Some personal anecdotes. I grew up during the hyperinflation days in Brazil (80s, early 90s): talking about 60% a month.
People would get their salary and run to the supermarket and buy everything they needed for the month, because if they waited a single day the prices would have changed. A lot of people internalized that habit and still do that nowadays (not in the sense of running to the supermarket, but buying a lot for the whole month).
This was before barcodes, and every item had a price label on it. Supermarkets had people employed full time just to be remarking the items. I remember running to pick up an item on one end of a shelf while the employee was remarking the items coming from the other end, so you could buy the item at yesterday's price.
I lived through 6 currency changes. Usually when prices started being in the scale of millions, the government would announce that in a very short period (sometimes that being next week), there was a new currency with a new name and 1000 OLD = 1 NEW. Until the government could replace all existing bills, the old bills would be accepted as if they were the new bills (at 1/1000 of the face value, of course). Old bills passing through the banking system would be stamped with the name of the new currency and the new value before being put back into circulation.
Contracts like rentals were all indexed: there was a clause saying the price would be corrected every month using the official index that tracked the inflation. Or were pegged to the dollar. This by itself fed into the positive feedback loop that was perpetuating the hyperinflation.
The government tried some bizarre measures to tame inflation. Often they would try freezing all prices, but that was never sustainable for long. The craziest one was probably in 1990 when the government simply froze 80% of everybody's money in the bank for 18 months to reduce the amount of money in the economy. This was a total disaster and even caused many suicides.
In 1994 hyperinflation was finally tamed when the current currency, Real, was introduced. It was the culmination of an ingenious plan that actually worked.
I’d love to hear more about why the real was successful. Wikipedia makes it sound like it was just luck that Brazil had positive trade balance in the years following its introduction.
Economics is not a subject that I can say that I know anything about, so this is my completely subjective interpretation.
I think the problem was that Brazil got into a positive feedback loop, and we had what Wikipedia calls "inertial inflation" [1]. We got this going for so long that everybody internalized the inflation, and expected it, and behaved as it was a foregone conclusion that there was going to be inflation next month. So it became a self-fulfilling prophecy.
I see the plan ("Plano Real" [2]) to break it as a social engineering hack. They realized, after so many failed attempts, that in order to succeed you had to change people's minds and make them see the price of goods/services/contracts as stable, which would also change their habits and expectations. Remember there was a generation of people, including myself, who lived their entire lives under high inflation so they didn't know anything else.
So what the government did was to create an index, called URV ("unidade real the valor" = "real value unit"), and mandated that all salaries/prices/contracts/etc. should be indexed against this particular index (and not any other index, or the dollar). Everything should be advertised in URVs. The government would publish, every day, the "price" of 1 URV in what it was the currency back then (cruzeiros reais). So when money actually changed hands, you would pay in cruzeiros reais the quoted amount of URVs using that day's URV price. The URV was roughly tracking the USD, which gave confidence to everybody that the index was "fair" and not losing value.
This went on for a year. And it actually worked: everybody started thinking in URVs instead of cruzeiros reais. All prices became stable in URVs. And then in 1994 they introduced a new currency, the real, where 1 real = price of 1 URV. And inflation suddenly dropped from ~50% a month to ~2% a month. Still high but a miracle to us compared to how it was before. (Eventually it dropped to less than 10% a year.)
So they basically "de-indexed" the economy (and people's minds), killing the positive feedback loop and the hyper-inflation. This was such a life-changer for Brazilians that the economy minister during Plano Real, Fernando Henrique Cardoso (the public face of this plan, even though he wasn't the author), ended up being the next president.
There are a few articles that may be a good summary as well: [3][4]
why didn't everybody switch simply to USD? That's some hard cash that doesn't care about some petty Brazil's issues. Anything local in such a situation, no matter how well designed or intended, would be suspicious to me.
I did not live in Brazil, but the government sharply increased interest rates and reduced public expenses with the introduction of the real. Those actions are deflationary.
There was an official index, named "correção monetária" (literally: "monetary correction"), which was basically tracking the inflation index. Everybody's salary and the amount of money in the savings accounts had to be increased every month by this index. The idea was that you didn't lose money because it would be corrected every month. At least if you assume that the official inflation numbers were accurate.
But the moment you had money in hand, you had to spend it as soon as possible or soon it would be worth nothing.
People would get their salary and run to the supermarket and buy everything they needed for the month, because if they waited a single day the prices would have changed. A lot of people internalized that habit and still do that nowadays (not in the sense of running to the supermarket, but buying a lot for the whole month).
This was before barcodes, and every item had a price label on it. Supermarkets had people employed full time just to be remarking the items. I remember running to pick up an item on one end of a shelf while the employee was remarking the items coming from the other end, so you could buy the item at yesterday's price.
I lived through 6 currency changes. Usually when prices started being in the scale of millions, the government would announce that in a very short period (sometimes that being next week), there was a new currency with a new name and 1000 OLD = 1 NEW. Until the government could replace all existing bills, the old bills would be accepted as if they were the new bills (at 1/1000 of the face value, of course). Old bills passing through the banking system would be stamped with the name of the new currency and the new value before being put back into circulation.
Contracts like rentals were all indexed: there was a clause saying the price would be corrected every month using the official index that tracked the inflation. Or were pegged to the dollar. This by itself fed into the positive feedback loop that was perpetuating the hyperinflation.
The government tried some bizarre measures to tame inflation. Often they would try freezing all prices, but that was never sustainable for long. The craziest one was probably in 1990 when the government simply froze 80% of everybody's money in the bank for 18 months to reduce the amount of money in the economy. This was a total disaster and even caused many suicides.
In 1994 hyperinflation was finally tamed when the current currency, Real, was introduced. It was the culmination of an ingenious plan that actually worked.
Feel free to ask me more, if you're interested.