Hungarian Hyperinflation

[hunyadi]

Unprecedented Hyperinflation

With the formation of a new government underway the final days of 1945 slipped rapidly by as the citizens of Hungary eagerly awaited the arrival of 1946 and a new economical hope. During the short campaign period before the November election, the Hungarian economy was already in a massive downslide.

The post war economy in Hungary was the world?s worst known case of hyperinflation. When the Hungarian currency known as the pengő was introduced in 1927 its largest denomination prior to the end of the war was the 1000 pengő bill. From its inception the pengő had remained relatively stable even during the war years. By December of 1945, however, the rising inflation had caused the pengő to be printed in denominations up to 10,000,000.

Several factors caused such a rapid decline. Worldwide the economies of nearly every country took a natural downward turn after the end of the war. The victor?s economies naturally were far less in decline as speculation for the future was more positive. The future of a changing government, the ravages of war and its defeat along with the uncertainty of the middle and upper classes caused speculation and investment to all but vanish.

Even if the middle and the upper classes had the confidence to invest, the sudden lack of their personal wealth presented another problem. The unprecedented quantity of valuables looted by the Russian Army forced the wealthy into near poverty. Even the financial institutions were not safe as Russian solders simply walked into the banks and took off with whatever they could carry.

In once such instance, several Soviet officers entered the Hungarian General Credit Bank in Budapest January 20th, 1945. The manager was a helpless witness to the events as the officers forced their way into the vault and walked away with 113 million pengő, about 800 suitcases of valuables that had been left by clients for safekeeping as well as emptying over 1400 safety deposit boxes. In addition to the valuables and the money, the officers also took bank securities that were worth several million Pengő. None of it was ever returned or recovered. (Krisztian Ungvary Battle For Budapest 100 Days in World War II I.B. Tauris London ? New York 2003. (pg 280))

Speculation remains that such actions may have been an attempt by Moscow and Rakosi to destroy the upper classes of Hungarian society in order to more smoothly pave the way for the rise of a communist nation. Some confirmation of the theory can be gleaned from the formation of the Supreme Economic Council founded on November 24th, 1945.

The Supreme Economic Council was formed by the decree of the Prime Minister to oversee and manage the postwar economy. Built within the framework of its scope was the ability to regulate production, distribution, import and export of materials. The council was also charged with distributing the wartime reparations to the Soviet Union, Yugoslavia and Czechoslovakia. The massive power of the economic council rested upon the shoulders of a close ally of R?kosi; Zolt?n Vas.

Whether manipulated or uncontrolled, the effect was catastrophic to the nation. What little money the people of Hungary had after the war, they refused to inject it into the market except to buy the items essential for survival. Since basic goods were already scarce, prices began to rise rapidly. As these prices increased beyond what people had managed to hide away, the barter of hard goods became common practice for bread and sugar. In addition to the declining market, the salaries of the workers became nearly worthless as the wages of the workers could not be adjusted quickly enough. At the height of the hyperinflation period of 1946, the prices of goods were doubling every 15 hours.

In response to the massive need to continually add zeros to the end of worthless banknotes the Hungarian tax authorities devised a system of the ad?pengő. The new ad?pengő was designed to pay for taxes as well as postage at the post office. It value was derived from the pengő beginning on January 1st 1946 where one pengő equaled one ad?pengő. The value remained fairly stable as by January 28th, 1946 it was exchanging one ad?pengő at 1.09 pengő. Conversely by July 28th, 1946 one ad?pengő was worth 2, trilliards pengő. Or a 2 with twentyone zeros after it...

Top is an ad?pengő of the 100,000 denomination. In July of 1946 this would be worth a 2 with twentysix zeros after it.

Second and Third are pengő from 1945

Edited May 6, 2007 by hunyadi

[hunyadi]

Here is a one million pengő note issued at the end of 1945

[hunyadi]

Another interesting find is the Provisoinal Government issuance of money to the Red Army in 1944. I am not certain if this was entirely meant for Soviet Soldiers or for the small contingent of Hungarian soldeirs who switched sides and joined with the Red Army to fight the Germans. The money is backed by the "Commander of the Red Army" as noted on the bills.

[hunyadi]

Reverse of the Red Army Pengő

[Gordon Craig]

Charles,

Very interesting stuff. Great looking bank notes with areal history to tell.

Regards,

Gordon

[Carol I]

The 10 pengo Soviet occupation note is surprisingly similar to the 10 lei one issued for Romania (images from Ron Wise's site).