Lessons from Venezuela, Zimbabwe, Russia and the Weimar Republic for Iran
Mounting economic pressure weighs heavily on the lives of the Iranian people, and conditions grow harder by the day. These days, talk of hyperinflation, or explosive inflation, and the so-called "Venezuelanization" of Iran's economy is more widespread than ever. In this essay I have tried to dissect this phenomenon and, as far as I am able, to point to ways of preventing it. Although I doubt that, within the framework of the system of velayat-e faqih (Guardianship of the Jurist) and the kleptocratic economic structure ruling Iran, the recommendations put forward in this article can actually be implemented, I hope this essay can help clarify the dimensions of the danger and contribute to public debate on how to prevent it.
This article examines four different experiences of hyperinflation, or explosive inflation: Zimbabwe, Venezuela, Russia after the collapse of the Soviet Union, and Germany after the First World War, during the Weimar Republic. In all four cases, printing money was the final link in the crisis, not its starting point. Collapsing production and foreign-currency earnings, chronic budget deficits, a weakened central bank, destructive controls and suppression of market prices, political crisis and the evaporation of public trust drove the government to finance itself by creating money.
Nevertheless, the countries' paths were not identical: Zimbabwe's crisis arose from the collapse of agriculture and public finances; Venezuela's from oil dependence and the destruction of productive capacity; Russia's from the collapse of the centrally planned system and institutional transition; and Germany's, in the Weimar era, from the financial legacy of the war, reparations and the Ruhr crisis.
Iran has not yet entered classic hyperinflation. In the common definition, hyperinflation means prices rising by more than 50 percent in a single month. Even so, very high inflation, the falling value of the rial, chronic budget deficits, unhealthy banks, multiple exchange rates, sanctions, a worn-out productive base and military pressures have increased the risk of a leap into hyperinflation.
The main conclusion of this article is that preventing hyperinflation is not possible through monetary policy alone; reform of the budget and the banks, preservation of foreign-currency earnings, targeted social support, security of property, the rebuilding of political and statistical credibility, and an increase in national production must all be pursued simultaneously.
Introduction: How Does Hyperinflation Begin?
Hyperinflation occurs when people no longer regard the national currency as a store of value or a reliable standard for pricing. At this stage, everyone tries to convert their income immediately into foreign currency, gold, goods or real assets. The velocity of money rises, and even without a proportional increase in the money supply, prices accelerate. The government, too, in order to preserve the purchasing power of its spending, issues more banknotes, and a self-reinforcing cycle takes shape.
The famous formula of economics comes into play here:
M × V = P × Y
In this formula, the money supply multiplied by its velocity equals the general price level multiplied by gross domestic product.
The usual chain runs as follows: weakening of institutions and production; a fall in tax or foreign-currency revenue; a budget deficit; financing of the deficit by the central bank; a collapse in the value of money; people fleeing the national currency; a rise in the velocity of money; and finally, hyperinflation.
An external shock, war or sanctions can accelerate this process, but it usually leads to hyperinflation only when the government lacks fiscal and monetary discipline and public trust. In Iran today, the money supply has reached the threshold of 20,000 hemmat (one hemmat being one thousand billion tomans), GDP growth is negative and output is shrinking, prices are rising, and as the rial loses value, people immediately get rid of their rials, whether held in savings accounts or even received as monthly wages, and convert them into goods. This increases the velocity of money, and this rise in velocity acts like a multiplier on the money supply, pushing up the general price level on a weekly and sometimes daily basis.
Part One: Zimbabwe
Roots of the Crisis
At independence in 1980, Zimbabwe had advanced commercial agriculture and significant exports of tobacco and grain. From the late 1990s, unfunded government spending, large payments to war veterans and participation in the war in the Congo increased the budget deficit.
From 2000 onward, a program of land confiscation and redistribution, carried out chaotically and for political ends, sharply reduced agricultural output, exports and foreign-currency earnings. The question of historical justice over land was real, but the absence of any plan for transferring management, capital, credit and technical know-how turned land reform into a production shock.
To pay salaries, finance imports and support loss-making companies, the government turned to the central bank. The central bank's quasi-fiscal operations and money printing made the growth of the money supply explosive. Administrative controls on the prices of goods and on the exchange rate did not make goods cheaper; they wiped out official supply and expanded the black market.
Economic and Social Consequences
- A collapse in GDP and the country's transformation from a food exporter into a food importer and recipient of food aid.
- The destruction of savings, fixed salaries and pensions; by contrast, holders of foreign currency and real assets were better protected.
