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Interesting fact about Zimbabwe's economy: they had one of the worst hyperinflation stories in human history. Then in 2009 they switched to a mix of foreign cur

Interesting fact about Zimbabwe's economy: they had one of the worst hyperinflation stories in human history. Then in 2009 they switched to a mix of foreign currencies (mostly USD). It stopped the crazy inflation, their markets calmed down and started working. This year they switched to their own currency again. 40% inflation already.

deleted 7y ago
[deleted]
echelon 7y ago
It would be a fascinating case study if they were to switch to a crypto currency. Is anyone aware of any countries with hyperinflation (or otherwise unstable economies) that have attempted to do so?
- cuchoi 7y ago
  What would be the benefit?
  - stale2002 7y ago
    The same benefit of using a reserve currency, such as USD. That being that it can't be inflated by the government.
    - foldingmoney 7y ago
      Good old stable-valued bitcoin.
      - stale2002 7y ago
        Compared to the inflation rate of Zimbabwe? I'll take crypto currency any day, over a guaranteed 40% loss every year. At least crypto has the chance of going up.
    - macspoofing 7y ago
      It also can't be used for commerce because crypto networks can't scale.
    - cuchoi 7y ago
      Crypto is a lot more volatile than the USD (or a basket of currencies). That's why Coinbase created Stablecoin.
      - godzillabrennus 7y ago
        Stable coin would solve that.
        cuchoi 7y ago
        But then if you are using Stablecoin as your currency, what's the benefit over the dollar?
        s_Hogg 7y ago
        Not if you run out of electricity
      - stale2002 7y ago
        But it is still a lot less volatile than the Zimbabwe dollar. This is not about replacing money in the US. It is about replacing money in countries where there is already a huge inflation rate.
- paggle 7y ago
  Yes, cryptocurrency and other digital currencies like Amazon gift card codes are used in Venezuela sometimes to avoid the theft risk of paper dollars.
- elihu 7y ago
  There are problems with that. For one, consider that if all of a country's debt were denominated in bitcoin. For instance, the government issues bonds that can be redeemed when they mature for some quantity of BTC. Now consider what happens if the value of bitcoin goes up suddenly. The government now is much deeper in debt than they were planning to be. Sometimes having your own currency has benefits, for the country and for the world economy as a whole. For instance, if a country goes into recession and the value of their currency drops, then their debt can shrink (if it's denominated in local currency) along with the economy so that it doesn't bankrupt the country. Also, when the price of local goods drops with respect to other currencies, it encourages exports which usually helps the economy recover. If you use a currency controlled by some other country or institution (i.e. the Euro), you don't have these safeguards. That's true as well if the currency is controlled by no one in particular (e.g. Bitcoin). I don't know what Zimbabwe's particular problem was with their own currency. Sometimes using an external currency makes sense (like the Bretton Woods system in Europe before the Nixon shock in 1971). But it can be dangerous as well. (A real economist could probably explain this all better. I just recently happened to read a book on all the problems with monetary policy in Europe written by Yanis Varoufakis, who served as Greece's finance minister for three months.)
  - stakhanov 7y ago
    These mechanisms you mention are all mechanisms that have historically been used, but there is a widespread consensus that it's not the right thing to do. Best practice is that a central bank should be independent of government and their mandate should not be to meddle with the valuation of a country's debt but to keep the value of the currency stable. For example, for the ECB it would be completely impossible to make monetary policy to suit the fiscal needs of all Euro-area countries since they are in wildly differing situations as far as their debt-levels and fiscal policies are concerned. Fortunately that's not part of the ECB's job description, though. Their job is: Keep inflation at a target that's close to but not exceeding 2% over the medium term. In theory the Fed should be just as independent from the U.S. government as the ECB is from any European government.
    - orbifold 7y ago
mehrdadn 7y ago
Wow: It was redenominated three times (in 2006, 2008 and 2009), with denominations up to a $100 trillion banknote issued. The final redenomination produced the "fourth dollar" (ZWL), which was worth 10^25 ZWD (first dollars). https://en.wikipedia.org/wiki/Zimbabwean_dollar https://en.wikipedia.org/wiki/Zimbabwean_dollar
mikorym 7y ago
I think you mean that using USD and ZAR enabled people to start buying products again. They still have and had major inflation; but instead just had a means to buy things again. Exactly quantifying inflation there is a problem due to government intervention, but the fuel price is at about R 50 per litre (ZAR 15 = USD 1); biscuits that cost R 12 in South Africa is something like R 60 there and the way I understand it it doesn't matter whether you pay in USD or ZAR you'll still see the effect of inflation it the actual relative cost of products. Again, a lot of this is artificial due to taxes, shortages, government, etc. The comment about telecommunications is on point though, all of the Zimbabweans I know are critically dependent on phones and especially cheap smartphones. Somehow, by getting the cheapest data options (in South Africa data is relatively expensive for no particular technological reason other than the companies ripping you off), they use whatsapp to get jobs, talk to their family, arrange money transfers, etc. Zimbabwe's story is a very sad one, especially when taking into account the potential that the country once had and the ingenuity and willingness to work hard of its peoples.
secfirstmd 7y ago
Yep I have a collection of the notes from 1 to 100 Trillion. They are so intersting

deleted 7y ago

[deleted]

echelon 7y ago

It would be a fascinating case study if they were to switch to a crypto currency. Is anyone aware of any countries with hyperinflation (or otherwise unstable economies) that have attempted to do so?

