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By hacked, I suggest that there are loopholes which allow some body/some group to have undue influence on the creation, destruction and distribution of money. I

by teyc 16y ago

By hacked, I suggest that there are loopholes which allow some body/some group to have undue influence on the creation, destruction and distribution of money. In responsible hands, this level of undue influence doesn't lead to negative outcomes, but in irresponsible hands it is disaster. For instance, where we see hyperinflation in Zimbabwe, it is really about the government gaining "root" access on their Reserve Bank, and "creating" money, while diluting what others already have. On the other hand, when business confidence is low, people will store their "money" away for a rainy day, but that can lead to people sitting on the sidelines rather than engaging in production. i.e. people are poorer for it. The other thing about money is it is reputationless. Although governments have a notion of tainted money, or money which has to be "laundered" to become legitimate - when white collar crimes are committed, let us say Enron-style, the CEOs still have money that they can spend and lead a good life. Contrast this with some aboriginal cultures which were moneyless, reputation is very important, and reputation is currency in its own right. Perhaps the side effect of Bitcoin tracking transactions is that money no longer becomes reputationless. Society can choose to shun money that has a tainted reputation. I don't really know of any solutions. I'm just bringing this up for discussion.

nhaehnle 16y ago
Your portrayal of hyperinflation in Zimbabwe is questionable. To understand Zimbabwe, you first have to understand that it suffered from a destruction of supply capacity due to a stupid land reform that had nothing to do with money. The motivation for reform was part good (white farmers who had profited from colonialism were disowned) and part bad (land was given to political cronies who had neither the knowledge nor inclination for farming). Once the supply capacity went to hell, price increases were a simple matter of supply and demand. Add to that that Zimbabwe had to start importing food, affecting its current account and causing their currency to drop w.r.t. foreign currencies. Add to that that Zimbabwe had significant US$-denominated debts at the IMF, and the required sum flow of US$ for debt payment plus imports out of the country simply overwhelmed the amount of US$ they could possibly hope to have flow into the country from exports - their exports basically collapsed, because the productive capacity of the economy was largely destroyed. At that point, instead of doing the only reasonable thing and defaulting on their debt, the Zimbabwe government decided to start the printing presses and print Zimbabwe currency, largely for the purpose of directly exchanging it against US$. Needless to say, supply and demand caused the Zimbabwe dollar to drop in value, which - via increased import prices - caused domestic inflation. The important lesson here is that initially, it was the hyperinflation that caused the printing of money, not vice versa as people usually assume. Of course, the fact that the government kept adding to demand helped the hyperinflation to continue. But given the desolate state of the economy, simply not adding to the demand wouldn't have fixed anything either.
- teyc 16y ago
  I agree that sanctions exacerbated production problems. However, it doesn't detract from the point that money is hackable. I don't know if it is solvable though, because governments have coercive power over what constitutes legal tender.

by teyc 16y ago

nhaehnle 16y ago

Your portrayal of hyperinflation in Zimbabwe is questionable. To understand Zimbabwe, you first have to understand that it suffered from a destruction of supply capacity due to a stupid land reform that had nothing to do with money. The motivation for reform was part good (white farmers who had profited from colonialism were disowned) and part bad (land was given to political cronies who had neither the knowledge nor inclination for farming). Once the supply capacity went to hell, price increases were a simple matter of supply and demand. Add to that that Zimbabwe had to start importing food, affecting its current account and causing their currency to drop w.r.t. foreign currencies. Add to that that Zimbabwe had significant US$-denominated debts at the IMF, and the required sum flow of US$ for debt payment plus imports out of the country simply overwhelmed the amount of US$ they could possibly hope to have flow into the country from exports - their exports basically collapsed, because the productive capacity of the economy was largely destroyed. At that point, instead of doing the only reasonable thing and defaulting on their debt, the Zimbabwe government decided to start the printing presses and print Zimbabwe currency, largely for the purpose of directly exchanging it against US$. Needless to say, supply and demand caused the Zimbabwe dollar to drop in value, which - via increased import prices - caused domestic inflation. The important lesson here is that initially, it was the hyperinflation that caused the printing of money, not vice versa as people usually assume. Of course, the fact that the government kept adding to demand helped the hyperinflation to continue. But given the desolate state of the economy, simply not adding to the demand wouldn't have fixed anything either.

teyc 16y ago
I agree that sanctions exacerbated production problems. However, it doesn't detract from the point that money is hackable. I don't know if it is solvable though, because governments have coercive power over what constitutes legal tender.