- Business closures, shortages of food and medicine, emigration of skilled workers, and the spread of barter and the black market.
- The collapse of parts of the health and education services and mass emigration, especially to South Africa.
The crisis was accompanied by electoral violence and pressure on opponents. The distribution of land, food, foreign currency and government jobs became a tool for buying political loyalty. In 2009, the adoption of the US dollar and other foreign currencies limited the ability to print domestic money and halted the first phase of hyperinflation, although the institutional problems remained.
Part Two: Venezuela
From Oil Boom to Fiscal Dominance
Venezuela was extremely dependent on oil revenue. In years of high oil prices, public spending, subsidies and social programs increased, but adequate reserves were not built up for periods of falling prices. Hugo Chávez in Venezuela was the model for Mahmoud Ahmadinejad's populist policies, a record that is all too familiar to us Iranians.
Nationalizations, administrative controls on prices and foreign exchange, legal uncertainty and political interference in enterprises weakened investment and domestic production. The national oil company, too, lost its production capacity as a result of the dismissal of specialists, the politicization of management and underinvestment.
After oil prices collapsed from 2014, the government's foreign-currency revenue fell, but spending was not adjusted accordingly. The central bank covered the deficits of the government and the oil company by creating bolívars. The multiple-exchange-rate system expanded rent-seeking, fictitious imports and the black market, and corruption within the government intensified.
The financial and oil sanctions that followed deepened the crisis, but the budget imbalance, falling production and severe inflation had begun before the harshest sanctions; sanctions were therefore an aggravating factor, not the sole cause.
Consequences
The national currency lost its function, shortages of food and medicine spread, and the real economy shrank by about 65 percent between 2013 and 2019. Informal dollarization curbed inflation to some extent, but it split society into those with dollar incomes and those paid in bolívars.
Out of Venezuela's population of about 30 million, nearly 7.9 million people have emigrated; that is, close to 25 percent of the population, or one in every four Venezuelans, has left the country. At the same time, the concentration of power, the weakening of parliament and independent institutions, the suppression of protests and the political use of access to food and foreign currency all increased.
Part Three: Russia after the Collapse of the Soviet Union
In January 1992, after prices were liberalized, consumer prices rose by about 250 percent in a single month, and annual inflation for 1992 reached around 2,500 percent. This crisis differed from those of Zimbabwe and Venezuela because a centrally planned system, a shared country, a production network and the authority of the central state had all collapsed at the same time.
In the late Soviet period, people held large amounts of rubles, but prices were artificially low and goods were scarce. Price liberalization exposed this repressed inflation. Continued cheap credit to loss-making industries, budget deficits and the common ruble zone also kept inflation going. The newly independent republics used a single currency without there being a single government or a single monetary policy.
Transition, Privatization and Oligarchy
Russia's official output fell by a total of about 40 percent up to the 1998 crisis. Bank savings were wiped out, and enterprises resorted to barter and months-long delays in paying wages.
Voucher privatization, in the absence of public awareness, a capital market and the rule of law, led citizens to sell their vouchers cheaply while managers and middlemen gained control of companies. The loans-for-shares program also placed major assets in oil, metals and natural resources in the hands of a small group through opaque mechanisms, and the oligarchs emerged.
The social consequences included rising poverty and inequality, emigration of specialists, growth of organized crime, a decline in the standing of doctors and teachers, and a mortality crisis. Between 1991 and 1994, male life expectancy in the former Soviet republics fell by about four years.
In politics, the armed confrontation between Yeltsin and parliament in 1993, the war in Chechnya, the oligarchs' influence over the media and elections, and the financial crisis of 1998 eroded trust in democracy and the market economy. Social demand for order and a strong state became one of the factors behind Vladimir Putin's rise, although this was not an inevitable consequence of inflation.
Part Four: Germany and the Weimar Republic
From War Financing to the Hyperinflation of 1923
Germany financed the First World War largely through debt and monetary expansion, in the hope of extracting reparations from the defeated after victory. Military defeat, domestic debt, falling production, food shortages and the reparations of the Treaty of Versailles were imposed on the fledgling Weimar Republic.
Reparations had to be paid in foreign currency, gold or goods; so the government sold marks to obtain foreign currency, while avoiding sufficient tax increases and spending cuts.
