Weimar Germany in the 1920s is one well-known example. Post-revolutionary France, in the 1790s, is another. There are more recent instances in some emerging economies. Hyperinflations of this sort are essentially fiscal events. Chart 1, taken from the well-known book about financial crises by Reinhart and Rogoff4, shows that waves of formal defaults on governments’ debts have broadly coincided with waves of rapid inflation. Nor do you have to go to such extremes, or away from these shores, to find episodes in which the nominal anchor has been abandoned (if only for a time) in the face of big increases in government spending. Britain 4  Reinhart and Rogoff (2009) 4  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  4  suspended the gold standard during the Napoleonic wars and again at the onset of the First World War. Prices rose significantly, particularly during WWI, and yields on government debt did so as well. But the relationship between debt and inflation isn’t a simple one, nor is it readily apparent in the long-term UK data. For example, if there was “monetary finance” during these two episodes it’s not something that endured because, in both cases, Britain restored the original price of gold after those wars had ended. If rising price levels had conferred any fiscal benefit while they were being fought, that was then reversed, via deflation, once peace was established. Any long-lasting reduction in government debt had to be achieved by running a tighter fiscal policy.
The reduction in the cost of borrowing for the public sector is an additional effect of monetary policy to which the government can choose to respond with changes in spending and  19  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  19  taxes, or not, depending on its fiscal objectives. And the central bank will take into account the impact of those changes, if any, on aggregate demand and inflation. This is not to deny the many other connections between monetary policy and government debt or the many occurrences of “fiscal dominance”, in various countries, over the past. If accompanied by restrictions on capital flows, the monetary authority might be able to depress borrowing costs preferentially for the fiscal authority, avoiding the inflationary consequences of an economy-wide easing in monetary conditions (“financial repression”). Depending on the share of non-indexed debt, and the maturity structure of the public sector’s overall liabilities, rapid inflations can themselves reduce the real burden of government debt. This has almost always come at a much wider economic cost and, whatever it’s done to the government’s existing debt, has usually been followed by an increase in the real cost of new borrowing. Even from the narrow perspective of the public finances they’ve rarely ended well. Nevertheless, there have been many episodes of very rapid inflations and they’ve often (though not invariably) been the result of immense strain on the public finances.