Devaluation of the pengő: hyperinflation

Devaluation of the pengő: hyperinflation

As the song of the era went, “it is easy to have fun with a fixed 200 pengő a month”. That era had disappeared with the escalation of the Great Depression, and it was gone for good by the time the war preparations commenced. Prime Minister Kálmán Darányi announced the Győr Programme on 5 March 1938, which was a military programme to prepare the country for war, and its implementation required a ton of money. New laws were passed to allow the state to borrow money from the central bank.

Providing money to re-annexed territories and converting their currencies into pengő put a heavy burden on the state even before the raging inflation. The lack of metal coins was made up by issuing small denomination banknotes, however, they were swept away by inflation. The public deficit was funded by issuing unsecured banknotes and taking out state loans during the war. The Mint became increasingly active after 1941, and the country became a war zone as of 1944. Banknote volume per person per annum increased multiple times. The value of the pengő plunged in the international money markets. The gold and foreign currency reserves of the central bank decreased. As inflation grew, metal coins and small-denomination banknotes vanished from circulation.

Commodity coverage dropped sharply from the summer of 1945 and banknote volume continued to grow. There were various attempts to contain the inflation of the pengő, such as the 75 % banknote duty, i.e. the need to buy stamps for banknotes of certain denominations to allow them to retain their face value. This instruction could merely stop inflation for 11 days.

An unknown volume of unsecured Soviet Red Army pengő notes were in circulation in parallel with the banknotes. Tax pengő as an excise duty was introduced as of 1 January 1946, initially as a non-payment means of accounting, but in the last weeks of hyperinflation, it was also used for payment purposes.

Banknotes appeared with face value numbers that have only been used to describe astrological distances before.. The one hundred million b-pengő banknote was the highest denomination in circulation. The devaluation of the Hungarian currency in 1945 and 1946 held the world record for the highest inflation rate for a long time. The one billion b-pengő note was also issued, however, it was not circulated due to the introduction of the forint as a new currency on 1 August 1946.

Source: MTVA