The Argentine austral died in 1991, killed by a law that promised every saver a dollar for every peso. Introduced on 15 June 1985 to replace the discredited peso argentino at 1,000 to 1, the austral was the latest in a long line of Argentine monies worn down by the same disease: a state that spent more than it taxed and a central bank that printed to cover the gap. It lasted barely six years. By mid-1989 the printing had tipped into outright hyperinflation, and the austral was overwhelmed; the verdict on this case — Stabilized — belongs not to the austral itself but to the regime that buried it, the 1991 Convertibility Plan, which pegged a new convertible peso to the US dollar one-to-one by act of Congress.
The mechanism was textbook deficit monetization. Successive governments ran chronic fiscal deficits and financed them through the Banco Central, which was not meaningfully insulated from the Treasury’s demands. According to the Hanke-Krus World Hyperinflation Table, Argentina’s hyperinflationary episode ran from May 1989 to March 1990, peaking at roughly 197% in a single month in July 1989 — prices more than tripling between one month’s start and the next. Annual figures convey the same horror: consumer prices rose on the order of 3,000% in 1989 and again over 2,000% in 1990. Argentines, long practised at flight from their own money, dumped australes for dollars the moment wages cleared; the poor, holding cash, paid the inflation tax in full.
What stopped it was a deliberate surrender of monetary discretion. On 27 March 1991, on the initiative of Economy Minister Domingo Cavallo under President Carlos Menem, Argentina’s Congress sanctioned Law 23,928 — the Ley de Convertibilidad del Austral. Effective 1 April 1991, it fixed the currency at 10,000 australes per US dollar and bound the central bank to back the monetary base, peso for peso, with hard reserves. On 1 January 1992 the austral was retired entirely for a new convertible peso at the same 10,000-to-1 rate, so that one peso equalled one dollar by statute.
The peg worked, and worked fast: inflation that had run in the thousands of percent fell to single digits within two years. That is why this file reads Stabilized. But the same rigidity that killed the hyperinflation became, a decade later, a straitjacket — and this is the rise of which Argentina’s 2001 convertibility collapse (see case PP-014) is the fall. The law that stabilized the austral in 1991 is the law that broke the peso in 2002. Read this dossier and PP-014 as one arc with a ten-year intermission.
The Bolivian peso died in 1985, and it died of the purest case of the disease this sub-site catalogues: a government that could not stop printing money to pay its bills. There was no war, no occupation, no broken federation — only a collapsed fiscal position, a tax system that had ceased to function, and a central bank ordered to fill the gap with freshly printed pesos bolivianos. The result, by 1985, was hyperinflation that academic accounts put at roughly 11,750% for the year (University of Chicago), with the Hanke-Krus World Hyperinflation Table fixing the monthly peak at about 183% in February 1985 — a rate at which prices doubled roughly every twenty days. The verdict is Stabilized, because the collapse was halted not gradually but almost overnight, by a single decree.
The mechanism was deficit monetization stripped to its bones. After the 1982 return to democracy, the government of Hernán Siles Zuazo inherited a debt crisis, a falling tin price, and a public sector it could not finance. Revenue collapsed — by the height of the crisis, inflation itself was eroding tax receipts faster than they could be collected, the so-called Olivera-Tanzi effect — so the deficit was covered by the Banco Central printing money. The more it printed, the faster prices rose; the faster prices rose, the less the taxes were worth; the less the taxes were worth, the more it had to print. By mid-1985 the US dollar fetched a million pesos bolivianos on the black market, wages were spent within hours of receipt, and the largest instruments in circulation were not banknotes at all but bank checks of up to 10 million pesos.
The end came with the New Economic Policy and its instrument, Supreme Decree 21060, promulgated by President Víctor Paz Estenssoro on 29 August 1985 — the case that made the young Harvard economist Jeffrey Sachs famous. The decree floated the peso (an overnight devaluation of more than 90%), slashed public spending, froze public-sector wages, lifted price controls and subsidies, and — above all — committed the government to stop financing the deficit by printing. Inflation, which had been running at thousands of percent, fell to between 10% and 20% within months.
The peso boliviano was formally retired on 1 January 1987, when a new boliviano replaced it at one million pesos to one. Because the fiscal turn behind the new money was real, the boliviano held; it remains Bolivia’s currency today. The stabilization became a landmark — proof, drawn straight from the 1920s European cases Sachs studied, that even a hyperinflation in the thousands of percent can be stopped abruptly if the government credibly stops printing.
The Israeli old shekel is the rare case in this archive that was pulled back from the edge rather than carried over it. Israel’s currency in the first half of the 1980s was the shekel (more precisely the old sheqel, issued from 24 February 1980), and it was dying of the classic disease: chronic government deficits financed by a central bank that could not say no. Consumer prices rose about 445% over the course of 1984, and through the first half of 1985 the annualized pace ran higher still — into the hundreds of percent, with some readings near 700% annualized. That is a severe inflation by any measure. It is not, however, a textbook hyperinflation: it never came close to the Cagan threshold of 50% in a single month. The verdict here is Stabilized, and Israel earned it by acting before the disease became terminal.
The driver was textbook deficit monetization. Years of large public-sector deficits — defence spending, subsidies, a bloated state — were covered in part by the Bank of Israel printing money, and the inflation was then locked in by pervasive indexation. Wages, savings, mortgages, and bonds were tied to the consumer price index or to the dollar, so each month’s price rise was mechanically passed into the next. As in Brazil, indexation made daily life survivable and stabilization nearly impossible: the price level had a memory and a momentum largely detached from current policy. The 1983 bank-shares crisis, in which the major banks’ manipulated share prices collapsed and the state was forced to bail out depositors, added a fiscal shock on top of the structural one.
