Bolivia's hyperinflation was ended by a stabilisation programme, Supreme Decree 21060 of 29 August 1985, which unified the exchange rate through a public auction, froze public sector wages and liberalised trade. Prices stopped rising within about ten days. The boliviano circulated from 1 January 1987, sixteen months later.
Bolivia ended its hyperinflation with a stabilisation programme, Supreme Decree 21060 of 29 August 1985, which unified the exchange rate through a public auction, froze public sector pay, raised administered prices and opened trade. Prices stopped rising within about ten days. The boliviano, the currency the episode is remembered by, did not exist for another sixteen months.
Key Takeaways
- Consumer prices rose about 11,750 per cent on average across 1985.
- Supreme Decree 21060 of 29 August 1985 stopped the inflation within about ten days.
- The boliviano was created in November 1986 and circulated from 1 January 1987.
- By then annual average inflation had already fallen to about 273 per cent.
- The price stabilisation held for a decade; the growth it was expected to unlock did not arrive.
What the numbers were
Among the fastest inflations recorded anywhere outside a war.
On the IMF's series, average consumer prices rose 123.6 per cent in 1982, 275.6 per cent in 1983, 1,281.3 per cent in 1984 and 11,749.6 per cent in 1985, before falling to 273.3 per cent in 1986 and 14.6 per cent in 1987. The World Bank's series is close, differing materially only on 1986. The two are not independent measurements: both rest on figures supplied by the national authorities.
The twelve-month figures are the ones to quote when a single number is wanted. Measured December to December, prices rose 2,177.3 per cent through 1984 and 8,170.5 per cent through 1985, then 64.6 per cent through 1986.
Much larger figures circulate, and they are usually a short window expressed at an annual rate. The adviser to the programme wrote that inflation surged to an annual rate of about 26,000 per cent during the first half of 1985. That is an annualised monthly rate, not a twelve-month one, and the same author's annual average for 1985 is close to the multilateral figure.
What the programme did
Several things at once, and none of them was a new currency.
Supreme Decree 21060, issued on 29 August 1985, established a regime of a single, real and flexible exchange rate for the peso boliviano against the US dollar. The official rate was to be the weighted average resulting from the central bank's own public foreign exchange sales, which is to say the rate was to be discovered by auction rather than declared.
The auction mechanism is set out in the decree itself. The central bank was required to hold public sales at least twice a week, opening all bids in public session, offering standard lots, and awarding them by best price through its exchange and reserves committee. Public sector bodies had to obtain their foreign exchange through it.
The rest of the decree is fiscal and structural. It prohibited any increase in public sector pay to the end of 1985, set fuel prices on a formula tied to the official rate, established free importation except where public health or state security was affected, and permitted free export without prior permits. Price controls were removed rather than imposed.
How fast it worked
Days, not quarters.
The account by the programme's adviser and a future central bank governor records that the hyperinflation ended within days. Weekly price changes through September 1985 ran 36.8 per cent in the first week, then minus 4.6, minus 0.8, minus 2.5 and 0.7 per cent. Their table notes that prices actually stop rising by 9 September, the month's average still 56.5 per cent above August because of the weeks before the programme.
The fiscal turn behind it was as abrupt. The same account puts government revenues at about 1.3 per cent of national product during January to September 1985, rising to 10.3 per cent over the remainder of the year, with seigniorage falling from about 3.4 per cent of output in the third quarter of 1985 to 0.1 per cent in the first quarter of 1986.
Something else happened at the same time and did not reverse it. The tin price collapsed at the end of October 1985 and hydrocarbon prices three months later, a terms of trade loss the same authors put at around a tenth of national output. Inflation did not restart, which they read as evidence the change was fiscal rather than cosmetic.
The new currency, sixteen months later
Law 901 was passed by the National Congress on 26 November 1986 and promulgated on 28 November. It created the boliviano as the new monetary unit from 1 January 1987, at a parity of one boliviano to one million pesos bolivianos.
The transition was given a full year. The central bank exchanged peso boliviano notes through 31 December 1987, and the old unit ceased to be legal tender on 1 January 1988. Balances left unexchanged were applied to the Treasury's debt to the central bank.
| Date | Event |
|---|---|
| 29 August 1985 | Supreme Decree 21060 |
| about 9 September 1985 | Prices stop rising |
| 28 November 1986 | Law 901 creates the boliviano |
| 1 January 1987 | The boliviano enters circulation |
| 1 January 1988 | The peso boliviano ceases to be legal tender |
Sixteen months separate the programme from the new note. By the time it circulated, annual average inflation had already fallen from about 11,750 per cent to about 273 per cent, and the twelve-month rate to about 65 per cent. The currency reform was administered into an economy where the inflation had already been stopped.
Why the order is the point
Because the reverse order does not work, and the Bolivian case is the one usually cited for it.
Writing in November 1986, with Law 901 three weeks away and circulation two months away, the programme's adviser set out the contrast with neighbouring stabilisations directly: the Bolivian programme differed markedly in that it eschewed price controls, and indeed lifted existing ones, and proceeded without a currency reform. For Bolivia, he wrote, neither price controls nor currency reform was necessary for stabilisation.
The formal version of the argument in the same paper is that fixing the exchange rate is a sufficient condition for a short-run stabilisation, while budget reform is the key to a long-run one. A stabilisation without the fiscal correction runs down reserves, meets a speculative attack and returns to inflation, in that account at a higher rate than before.