In January 1923, France and Belgium occupied the industrial Ruhr region. The government adopted a policy of passive resistance and paid the wages of striking workers and the losses of industry. The halt in production and tax revenue coincided with printing money to cover expenses, and confidence in the mark collapsed. The dollar, worth about 4.2 marks before the war, reached about 4.2 trillion marks in November 1923.
Society, Politics and Containing the Crisis
Wages were sometimes paid daily or twice a day, and families immediately turned their money into goods. Middle-class savings, pensions and bonds were wiped out, but debtors, exporters and owners of real assets profited. This transfer of wealth eroded trust in the state, the banks and contracts, and strengthened conspiracy theories and extremism.
The government of Gustav Stresemann ended resistance in the Ruhr, balanced the budget, restricted central-bank financing of the deficit and introduced the Rentenmark with a limited issue. Hyperinflation stopped quickly.
From 1924 to 1929, the Weimar economy and culture enjoyed a period of stability, and the Nazi Party won only 2.6 percent of the vote in the 1928 election. The decisive blow that enabled Hitler's rise was the Great Depression following the New York stock market crash of 1929: the withdrawal of American loans, bankruptcies, some six million unemployed, austerity, parliamentary deadlock and increasing use of emergency decrees.
The Nazis reached 37.3 percent of the vote in July 1932, but they never won an absolute majority in a free election. Hitler became chancellor in January 1933 through the deal-making of conservative elites and by appointment of Hindenburg. The economic crisis was necessary but not sufficient; the weakness of democratic institutions, national humiliation, street violence, propaganda and the miscalculations of elites were also decisive.
What these countries had in common was that money printing began after production, the budget and trust had been weakened. The main differences lay in the origin of the shock, the structure of exports, the quality of institutions and the way the crisis ended. In every case, the unequal distribution of losses undermined the legitimacy of the economic and political order.
Part Five: The Likelihood of Hyperinflation in Iran
The Current Situation and Defining the Risk
Iran is not yet in classic hyperinflation. Annual inflation of 60, 100 or even 200 percent does not in itself equal the benchmark of 50 percent a month, although its social effects are extremely heavy. Some specialists consider the threshold for hyperinflation to be 500 percent a year.
International Monetary Fund estimates for 2026 point to average inflation of nearly 69 percent and negative growth. Limited statistical transparency, sanctions and military conditions widen the margin of error.
Similarities and Risk Factors
- Dependence of the budget and the currency market on oil, similar to Venezuela's vulnerability.
- Chronic deficits and their transmission to the monetary base through state banks, mandated lending and banks' overdrafts from the central bank.
- Banks with low-quality assets, non-performing loans and high interest obligations.
- Multiple exchange rates and the resulting rent-seeking, corruption, fictitious imports and informal market.
- Declining trust in the rial and the holding of dollars, gold, housing and goods instead of the national currency.
- Deterioration of electricity, energy, water and production infrastructure, and falling investment.
- Sanctions, war and the risk of disruption to oil exports, essential imports and access to foreign currency.
Differences and Restraining Factors
Iran's economy is more diversified than those of Venezuela and Zimbabwe, with agriculture, petrochemicals, mining, steel, food and pharmaceutical industries and an extensive services network. The country's foreign debt is limited, and part of its oil and non-oil exports continues. The government also still has the capacity to collect taxes, control the banking network and manage the distribution of basic goods.
These factors do not make collapse inevitable, but in the event of a prolonged war, a cutoff of oil revenue and a banking crisis, they could all weaken at once.
Early Warning Signs
- Monthly inflation above 10 to 15 percent for several consecutive months and movement toward 50 percent.
- Steady acceleration of the exchange rate and shortening intervals between price revisions.
- Immediate conversion of wages and deposits into dollars, gold or goods, and runs on banks.
- Widespread dollar pricing and sellers' refusal to sell on credit or at fixed prices.
- A sudden jump in the monetary base to rescue banks or pay government expenses.
- A sharp drop in exports of oil and oil products, or lack of access to the foreign currency earned from exports.
- Delays in salaries and pensions, widespread shortages of medicine and food, and a halt in the publication of reliable statistics.
Part Six: A Program to Prevent Hyperinflation in Iran
1. Stop Monetary Financing of the Budget Deficit
All direct and indirect channels of money creation for the government must be restricted: direct borrowing, mandated lending, banks' overdrafts and the hidden debts of state-owned companies. Every new expenditure must have a real source of funding.
2. An Emergency, Transparent Budget
Food, medicine, water, electricity, healthcare and minimum wages and pensions should be prioritized; low-priority projects and the opaque privileges of institutions that draw on the public budget should be halted, and the budgets of institutions and state-owned companies should be published.
