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Setelinleikkaus: When Finns snipped their cash in half to curb inflation
- thaumasiotes 2y agoSomehow this author has come to the conclusion that price controls are the "solution" to inflation. This is a fundamental misunderstanding of why inflation is viewed as bad.
- gostsamo 2y agoThe article talks about history of alternatives to the interest rates, mainly controlling the currency supply and how it might be implemented in the future. How you discovered price control as the solution in there is still a mystery to me.
- shigawire 2y agoI think they are considering the last part of the article to be "price controls". If the government prevents people from buying certain goods by selectivity freezing certain purchases I'm not sure I'd call that a price controls -- more like a prohibition. But I could see how this could be done similarly more like a price control. If the control was this granular, then maybe car purchases could be limited to $30,000 instead of blocked fully. This is effectively a price control. Also - the author notes in the comments the post is a prognostication, not endorsement. That said, much like the original Finnish plan, I have no idea how you'd implement this without massive loopholes. I'd imagine even if there were merits to the policy it would fail on account of the difficulty in implementation. I wonder if it is more reasonable if there was equally a carrot to go with the stick - something analogous to the bond portion of the Finish approach.
- pjc50 2y agoIn this context, all European countries including Finland were subject to rationing during the war; the question is about how to phase out both rationing and price controls without having a huge discontinuity at that moment.
- eru 2y agoOr you can just accept the discontinuity, because sometimes the cures are worse than the disease.
- thaumasiotes 2y agoYes, the solution he advocates is "we freeze your assets, allot you a certain basket of consumer goods, and take what we consider the appropriate price out of your frozen assets". If you'd rather describe that as "communism" than "price controls", feel free. The theme of the whole piece is that, if you don't allow people to pay more for things, then the price of those things won't rise, and that this is some sort of policy victory. It's a very stupid viewpoint; seeing prices fail to rise because you redenominated the currency means nothing. Seeing prices fail to rise because you prohibit that, on the other hand, doesn't mean nothing - instead, it means your economy is collapsing.
- Lvl999Noob 2y agoThe post is not a study or a solution or a suggestion or anything of the sort. The author clarified in the last portion that it is a prediction. Someone predicting the bad consequences of the current direction is not advocating for that direction.
- gostsamo 2y agoprice control would be if they forbid some goods to be paid beyond certain price where the goal is to regulate the distribution of those goods. Currency supply control is a general policy targeted at the total of goods one can pay for in order to maintain the overall economic activity. This is the difference between heating certain rooms in the house and causing global warming.
- pjc50 2y agoMentioning the war on COVID but not the actual war between Russia and Ukraine that caused a huge spike in European energy prices is a big omission, since that caused a lot of global inflation.
- skynet97 2y ago[flagged]
- jb1991 2y agoAs someone who knew a few people under age 35 who died from Covid, I find this comment offensive.
- GeertJohan 2y agoA war has casualties on both sides? But really I find this war analogy a bit silly anyway..
- nextlevelwizard 2y agoThat's the thing, some people have one experience and other the opposite. I kept hearing "everyone knows someone who was affected by Covid", but I for one have none in my family nor have I heard any Covid related losses from any of my colleagues, but obviously there are people who were affected. On other hand I do know a person who died due to depression caused by the isolation of lock down.
- K0balt 2y agoCount yourself lucky. I lost 1 parent, 1 good friend and -his entire family- of 3, several close associates that I counted among my friends , and my wife. Random events do not have random distributions, and the early strains of the virus were much, much more aggressive. I still suffer from neurological effects of my COVID infection from the very beginning of the spread of the virus. People with cancer in remission for years of even decades experienced a huge spike in breakthrough tumors. Vascular damage provoked a massive uptick in ischemic events such as stroke or heart attack. The effects of COVID reach far, far beyond “dying of COVID”.
- mock-possum 2y agoThe convenience of cutting paper money in half is a really anachronistic element of this tale - I’ve got a fair amount of money saved up, and approximately none of it exists as paper, so much as it exists ‘on paper’ - that is, as figures marked in a bank’s digital ledger, somewhere in a server farm. How would an effort like this be handled today? … a new crypto currency?
- nextlevelwizard 2y agoas the article states, it didn't really work back then either as the bank accounts were not touched. > This stock of notes only comprised 8% of the total Finnish money supply
- deleted 2y ago[deleted]
- jsnell 2y agoThe tricky part isn't money on a digital ledger. That's easy enough to handle with e.g. a one-off deposit tax (IIRC used as recently as the Euro crisis). There's no operational problem here, it just needs to be legislated to happen. Executing the operation properly might take a while (it's not something they'd have a process for), but banks must already have in place systems for e.g. freezing assets which could be used to buy time. Bonds can just have a haircut on their nominal value, which is pretty much standard operation procedure during a financial bailout. The real problem is deposits in foreign banks in foreign currencies. In the modern world by the time a country would be looking into this kind of a measure, a lot of the capital will have already fled. In this case the blocker is jurisdiction / sovereignty, not any kind of technical limitation.