The reckoning came on 1 July 1985, when the national-unity government of Shimon Peres launched the Economic Stabilization Plan, designed by finance minister Yitzhak Moda’i and economist Michael Bruno. It was a coordinated, near-simultaneous strike on every engine of the inflation at once: a sharp devaluation followed by a fixed exchange rate as a nominal anchor, deep cuts to the budget deficit, a negotiated wage freeze with the Histadrut labour federation, temporary price controls, and — crucially — a legal end to the automatic monetary financing of the deficit. Within two months annual inflation fell from roughly 445% to under 20%, with almost no rise in unemployment.
The currency reform followed the stabilization rather than substituting for it. On 1 January 1986 the new shekel replaced the old shekel at 1,000 old : 1 new, lopping three zeros off a price level that had finally stopped moving. Because the inflation was already broken when the zeros came off, the redenomination stuck. The new shekel remains Israel’s currency four decades later — proof that the order of operations matters: stabilize first, rename second.
The Mexican peso did not hyperinflate, but it spent the 1980s being ground down by a debt crisis and the deficit financing that came with it, and by 1987 its inflation peaked at roughly 159% for the year on the more cited estimate — about 142.8% by the official consumer-price measure. That is a severe inflation, and the figures often disagree, but it is far short of the Cagan hyperinflation threshold of 50% in a single month, which the peso never approached. The verdict is Redenominated: on 1 January 1993 the Bank of Mexico introduced the nuevo peso (new peso) at 1,000 old pesos to 1 new peso, lopping three zeros off a currency that had finally been stabilized. The largest banknote of the old peso era was the 100,000-peso note, issued in 1991.
The story begins with the 1982 debt crisis, the event that opened Latin America’s “lost decade.” Mexico had borrowed heavily abroad through the 1970s on the strength of new oil discoveries; when world interest rates spiked and oil prices fell, the country could no longer service its dollar debt, and in August 1982 it effectively declared it could not pay. The peso was devalued massively, capital fled, and the government — squeezed between collapsing revenue and a vast debt burden — covered its deficits in part by money creation. Inflation, which had run in the tens of percent, climbed into triple digits and stayed there through the middle of the decade.
The turning point was the Pacto. In December 1987, after years of orthodox austerity had failed to break the inflation, the de la Madrid government tried a heterodox approach: the Pacto de Solidaridad Económica, a negotiated social pact among government, business, and labour to coordinate wage, price, and exchange-rate restraint, anchored by fiscal tightening. The Pacto did not work instantly — inflation was still around 100% in 1988 — but, renewed and refined under President Carlos Salinas, it ground the rate down year after year into the teens and then single digits.
Only when the inflation had been tamed did Mexico touch the currency. On 1 January 1993 the nuevo peso replaced the old peso at 1,000:1, retiring the 100,000-peso notes and restoring sensible arithmetic. Old and new pesos circulated together through the mid-1990s; the “nuevo” qualifier was dropped at the start of 1996, leaving simply the peso. The redenomination was a success in its own terms — but the stability it crowned proved fragile: in December 1994 the Tequila Crisis forced another sharp devaluation, a reminder that a redenomination secures the numerals, not the value behind them.
The Vietnamese đồng treated here is the currency of the unified socialist republic in the mid-1980s — and this is the first point to get straight, because there are two very different stories that share a name. The 1975 abolition of the Republic of Vietnam’s đồng after the fall of Saigon, when the victors converted Southern money at confiscatory rates and wiped out Southern savings by decree, is a separate case (filed under War Chest). What follows is the later, distinct episode: the inflation that engulfed the whole country in the 1980s, born of socialist deficit financing and detonated by a botched currency reform of 14 September 1985. The verdict is Redenominated — the 1985 reform struck a zero off, at 1 new đồng for 10 old — but the redenomination did not stabilize anything. It made things catastrophically worse. The actual stabilization came from the Đổi Mới reforms launched at the end of 1986 and the monetary measures of 1989.
The driver was the command economy itself. After reunification in 1976, the unified socialist state ran chronic deficits — bled by reconstruction, collectivization, the occupation of Cambodia, the 1979 border war with China, and international isolation — and financed them by printing đồng. The 14 September 1985 reform, called gia-luong-tien (price-wage-money), was meant to drain the parallel market and tax undeclared wealth by converting old đồng into new at 10:1. Instead it shattered what confidence remained. The government failed to print enough new notes, rumours of the conversion drove the black-market rate toward 1,000 đồng per US dollar before the reform even landed, and savers were gutted. Inflation, already high, exploded: it peaked at about 700% in September 1986 by the Wikipedia figure, and official Vietnamese accounts put the end-1986 rate at 774%.
The escape was the great strategic turn of December 1986. At the Sixth National Congress of the Communist Party, Vietnam adopted Đổi Mới (“renovation”): a phased shift from rigid central planning toward a “socialist-oriented market economy.” Stabilization did not arrive instantly — inflation was still around 350% in 1988 — but the decisive monetary act came in 1989, when the authorities unified Vietnam’s multiple exchange rates at the parallel-market level and, critically, raised interest rates on đồng deposits to positive real levels, giving people a reason to hold the currency rather than flee it. Inflation collapsed from roughly 350% in 1988 to about 35% in 1989, then under 20% by 1992. The 1985 redenomination renamed the problem; Đổi Mới and the 1989 reforms solved it.