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Causes of Hungary's 1946 Inflation

The Hungarian pengo was first introduced in the wake of the first World War in order to stabilize the country's economy and correct the country's inflation.

Hungary's agricultural sector was hit especially hard by the Great Depression, and the country's mounting debt forced the central bank to devalue the currency to cover costs by loosening financial and monetary policy. Later in the decade, the Vienna Awards ceded Hungary territories that it claimed were lost during World War I, but these lands were economically underdeveloped and eventually caused a strain on the national economy.

When World War II hit, Hungary was in a weak economic position and the central bank was almost entirely under the government's control; printing money based on the government's budgetary needs without any sort of financial restraint.

Eventually, the inflationary environment became so dire that coins began disappearing form circulation, beginning with the silver coins and even bronze and nickel currency, as the component metals became far more valuable than the coins themselves. As the war wound down, the standing government took full control of banknote production without any tangible collateral, and the occupying Soviet army simultaneously began issuing its own military money, which further reduced the demand for the pengo.

Hungary's worst hyperinflation occurred after World War II, and despite several large-scale measures to stabilize the currency, the only remedy was to introduce a new currency, the forint, which had a direct conversion into gold and thus into other world currencies. The forint is still in circulation today, but it is expected to be replaced by the euro within the next several years.

Photo: Wikimedia Commons