that actually means?

Steve Hanke argues (Mr. Hanke, served as last foreign senior advisor in the YU) that the move sabotaged Markovic as a PM, he failed to implement any economic reforms, and the country stagnated severely, whilst the currency dipped, declining disproportionately

As a consequence, the first breakaway wars started in Slovenia & Croatia…soon everything broke apart
According to United Nations In January 92, ex-YU endured the second-highest  hyperinflation in the world, while it peaked in 94′ when the inflation rate was a staggering 313milion%

How did that actually feel like!?

Depression, famine, and lack of essentials for years on,  many lost EVERYTHING, as hyperinflation evaporated the capital, I can recall people converted all their savings from dinars (in a black market into gold, & Swiss francs)

Many, who, unfortunately, believed that the dinar will bounce back, as the National Bank played a ‘Machiavellian’ role believed that story, but by 96′ ‘ Dinar’ was worthless!

What can we learn from this?
Well to simply put it inflation is unpredictable, when production stalls, consumer sentiment is low, the Treasury prints money to keep things going, cash keeps flowing, all that creates ‘surplus to supply’

No wonder stocks, gold, and digital assets are surging during the current crisis, as investors fear inflation and they invest in ‘store of value’ assets. know as ‘ portfolio diversification

Soon after the Slovenian and Croatian crisis hocked the Yugoslav federation, to the core, everything spiraled out of control, as cited in ‘Back to the Future: the Transition in the Balkans’ by A. Živković, Banks were under Milosevic’s apparatus and continued to, overproduce excessive amounts of cash (dinar) until they came up with the solution of high rate return as the last resort, as the ‘ink’ started to dry at the Central bank.
According to the Cato Institute and, the World Economic Forum the  following events occurred that led the national currency dinar into the staggering 313% million hyperinflations;

– January 1992, and Yugoslavia endured the second‐highest and second‐longest hyperinflation in the world ( *highest was Hungarian hyperinflation 1946 and longest Soviet hyperinflation in the early 1920s-source United Nations)

– April 1992, another devastating war started, now in Bosnia & Herzegovina

– During the hyperinflation period, per capita income plunged by more than 60%.

– Between January 1, 1991, and April 1, 1998, the dinar was officially devalued 19 times (three of which exceeded 99%), and 22 zeros were lopped off that unit of account (see photo illustration)

*If we calculate in today’s terms it will lead us to roughly 1000 $ depreciated into 105 $, and everything was heading into one direction, towards zeroing of the currency as we once knew it, and the YU federation that was once deemed prosperous, deteriorated rapidly, and surprisingly for decades prior to the war, YU already was heavily burdened in enormous debts, but this time Josip Broz Tito was at helms!

What happened aftër the war ended? did the currency crisis evaporated, after the capitulation of the last dictator in Europe!? and how he was plotting his next move…with a million stolen from the Treasury already diversified into bogus accounts in Cyprus, Russia, Malta, & Swiss, with over1.000 bullion of gold missing, as Mr.Dinkic, the central bank governor explains ‘Milosevic’s government classified all gold production data as a military secret, and the gold vanished from the reserves!