There is a caveat the same authors are careful about, and it belongs here. They argue that stabilisation in Bolivia ran ahead of any restoration of public confidence rather than following it, and explain the immediacy by the state the economy was already in: the hyperinflation had eliminated long-term contracts, most prices were set on a spot basis, and many were quoted in dollars. Stabilising the exchange rate was therefore close to stabilising the price level directly.
That is an argument by named economists rather than an official finding, and it should be read as one.
What held, and what did not
The price result held. Annual average inflation ran 16.0 per cent in 1988, 15.2 in 1989, 17.1 in 1990 and 21.4 in 1991, then single digits or low double digits through the mid-1990s, never returning to triple digits.
The second result did not arrive. Output fell about 2.9 per cent in 1986 before rising in 1987 and 1988. Analysis published in 1995 opened by noting that the 1985 stabilisation had been considered a major step toward recovering growth and that the hope had not been validated by the facts, and described Bolivia as a model case of fiscal austerity and market liberalisation that nonetheless performed poorly on growth.
A stabilisation and a recovery are different things, and Bolivia is the case that separates them cleanly.
Where to look next
The AUD to BOB page carries the live reference rate and a short block on how Bolivia's exchange arrangement has changed more recently. For a redenomination carried out on its own terms, with a notice period and a dual-circulation window, why a country drops zeros from its money sets out what that operation costs. For the opposite decision, leaving a denomination ladder alone through a long depreciation, what happens when a country stops adding bigger notes covers what fills the gap. For the case where the same operation carried a cap on how much could be exchanged, when a redenomination has a ceiling covers what that changes. Read together they cover what a state can do to its own denominations: add one, remove several, cap the exchange, or leave the ladder alone.
Sources
- Decreto Supremo 21060, 29 August 1985 - article 1's single, real and flexible exchange rate; article 2's official rate as the weighted average of the central bank's public sales; articles 4 and 17 to 20 on the auction's frequency, the public opening of bids, the standard lots, the award by best price and the obligation on public sector bodies; article 61 on public sector pay; article 75 on fuel pricing; and articles 41 and 49 on free importation and export. Read from a Bolivian legal database rather than the official gazette, which was unreachable
- Ley 901, promulgated 28 November 1986 - the creation of the boliviano from 1 January 1987 at one million pesos bolivianos, the exchange period to 31 December 1987, the demonetisation of the peso boliviano and the treatment of unexchanged balances. Same caveat on the source
- Jeffrey Sachs, The Bolivian Hyperinflation and Stabilization, NBER Working Paper 2073, November 1986 - the programme proceeding without a currency reform and neither that nor price controls being necessary for stabilisation; the annualised rates for the first half and for May to August 1985; the short-run and long-run distinction between fixing the exchange rate and budget reform; and the dollarised unit of account
- Juan Antonio Morales and Jeffrey Sachs, Ending the Hyperinflation 1985-88, in Developing Country Debt and Economic Performance Volume 2, NBER, 1990 - the hyperinflation ending within days; the weekly price changes through September 1985 and the note that prices stop rising by 9 September; the revenue and seigniorage figures; the programme's measures; the terms of trade collapse; the argument that stabilisation ran ahead of restored confidence; and the 1986 fall in output
- Federico Sturzenegger, Bolivia: From Stabilization to What?, in Reform Recovery and Growth, NBER, 1995 - that the stabilisation had been considered a major step toward recovering growth, that the hope was not validated, and the characterisation of Bolivia as a model case of fiscal austerity and market liberalisation with poor growth performance
- International Monetary Fund, World Economic Outlook database, inflation for Bolivia - average consumer price inflation by year, and the end-of-period series for the twelve-month figures
- World Bank, World Development Indicators, consumer price inflation for Bolivia - the annual series on a second compilation, close to the Fund's but not independent of the underlying national data
- Ley 1670, Ley del Banco Central de Bolivia, consolidated text published by the Banco Central - article 2's objective of seeking the stability of the internal purchasing power of the national currency, and article 10's exclusive and non-delegable function of issuing the boliviano
General information about stabilisation programmes and currency reform. Not financial advice, and not a recommendation of any product or institution. Reviewed by the Tradergy editorial team, September 2026.
Common questions
How high did Bolivian inflation actually go?
On IMF figures, consumer prices rose about 11,750 per cent on average across 1985, and about 8,170 per cent in the twelve months to December 1985. Higher figures are sometimes quoted, and they are usually short windows expressed at an annual rate rather than twelve-month rates. The economist who advised the programme described an annual rate of about 26,000 per cent during the first half of 1985 on that basis.
What actually stopped it?
Supreme Decree 21060 of 29 August 1985. It established a single, flexible exchange rate set by the weighted average of a public foreign exchange auction run by the central bank, froze public sector pay to the end of the year, raised administered fuel prices, removed price controls, and opened imports and exports. Prices stopped rising within about ten days.
When did the boliviano arrive?
Law 901 was promulgated on 28 November 1986 and the boliviano entered circulation on 1 January 1987, at one boliviano to one million pesos bolivianos. The peso boliviano remained exchangeable through 31 December 1987 and ceased to be legal tender on 1 January 1988.
Does a redenomination stop inflation?
Not on its own. Writing in November 1986, before the boliviano existed, the adviser to the Bolivian programme noted that it had eschewed price controls and proceeded without a currency reform, and that for Bolivia neither was necessary for stabilisation. The formal argument is that fixing the exchange rate can stop inflation in the short run while budget reform is what makes it hold.
Did the stabilisation hold?
The price result held. Annual average inflation ran between roughly 8 and 21 per cent for the following decade and never returned to triple digits. The growth result did not follow: output fell in 1986 and later analysis described Bolivia as a model case of fiscal austerity and liberalisation that nonetheless underperformed on growth.