What Is the Hungarian Forint (HUF)?
The Hungarian forint (HUF) is the national currency of Hungary. Its name is derived from the gold coins known as "fiorino d’oro," which were minted in Florence during the Middle Ages.
The HUF subdivides into 100 fillér. Although the 1-fillér coins are no longer in circulation, the Hungarian National Bank distributions coins in denominations of 5, 10, 20, 50, 100, and 200 forints. Paper banknotes are also used, with denominations of 500, 1,000, 2,000, 5,000, 10,000, and 20,000 forints.
- The HUF is the national currency of Hungary. It was introduced in 1946 following the inflationary collapse of Hungary's previous currency, the pengő.
- Today, the HUF is relatively stable and is actively traded on foreign exchange markets.
- Despite its location in central Europe, Hungary has not adopted the euro.
Understanding the HUF
The HUF was introduced in 1946 as part of efforts to stabilize the Hungarian economy following World War II. During the war, Hungary had sided with the Axis Powers and became a satellite state of the Soviet Union following the war's conclusion. In the late 1980s and early 1990s, many Central and Eastern European countries broke with communist rule, and Hungary was one of them.
This period of transition was extremely difficult for the Hungarian economy. During its time as a satellite state of the Soviet Union, Hungarian industries were heavily subsidized. The process of transitioning to a market economy in the 1990s therefore entailed the loss of these subsidies and other profound reorganizations of the economy. These factors contributed to a period of hyperinflation so severe that it even caused the forint to temporarily lose its convertibility—an essential requirement for international commerce.
In recent years, the Hungarian economy has stabilized substantially, with inflation hovering around 3% between 2008 and 2018. Its exchange rate has also been relatively stable compared to its turbulent past, averaging about 0.35 American cents per HUF and experiencing an average volatility of just under 10% per year.
Hungary and the European Union
Hungary is one of the few European countries to have not adopted the euro as its currency. In 2004, the European Union (EU) invited Hungary to become a member nation. Hungary had applied to join the EU ten years earlier, at which time this proposal had significant popular support. However, Hungary's acceptance into the EU was never finalized and remains elusive to this day.
Real World Example of the HUF
Hungary has experienced some of the worst bouts of hyperinflation of any country in the world. Following World War I, in which Hungary sided with Germany and the other defeated Central Powers, the country was forced to accept the 1920 Treaty of Trianon. This peace treaty had a series of devastating effects, including the loss of more than 70% of its pre-war territory and over 60% of its pre-war population. Of Hungary’s 10 largest cities prior to the War, five were incorporated by neighboring countries. Saddled by war reparations and the loss of much of their tax base, the Hungarian currency lost almost all its value. At its peak in 1923, annualized inflation reached nearly 1,200%.
The economic consequences of World War II were even more severe. In the aftermath of the war, hyperinflation became so extreme that consumer prices doubled once every 15 hours. The currency at that time, the pengő, was replaced by the HUF in Aug. 1946.