3. Bank Reform
Banks must be audited; unhealthy banks should be merged, recapitalized or liquidated. Small deposits should be protected, but shareholders and managers who have broken the rules must not be bailed out with central-bank money.
4. Practical Independence of the Central Bank
The central bank must be able to refuse requests to create money and must regularly publish, in verifiable form, the monetary base, government debt, banks' overdrafts and the inflation target.
5. Gradual Unification of the Exchange Rate
Preferential, rent-generating rates should be abolished, but support for food and medicine should continue through direct payments or targeted coupons. Suppressing prices and artificially pegging the rate by spending reserves only postpones the jump.
6. Phased Reform of Energy Subsidies
Energy prices should be adjusted gradually and the resulting revenue paid directly to low-income households. A sudden increase without compensation could intensify inflation and protest.
7. Reducing Tensions and Maintaining the Flow of Foreign Currency
Stable access to oil exports, insurance, shipping and bank transfers is part of anti-inflation policy. However, increasing oil revenue without fiscal reform only postpones the crisis.
8. Supporting Production and Property
Legal security and property rights, genuine competition, an end to confiscations and destructive price-setting, and the possibility of investment and technology transfer are essential for increasing supply.
9. A Social Safety Net
Targeted payments indexed to inflation, food and medicine coupons, temporary unemployment insurance and support for retirees must be put in place before painful reforms.
10. Rebuilding Trust
Confidence in the future is impossible without ending the war and the state of emergency. Statistics on the budget, money, banks, oil and available reserves must be published honestly. The confrontation with the people and the daily threats against them must end. Without trust, even a technically sound program will fail through flight from the rial and other factors.
Policies That Seem Simple but Are Ineffective or Harmful
- Removing zeros from the currency without reforming the budget and the banks; this only simplifies arithmetic.
- Closing the currency market or arresting dealers; transactions move to the underground market.
- Comprehensive price controls; official supply falls while queues and the black market grow.
- Unlimited sale of reserves to hold an unrealistic exchange rate; this only depletes the reserves.
- Sharp interest-rate hikes without fiscal reform; this raises the cost of government debt and the banks' losses.
- Sudden energy price increases without compensation; this raises inflationary and social pressure at the same time.
Conclusion
The experience of these four countries shows that hyperinflation, before it is merely a crisis of banknotes, is a crisis in the management of the regime, the government, production and trust. Zimbabwe lost its agricultural output and its public finances; Venezuela weakened its oil capacity and private sector; Russia moved from state planning to private ownership without complementary institutions; and Weimar Germany responded to war debt and political crisis by printing money.
In all four cases, the losses were distributed unequally, and the middle class, wage earners and retirees suffered the most.
Iran still has a chance to prevent hyperinflation, because its domestic productive capacity, foreign-currency earnings and the government's administrative capacity have not been entirely destroyed. But the window is not unlimited. If falling oil revenue, a banking crisis, war and deficit financing with new money coincide, the transition from very high inflation to hyperinflation could be rapid.
The way to prevent it is a simultaneous program of peace and access to foreign currency, respect for property, fiscal discipline, reform of the banks and the exchange rate, security for production, social support, an end to the suppression of markets and of supply and demand, and the rebuilding of trust.
Sources:
- International Monetary Fund, reports and monetary studies on Zimbabwe and the central bank's quasi-fiscal operations.
- World Bank, report on Zimbabwe's economic crisis and social services.
- International Monetary Fund, Inflation and the Black Market Exchange Rate in a Repressed Market: A Model of Venezuela, 2016.
- International Monetary Fund, assessment of the contraction of Venezuela's economy, 2013–2019.
- UN High Commissioner for Refugees, Venezuela Situation, statistics on migrants and refugees.
- International Monetary Fund, studies of Russian monetary policy 1992–1995 and the 1998 financial crisis.
- World Bank, Beyond Transition, a study of oligarchs, ownership and institutions in Russia.
- World Health Organization, studies of the mortality crisis and life expectancy in Russia in the 1990s.
- Deutsche Bundesbank, Inflation – Lessons Learnt from History, and documents on the 1923 hyperinflation.
- United States Holocaust Memorial Museum, The Weimar Republic, The Great Depression and The Nazi Rise to Power.
- International Monetary Fund, page and macroeconomic data on the Islamic Republic of Iran, 2026.
- World Bank, Iran page and assessment of the impact of war, sanctions and export disruption on inflation and growth.