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Crypto and Fiat Currencies
Does anyone else wonder why economists, central bankers and other market commentators talk so much about exchange rates, and inflation targets; and never talk about the half-life of currencies?
I find this quote from a central banker sobering… 1 Based on consumer price data, an item that cost R1 in 1960 would today cost R96.79. The rand has effectively lost 99% of its 1960 purchasing power. Given the high inflation in the second half
of the twentieth century, figures for the major currencies are similar but not as extreme: the US dollar has lost 88%; the Swiss franc has lost 76%; and the British pound has lost 95% (based on the World Bank consumer price data).
- jstx1 5y ago> talk so much about [...] inflation targets; and never talk about the half-life of currencies? Aren't they the same thing? The half-life you're describing is just the end result of compounding the inflation rate over time.
- themodelplumber 5y agoJust idle talk here but I think there's a lot in the name. Currency is intuitively simple to model and manage as flow. Look at all the well-used technical models based on fractal self-similarity, from Elliott Waves to simple bear wedges within bear wedges; these ideas must seem pretty daunting for someone looking at applying a more linear and terminal-flow-based model of "hey, things are probably just going to die out". BTW do you ever wonder why so many water-ecosystem words are used for money? Banks, currency, forecasts...clams even...funny but IMO there's a kind of natural fit there.
- stuartdaa 5y agoNice! Plumbing such depths as I raised.... heh heh. BTW scarcity of (usable/potable) water is a bigger thing than many realise. Please expand a little on your first sentence - the point you are making on the name/s. Thanks
- nuerow 5y agoSubmitter, you cannot discuss a currency's half-life without discussing inflation. In fact, a currency's half-life is nothing more than a fancy arbitrary value determined from inflation: the time it takes for a currency to lower it's value by 50%. Also, economists do discuss it, specially within the scope of hyperinflation, but it so happens to not add much value to the discussion, if any at all.
- slowhand09 5y agoFood for thought. In 1964 you could take two silver dimes and purchase ~1 gallon of gas. Gas was ~20 cents per gallon. Dimes were 90% silver. Fast forward to 2021. You could take two silver dimes to a coin dealer, sell them for fiat currency, and purchase 1 gallon of gas. Gas is ~$3.50 per gallon, silver is ~$23 per oz, and 2 silver dimes from 1964 contain ~5grams of silver. But using 2021 dimes, you need 35 dimes to purchase a gallon. Precious metals have kept their value. Fiat currency has lost nearly 90% of its value since moving off the gold standard. The government needs more money, they print it. Based on their promise to pay it back later, with cheaper inflated currency.
- not-elite 5y agoThe "inflation targeting era" began around 1995 [1]. The official story explaing how 2% became an (informal) international standard is kind of interesting [2]. [1] https://www.stlouisfed.org/-/media/project/frbstl/stlouisfed/files/pdfs/bullard/remarks/2018/bullard_cfa_chicago_12_sept_2018.pdf https://www.stlouisfed.org/-/media/project/frbstl/stlouisfed... [2] https://www.nytimes.com/2014/12/21/upshot/of-kiwis-and-currencies-how-a-2-inflation-target-became-global-economic-gospel.html https://www.nytimes.com/2014/12/21/upshot/of-kiwis-and-curre...
- mikewarot 5y agoAn inflation target of 1% implies a half life of 69 years An inflation target of 2% implies a half life of 34 years
- stuartdaa 5y agoAll good points, thank you. A further question:- if “cost of living” inflation is low, and yet asset inflation is high, who is helped by inflation tracking ignoring the asset inflation? To ask in another way :- shouldn’t CPI baskets include the required quantum of spend on portfolio assets, alongside the groceries etc?