cuchoi 7y ago
What would be the benefit?
- stale2002 7y ago
  The same benefit of using a reserve currency, such as USD. That being that it can't be inflated by the government.
  - foldingmoney 7y ago
    Good old stable-valued bitcoin.
    - stale2002 7y ago
      Compared to the inflation rate of Zimbabwe? I'll take crypto currency any day, over a guaranteed 40% loss every year. At least crypto has the chance of going up.
  - macspoofing 7y ago
    It also can't be used for commerce because crypto networks can't scale.
  - cuchoi 7y ago
    Crypto is a lot more volatile than the USD (or a basket of currencies). That's why Coinbase created Stablecoin.
    - godzillabrennus 7y ago
      Stable coin would solve that.
      - cuchoi 7y ago
        But then if you are using Stablecoin as your currency, what's the benefit over the dollar?
      - s_Hogg 7y ago
        Not if you run out of electricity
    - stale2002 7y ago
      But it is still a lot less volatile than the Zimbabwe dollar. This is not about replacing money in the US. It is about replacing money in countries where there is already a huge inflation rate.
paggle 7y ago
Yes, cryptocurrency and other digital currencies like Amazon gift card codes are used in Venezuela sometimes to avoid the theft risk of paper dollars.
elihu 7y ago
There are problems with that. For one, consider that if all of a country's debt were denominated in bitcoin. For instance, the government issues bonds that can be redeemed when they mature for some quantity of BTC. Now consider what happens if the value of bitcoin goes up suddenly. The government now is much deeper in debt than they were planning to be. Sometimes having your own currency has benefits, for the country and for the world economy as a whole. For instance, if a country goes into recession and the value of their currency drops, then their debt can shrink (if it's denominated in local currency) along with the economy so that it doesn't bankrupt the country. Also, when the price of local goods drops with respect to other currencies, it encourages exports which usually helps the economy recover. If you use a currency controlled by some other country or institution (i.e. the Euro), you don't have these safeguards. That's true as well if the currency is controlled by no one in particular (e.g. Bitcoin). I don't know what Zimbabwe's particular problem was with their own currency. Sometimes using an external currency makes sense (like the Bretton Woods system in Europe before the Nixon shock in 1971). But it can be dangerous as well. (A real economist could probably explain this all better. I just recently happened to read a book on all the problems with monetary policy in Europe written by Yanis Varoufakis, who served as Greece's finance minister for three months.)
- stakhanov 7y ago
  These mechanisms you mention are all mechanisms that have historically been used, but there is a widespread consensus that it's not the right thing to do. Best practice is that a central bank should be independent of government and their mandate should not be to meddle with the valuation of a country's debt but to keep the value of the currency stable. For example, for the ECB it would be completely impossible to make monetary policy to suit the fiscal needs of all Euro-area countries since they are in wildly differing situations as far as their debt-levels and fiscal policies are concerned. Fortunately that's not part of the ECB's job description, though. Their job is: Keep inflation at a target that's close to but not exceeding 2% over the medium term. In theory the Fed should be just as independent from the U.S. government as the ECB is from any European government.
  - orbifold 7y ago

mehrdadn 7y ago

Wow: It was redenominated three times (in 2006, 2008 and 2009), with denominations up to a $100 trillion banknote issued. The final redenomination produced the "fourth dollar" (ZWL), which was worth 10^25 ZWD (first dollars). https://en.wikipedia.org/wiki/Zimbabwean_dollar https://en.wikipedia.org/wiki/Zimbabwean_dollar

mikorym 7y ago

I think you mean that using USD and ZAR enabled people to start buying products again. They still have and had major inflation; but instead just had a means to buy things again. Exactly quantifying inflation there is a problem due to government intervention, but the fuel price is at about R 50 per litre (ZAR 15 = USD 1); biscuits that cost R 12 in South Africa is something like R 60 there and the way I understand it it doesn't matter whether you pay in USD or ZAR you'll still see the effect of inflation it the actual relative cost of products. Again, a lot of this is artificial due to taxes, shortages, government, etc. The comment about telecommunications is on point though, all of the Zimbabweans I know are critically dependent on phones and especially cheap smartphones. Somehow, by getting the cheapest data options (in South Africa data is relatively expensive for no particular technological reason other than the companies ripping you off), they use whatsapp to get jobs, talk to their family, arrange money transfers, etc. Zimbabwe's story is a very sad one, especially when taking into account the potential that the country once had and the ingenuity and willingness to work hard of its peoples.

secfirstmd 7y ago

Yep I have a collection of the notes from 1 to 100 Trillion. They are so intersting