Hyperinflation in Yugoslavia (Causes)

The second highest and the second longest episode in economic history, was driven by excessive money supply that monetized various deficits
that emerged upon the disintegration of the country (Petrovic et al., 1998).

The hyperinflation in the Federal Republic of Yugoslavia, i.e., Serbia and Montenegro,
was associated closely with the disintegration of the former Yugoslavia, the ensuing loss of
monetary and fiscal control, wars in the region, and the comprehensive international economic
embargo imposed on the country (Petrovic et al., 1998).

The origins of the Yugoslav hyperinflation go back to at least the end of 1990 when the
elections held in all six republics of the former Yugoslavia indicated that the country was
breaking up de facto. As the country disintegrated in 1991 and 1992, interregional trade
collapsed, causing a severe downturn in the output of many industries. The Federal Republic of
Yugoslavia was left with much of the huge bureaucracy, including the sizable military and
police, which previously served a much larger country. The escalation of fighting in Croatia and
Bosnia– Herzegovina and the rapidly deteriorating regional security situation, with the associated
transfers to the Krajinas, led the authorities to postpone any orderly fiscal adjustment,
particularly of expenditures (Petrovic et al., 1998).

In addition, in 1991, it was discovered that the leader of the

On January 7, 1991, the federal government of Prime Minister Ante Markovic discovered that,
under the control of Slobodan Milosevic, the Serbian parliament had secretly ordered the
Serbian National Bank (a regional central bank) to issue $1.4 billion in credit to Milosevic’s
friends (Hanke, 2007).

The theft forced the government's central bank to print excessive amounts of money to
take care of its financial obligations. As a result, hyperinflation quickly enveloped the economy,
erasing what was left of the country’s wealth and forcing its people into bartering for goods. The
inflation rate nearly doubled each day until it reached an unfathomable rate of 313,000,000% per
month (Johnston, 2019).

There are three main causes of hyperinflation: higher supply of money, demand-pull inflation, cost-push inflation. In relation to the
statement underlined above, an increase in the supply of money is usually due to the government printing large amounts of money to the point
that the value of the money begins to drop. When the value of money drops and yet more of it is being printed, this causes prices to increase.
(Hyperinflation: Definition, Examples & Causes | StudySmarter, n.d.)

In May 1992, the United Nations imposed an international embargo on almost all
commercial transactions with the Federal Republic of Yugoslavia, including foreign trade,
financial transactions, and transportation, and in April 1993 the embargo was broadened to all
transactions and transportation except humanitarian aid. Consequently, a sharp decline in output,
which was driven largely by the disintegration of the country and the international embargo, and
the ensuing extreme monetary and fiscal expansion, led to hyperinflation (Petrovic et al., 1998).
Hyperinflation in Yugoslavia (Effects)

The results were devastating. Long before NATO struck Yugoslavia in 1999, Mr.
Milosevic’s monetary madness had already destroyed the economy. Wreck an economy, then
start a war: It’s an age‐old power‐preservation ploy. During the 24‐month hyperinflation
period, per capita income plunged by more than 50%. Ordinary people were forced to deplete
their hard‐currency savings. People couldn’t afford to buy food in the free market; they kept
from starving by either waiting in long lines at state stores for irregularly supplied rations of
low‐quality staples, or by relying on relatives who lived in the countryside. For long periods,
all of Belgrade’s gas stations were closed, except for one station that catered to foreigners and
embassy personnel. People also spent an inordinate amount of time at the foreign‐exchange
black markets, where they traded huge piles of near‐worthless dinars for a single German mark
or US dollar note (Hanke, 2007).

References:
Hanke, S. H. (2007). The World’s Greatest Unreported Hyperinflation. Retrieved from
https://www.cato.org/commentary/worlds-greatest-unreported-hyperinflation
Hyperinflation: Definition, Examples & Causes | StudySmarter. (n.d.). StudySmarter US.
Retrieved January 7, 2023, from
https://www.studysmarter.us/explanations/macroeconomics/economic-performance/
hyperinflation/
Johnston, M. (2019, December 6). Worst Cases of Hyperinflation in History. Investopedia.
https://www.investopedia.com/articles/personal-finance/122915/worst-hyperinflations-
history.asp
Petrovic, P., Bogetic, Z., & Mladenovic, Z. L. (1998, December 23). The Yugoslav
Hyperinflation of 1992-1994: Causes, Dynamics, and Money Supply Process.
Papers.ssrn.com. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1805821
Photo 1: Slobodan Milosevic https://www.nbcnews.com/id/wbna5873175