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A central bank can go bankrupt - it cannot keep printing money forever. When we look at places with hyper-inflation, at some point people lose all their "faith
by rvba 4y ago
A central bank can go bankrupt - it cannot keep printing money forever.
When we look at places with hyper-inflation, at some point people lose all their "faith" in a currency (and in the central bank). People no longer want to receive a currency that can be printed at 'no cost', because this currency will only keep losing value due to constant printing. They demand other, "hard" currency, or just use barter. Of course it is illegal, but in case of hyper-inflation the fabric of the society is rapidly dissolving - those who had some savings were effectively robbed by the central bank/government, those who sold some physical good - are now "bagholding" some coin that will become worthless fast.. The spiral of inflation can become so tough that noone will accept banknotes or electronic money, since it is better to hold physical goods.
As far as I remember in places with real hyper-inflation (Zimbawbe?) the central banks introduced so many new banknotes that they couldnt even afford to print them -> the paper-mills didnt accept the banknotes, since they knew those would not be worth anything in few days.
Other example is how after people would use stacks of paper currency to buy basics like bread.
Paper currency is a very useful invention because it really facilitates trade, same can be said about credit cards - but in times of hyper-inflation often the credit cards stop working - due to no electricity. So people jump to another hard currency (e.g. in Yugoslavia or Africa they only accepted US dollars or euros and basically gave up on own currencies, even if it was illegal).
[on a side note, I bought few of those '100 trillion' Zimbabwean dollar banknotes and this was one my my best investments ever - bought them for something like 2 USD each and now they seem to be worth 150-300 USD each. The value here is that it is a 'novelty' item - that can be used as an example of hyper-inflation; all the economy 101 books show it as an example]
- landemva 4y ago> Zimbabwean ... banknotes and this was one my my best investments ever Great example of scarcity and price rising via collector demand. They are not making any more of those notes, and collectors are interested similar to collecting scarce baseball cards. Neither have intrinsic use nor utility, but they are scarce and people like to collect them.
- rvba 4y agoI bought few of those "100 trillion dollar" banknotes since I find them cool and perhaps a bit to show off (I made an "in case of emergency break glass" type of thing to be hung on the wall). Those banknotes are unique - unless some other country gets even higher inflation, those will always be shown in every "economy 101" book, so they arent just a thing only for banknote collectors (whom I am not), but also a novelty item for general public (or at least economy students). It seems only the highest denominated bills skyrocketed in price, other bills are relatively cheap. Supposedly there is a guy who bought a whole briefcase of those 100 trillion banknotes and makes a living by selling them on ebay.