In July 1946, prices in Hungary doubled about every fifteen hours — a man paid in the morning had to spend his wages fast or watch some forty per cent of their value vanish by dinner, so the national bank ended up issuing the highest-denomination banknote ever put into general circulation, with a face value of 100 quintillion pengő

In July 1946, consumer prices in Hungary rose at a monthly rate of 4.19 × 10¹⁶ per cent. Converted to a daily figure, that is about 207 per cent, which works out to prices doubling roughly every fifteen hours. The numbers come from the hyperinflation table compiled by Steve Hanke and Nicholas Krus in their Cato Institute working paper on world hyperinflations, and Hungary still sits at the top of it, ahead of Zimbabwe in 2008 and several orders of magnitude beyond Weimar Germany.

Translated to human scale, the arithmetic is simple enough. A wage handed over at eight in the morning had lost roughly forty per cent of its purchasing power by the evening meal. The rational response was to spend it immediately, on anything at all, which is exactly what people did, and which pushed the rate higher again.

On 11 July the Hungarian National Bank issued a note reading SZÁZMILLIÓ B.-PENGŐ. It was withdrawn on 31 July, twenty days later. Its face value was one hundred quintillion pengő, or 10²⁰, and it remains the largest denomination ever put into general circulation anywhere.

How Hungary kept the zeros off the notes

The printed figure on that note was not 100,000,000,000,000,000,000. It was 100,000,000, followed by the abbreviation B.-pengő. In the long-scale convention then used in Hungary and across most of continental Europe, billió meant 10¹², so a hundred million billió pengő came to 10²⁰.

This was the second such device. The milpengő series, milpengő meaning one million pengő, carries the printed date 29 April 1946, and the convention let a note worth 10¹⁴ pengő appear as a tidy 100,000,000 milpengő, which was a great deal cheaper than redesigning the money every time a zero arrived.

The Hungarian Money Museum’s entry for the one milliárd B.-pengő note, the 10²¹ denomination that was produced but never issued, describes the production side plainly. Capacity at the state printing works could not keep pace with the denominations arriving on top of one another, so other Budapest printing houses were brought in. Offset presses ran off the highest values without serial numbers. That entry also notes how little the successive denominations differed from one another, the highest of them set apart from the egymilliárd pengő and the egymilliárd milpengő chiefly by colour and by the denomination line. Neither shoppers nor shopkeepers could hold the figures in their heads, and in daily use people told the notes apart by colour rather than by value.

Where the money was going

Hungary came out of the war with its capital wrecked by a siege that ran from the end of December 1944 to the middle of February 1945. Under Article 12 of the armistice signed in Moscow on 20 January 1945, it also owed 300 million United States dollars in reparations, calculated at the gold parity of the day: 200 million to the Soviet Union, and 100 million divided between Czechoslovakia and Yugoslavia. On top of that came the maintenance costs of the occupying force, an open-ended obligation under Article 11. The Hungarian Review’s account of the Allied Control Commission in Budapest sets out both the reparations schedule and the requisitioning that ran alongside it, including the food seizures that produced a supply crisis across 1945 and 1946.

Against those liabilities sat a tax system that had ceased to function. Ordinary revenue covered a small fraction of what the coalition government was spending, and the administration had neither the reach nor, in the political conditions of 1945 and 1946, the appetite to rebuild collection quickly, which left note issue as the only instrument still working.

Whether that amounted to a chosen policy or to the residue of everything else failing is a live question in the literature, and it is not one we are going to settle here. Peter Grossman and János Horváth take it up in “The Dynamics of the Hungarian Hyperinflation, 1945-6: A New Perspective”. Pierre Siklos covers the period at book length in War Finance, Reconstruction, Hyperinflation and Stabilization in Hungary, 1938-48, published in 1991. The mechanics are not in question either way: someone was being taxed, and the tax was collected by printing.

The tax pengő and the trap it created

On 1 January 1946 the finance ministry introduced a second unit, the adópengő, or tax pengő. It began at parity with the pengő and was revalued daily against an index of retail prices calculated by the Hungarian Institute for Economic Research, with the new figure read out over the radio. It was meant as an accounting device for budgets and tax assessment, a way of writing contracts that would not be voided by the following week.

The index tells the story of the year better than any anecdote. On 1 February one adópengő was worth 1.7 pengő. On 1 April, 44. On 1 June, 160,000. On 1 July, 7.5 × 10⁹. On 31 July it stood at 2 × 10²¹.

Bank deposits were indexed to the adópengő. The ministry began printing adópengő certificates in late May, and on 8 July they were declared legal tender, which left the country running two circulating currencies, one of them indexed. The indexing is the part that repays attention. In a paper in the Journal of Political Economy in 1980, William Bomberger and Gail Makinen argued that the deposit indexing is what set Hungary apart from other hyperinflations. Indexing deposits protected savers, but it also removed most of the base on which the inflation tax could be levied. Real resources could only be drawn from the shrinking pool of unindexed currency, and the smaller that pool became, the faster notes had to be issued to raise the same real sum.

That is a claim about one country’s institutional arrangement, and it has been contested since. A measure designed to protect savers from inflation narrowed the base the state could tax, and the state responded by inflating harder.

What the fifteen-hour figure does and does not describe

The doubling time is a conversion, not a stopwatch reading.

Hanke and Krus take the highest recorded monthly consumer price inflation rate and derive the equivalent daily rate and doubling interval from it. Nobody in Budapest was measuring the price of bread twice a day and logging the difference.

It is also a figure drawn from official price statistics, in a country where a substantial share of exchange had moved out of money altogether and into barter and payment in kind. How large that share was is not something the index can report. A statistic about the velocity of price change captures whatever trade was still being settled in pengő, and by July a good deal of what remained was being quoted in adópengő instead.

The number holds up on its own terms. It measures one consumer price index, in one month, in an economy that was only partly monetised.

How it stopped

The forint replaced the pengő on 1 August 1946 at a rate of 4 × 10²⁹ pengő to one forint. That conversion figure is close to meaningless as an exchange rate, since almost nobody converted anything; the pengő notes went into the gutters and were swept up.

Stabilisation took hold almost immediately. Bomberger and Makinen returned to the case in the same journal in 1983 and credited the recovery to budgetary measures more than to monetary control, noting that it was accompanied, against intuition, by rapid and prolonged growth in the money supply. Prices stopped moving because the budget position changed and because people believed it had changed, not because the printing presses were switched off, and the forint has been Hungary’s currency ever since.

The 10²¹ note that was manufactured in June 1946 and overtaken by the reform sits in a museum case in Budapest, 172 millimetres long, with a portrait of a woman from Székesfehérvár on the front and twenty-one zeros implied but not written.