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I’m not sure this is a crypto-specific problem, like TFA implies. Using a currency you don’t control is giving up a lot of power over your own economy. Wasn’t t

I’m not sure this is a crypto-specific problem, like TFA implies. Using a currency you don’t control is giving up a lot of power over your own economy. Wasn’t there a similar issue like this a few years ago in Greece because they use the Euro and couldn’t adjust to inflation because of that?

addicted 5y ago
No. Greece had issues because they took on a lot of debt, and their public corruption meant they could not collect enough taxes to repay that debt. That was the fundamental problem. There are certain solutions to that problem that can involve devaluing your currency, which can make it much cheaper to manage the problem. And the EU could have done that, but because the EU was strongly opposed to fiscal measures at the time (that has thankfully changed since the pandemic, which has made the EU a much more useful organization), they didn't. So a lot of people got mad at the EU about it and pretended that Greece would have been better off with their own currency to depreciate. However, there are 2 major problems with that alternate scenario: 1) If Greece was still on the Drachma, it's highly unlikely that Greece would have been borrowing money on the Drachma. They would have most likely have borrowed money in Dollars, or maybe Euros, because the Drachma was simply not powerful enough. So devaluing their currency would not have helped them with their international borrowing which was the problem in the first place (it would only have made those loans even more expensive). 2) If Greece was still on the Drachma, it's highly likely the Drachma would have collapsed, and Greece would have faced dramatic inflation, the likes of which are ruining countries like Turkey and Pakistan right now. Think about it this way. The vast majority of wealth every Greek person in Greece would have been in Drachma. But if the value of the Drachma fell by 25%, that would mean that in one fell swoop, every Greek person lost 25% of their wealth. And currency inflation is even worse than having 95% of your net worth in your house, and seeing its price crash by 25%, because currency is what you conduct your day to day transactions in. At least with the house, assuming you don't have to pay the mortgage or you do have enough to pay the mortgage, you don't need to liquidate it at those reduced values. But if you want to buy food, you need to use currency, and so you need to realize the lowered value of your wealth immediately. By being on the Euro, however, thanks to the fact that the value of the Euro was largely derived from other more stable countries, the Greek people did not actually lose their own personal wealth, since the Euro did not depreciate much.
- ejanus 5y ago
  But using Euro suddenly increased labour cost, they lost a critical advantage.
  - elkos 5y ago
    A person working in Greece or Portugal isn't payed the same amount of money as one in Germany or the Netherland nor the cost of living is the same. In some cases small "poorer" countries might actually have a critical advantage. In labour intensive industries that have Northern European clients it can be impactful. Of course there are several othet factors that have to be taken into account though.
- atom_arranger 5y ago
  If they managed to pay their debts by printing money, and it causes the wealth of all individuals to decrease by 25% due to inflation, that’s sort of the same result as if they’d been able to collect the taxes instead. Printing money/inflation is a tax.
7steps2much 5y ago
Not exactly, but you are close enough. Greece may or may not have fudged the numbers in reports to the EU institutions so they could adopt the euro in the first place and then it backfired spectacularly. That aside, I fully agree with you. Don't use currencies for your economy if you can't exert at least some control on them. *Especially* not crypto currencies that are essentially controlled by noone. Using another states currency at least gives you some set of guarantees because they don't want to blow their own economy, but with crypto that isn't really the case.

addicted 5y ago

No. Greece had issues because they took on a lot of debt, and their public corruption meant they could not collect enough taxes to repay that debt. That was the fundamental problem. There are certain solutions to that problem that can involve devaluing your currency, which can make it much cheaper to manage the problem. And the EU could have done that, but because the EU was strongly opposed to fiscal measures at the time (that has thankfully changed since the pandemic, which has made the EU a much more useful organization), they didn't. So a lot of people got mad at the EU about it and pretended that Greece would have been better off with their own currency to depreciate. However, there are 2 major problems with that alternate scenario: 1) If Greece was still on the Drachma, it's highly unlikely that Greece would have been borrowing money on the Drachma. They would have most likely have borrowed money in Dollars, or maybe Euros, because the Drachma was simply not powerful enough. So devaluing their currency would not have helped them with their international borrowing which was the problem in the first place (it would only have made those loans even more expensive). 2) If Greece was still on the Drachma, it's highly likely the Drachma would have collapsed, and Greece would have faced dramatic inflation, the likes of which are ruining countries like Turkey and Pakistan right now. Think about it this way. The vast majority of wealth every Greek person in Greece would have been in Drachma. But if the value of the Drachma fell by 25%, that would mean that in one fell swoop, every Greek person lost 25% of their wealth. And currency inflation is even worse than having 95% of your net worth in your house, and seeing its price crash by 25%, because currency is what you conduct your day to day transactions in. At least with the house, assuming you don't have to pay the mortgage or you do have enough to pay the mortgage, you don't need to liquidate it at those reduced values. But if you want to buy food, you need to use currency, and so you need to realize the lowered value of your wealth immediately. By being on the Euro, however, thanks to the fact that the value of the Euro was largely derived from other more stable countries, the Greek people did not actually lose their own personal wealth, since the Euro did not depreciate much.

ejanus 5y ago
But using Euro suddenly increased labour cost, they lost a critical advantage.
- elkos 5y ago
  A person working in Greece or Portugal isn't payed the same amount of money as one in Germany or the Netherland nor the cost of living is the same. In some cases small "poorer" countries might actually have a critical advantage. In labour intensive industries that have Northern European clients it can be impactful. Of course there are several othet factors that have to be taken into account though.
atom_arranger 5y ago
If they managed to pay their debts by printing money, and it causes the wealth of all individuals to decrease by 25% due to inflation, that’s sort of the same result as if they’d been able to collect the taxes instead. Printing money/inflation is a tax.

7steps2much 5y ago

Not exactly, but you are close enough. Greece may or may not have fudged the numbers in reports to the EU institutions so they could adopt the euro in the first place and then it backfired spectacularly. That aside, I fully agree with you. Don't use currencies for your economy if you can't exert at least some control on them. *Especially* not crypto currencies that are essentially controlled by noone. Using another states currency at least gives you some set of guarantees because they don't want to blow their own economy, but with crypto that isn't really the case.