Era 06 · 1971 — 2008

Modern Fiat Failures

Loss of purchasing power

By the decade

Pulse cycle

2.5s

With gold constraints gone entirely, currency debasement became a recurring feature of emerging-market economics. Argentina replaced its currency five times between 1970 and 1992, each time lopping off zeros and re-starting. Brazil did similar serial redenominations. Yugoslavia, Zimbabwe, and the post-Soviet states produced spectacular hyperinflations. Meanwhile, major central banks learned to hide their monetary expansion in increasingly technical mechanisms — money-supply measures were redefined, reporting requirements were relaxed, and the Federal Reserve stopped publishing M3 entirely in 2006.

Events in this era

1970 — 1992

Argentina replaces its currency five times

Between 1970 and 1992, Argentina replaced its currency five times, each time removing zeros and starting over: peso (1970-1983), peso ley (1983-1985), peso argentino (1985-1985 — lasted 19 months), austral (1985-1991), and finally the convertible peso (1992). Each currency ended because accumulated inflation had made the denomination unmanageable. Across all five currencies, the cumulative depreciation of Argentina's money against the U.S. dollar was roughly 10^13 — ten trillion to one. The Convertibility Plan of 1991 pegged the new peso 1:1 to the dollar and stabilized prices for a decade, but collapsed in the 2001-2002 crisis.

Cumulative Argentine depreciation of 10^13

Jul 1, 1985

Israeli Economic Stabilization Plan

Israel's July 1985 Economic Stabilization Plan is the textbook example of how to stop a hyperinflation without a full regime change. Annual inflation had reached 450 percent by 1984. The plan combined a sharp fiscal contraction (the budget deficit was cut from 15 percent of GDP to near zero), a currency reform (the old shekel was replaced by the new shekel at 1000:1), wage-and-price controls for a transition period, and a pegged exchange rate. Inflation fell from 450 percent to under 20 percent within a year and to under 5 percent by 1999. The plan became the model for successful emerging-market stabilizations — including Argentina's 1991 Convertibility Plan and Brazil's 1994 Real Plan.

Template for successful hyperinflation stabilization

Jul 1, 1994

Brazilian Real Plan

Brazil's Real Plan, introduced on July 1, 1994, ended roughly 30 years of accelerating inflation. Brazil had replaced its currency five times since 1967 (cruzeiro, cruzado, novo cruzado, cruzeiro again, cruzeiro real) and was reaching Argentine-style conditions. The Real Plan used a clever transition mechanism — a 'Unidade Real de Valor' (URV) that was pegged to the dollar and used to reprice contracts for several months before the new real currency was introduced. The URV gave Brazilians time to get comfortable with stable-value accounting before the actual currency swap. Inflation fell from 2,000 percent per year to under 10 percent within two years.

30 years of Brazilian inflation ended

Dec 20, 1994

Mexican peso crisis (Tequila Crisis)

On December 20, 1994, the Mexican government devalued the peso by 15 percent, attempting a controlled adjustment after months of capital flight. Within two days, the peg failed entirely. The peso fell from 3.4 to the dollar in November to over 7 by March 1995, losing more than half its value. President Ernesto Zedillo had inherited a current-account deficit of nearly 7 percent of GDP, dollar-denominated short-term debt (tesobonos) the Treasury could not roll over, and reserves of roughly $6 billion against $30 billion in maturing obligations. The Clinton administration organized a $50 billion rescue package using the Treasury's Exchange Stabilization Fund — the first modern emerging-market bailout, and the template the IMF would use repeatedly through the rest of the decade.

First modern EM bailout; ~50% peso devaluation

Aug 17, 1998

Russian ruble devaluation and default

On August 17, 1998, Russia simultaneously devalued the ruble, defaulted on its domestic debt, and suspended foreign-currency debt payments by Russian banks. The ruble fell from about 6 to the dollar to over 25 within weeks. Real wages collapsed; many Russians lost their savings twice within a decade (once in 1992 in the post-Soviet liberalization, again in 1998). The 1998 crisis directly triggered the collapse of Long-Term Capital Management in the U.S., which required a Federal Reserve-coordinated bailout — the first real test of the modern 'too big to fail' framework.

Russian default triggers first 'too big to fail' bailout

Mar 23, 2006

Federal Reserve stops publishing M3

On March 23, 2006, the Federal Reserve ceased publishing the M3 money-supply aggregate, citing cost-benefit reasons. M3 included M2 plus institutional money-market funds and large time deposits — the broadest measure of U.S. dollars in circulation. The Fed continued to publish M1 and M2 but stopped tracking the aggregate that had historically grown fastest during periods of financial engineering and shadow-banking expansion. Analysts immediately noted that the discontinuation removed the most visible measure of monetary aggregate growth just as the housing and credit bubbles were approaching their peak.

Broadest money aggregate goes dark

Jan 16, 2009

Zimbabwe issues 100 trillion dollar note

On January 16, 2009, the Reserve Bank of Zimbabwe issued a Z$100,000,000,000,000 note — one hundred trillion Zimbabwe dollars. It was the largest denomination note of the 21st century. Zimbabwe's inflation rate at its peak in November 2008 was estimated at 79.6 billion percent per month — prices doubling every 24 hours. The Zimbabwe dollar was abandoned entirely in April 2009 in favor of a multi-currency regime using the U.S. dollar, South African rand, and other regional currencies. Zimbabwe tried to reintroduce a local currency in 2019 (RTGS dollar), which itself hyperinflated by 2022.

Largest banknote denomination of the 21st century

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