- teractiveodular 2y agoA recent similar example was the Indian move in 2016 to demonetize the ₹500 and ₹1,000 notes with very little notice, which is in retrospect widely viewed to have been a disaster. https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisation https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetis...
- yieldcrv 2y agoThe article references it in a short sentence
- guenthert 2y agoThere were multiple motives for that move, notably however not among those an attempt to curb inflation.
- theshrike79 2y agoIIRC the reasoning was that only criminals have large amounts of valuable notes and by demonetising them they'd hit the criminals where it hurts. But it turns out that tons of people in rural India had their life savings under mattresses in large denomination bills...
- lacy_tinpot 2y agoIt essentially forced people into getting a bank account.
- theshrike79 2y agoYea and caused massive queues of people desperately trying to deposit their cash before the deadline :)
- astockwell 2y agoI imagine Finland's would be similarly branded a disaster if the present-day internet/social media megaphones had existed.. History books on 1945 aggressive monetary policy change: "The public didn't like it" History books on 2025 aggressive monetary policy change: "The public went frigging bananas, doxxed their leaders, coordinated widespread disobediance on the scale of GME, etc" (Granted I live in the US, and that's putting it mildly how the US would react)
- palemon 2y agoCombatting hyper-inflation is unsustainable and ultimately symptomatic of a hypo-inflationary urge to short fiat with an epidermic poised at early warning signs. Setelinleikkaus as a negative-feedback control mechanism to stop printing bak notes.
- Carrentt 2y agoFascinating piece of financial history I hadn't heard about. Imagine your government telling you to literally take scissors to your money, it's like a weird mix between arts & crafts hour and monetary policy. Though I suppose we're already halfway there with our modern central banks, just without the satisfying snip-snip sounds. The Finnish experiment failing because people just deposited their cash in banks first is a classic example of Goodhart's Law in action. Or as I like to call it, "If you tell people you're going to cut their money in half, they'll find a way to keep it whole." What's really interesting is Belgium's more successful approach, they went full scorched earth on 2/3 of their money supply and somehow managed to pull off an economic miracle. Makes our current inflation-fighting tools look rather tame in comparison. "Sorry, best we can do is nudge interest rates up a quarter point at a time.
- eru 2y agoTurkey dropped six zeroes off their currency in the 2000s. Technically, you could describe that as cutting 999,9999/1,000,000 of their money supply. (Especially if they had done a funny dance like the Finnish, where you would use some scissors to only keep the tiny top left corner of your old notes, and can exchange that for new ones.) In practice, people saw the Turkish currency reform as merely a cosmetic change, not an actually reduction in the money supply. See https://en.wikipedia.org/wiki/Revaluation_of_the_Turkish_lira https://en.wikipedia.org/wiki/Revaluation_of_the_Turkish_lir...
- Sharlin 2y agoWould've been funny if you had been expected to literally cut out six zeroes from the notes. In 1963 Finland also ended up shifting markka to the right by two, so that the old markka became the new penni (1/100 markka).
- pjc50 2y agoThis is one of those measures that hyperinflation countries have to adopt for sanity, re-numbering the money. The surprising case that worked is the Brazilian "Real": by renaming the currency as well as switching it to semi-controlled exchange rates, inflation was drastically reduced. https://en.wikipedia.org/wiki/Plano_Real https://en.wikipedia.org/wiki/Plano_Real > Combined with all previous currency changes in the country's history, this reform made the new real equal to 2.75 × 1018 (2.75 quintillion) of Brazil's original réis. (!)
- j4nitor 2y agoTorille! https://www.urbandictionary.com/define.php?term=Torille%21 https://www.urbandictionary.com/define.php?term=Torille%21
- eru 2y ago> It's not just the size of Operation Gutt that is striking to the modern eye. It's also the oddity of the tool being used. Today, we control inflation with changes in interest rates, not changes in the quantity of money. To soften the effect of the global COVID monetary overhang, for instance, central banks in the U.S., Canada, and Europe began to raise rates in 2022 from around 0% to 4-5% in 2024. It's a bit more interesting than 'the central bank sets interest rates'. Simplified: the central bank decide on an interest rate that they want to see. By itself that decision doesn't do anything. What happens next is that they buy and sell government bonds in the open market. The interest rate can be seen as the inverse of the price of bonds. If the central bank wants to see a lower interest rate, they buy bonds with freshly printed money to drive up their prices, ie drive down the interest rate. If the central banks wants to increase the prevailing interest rate, they sell government bonds from their inventory and essentially destroy they money they receive in return. So even when the language of modern central banking talks about interest rates, they still change the quantity of money to implement that. (This is all simplified, especially with the interest on excess reserves that was popular with the Fed for a while. And there's also repos and reverse repos etc.)
- deleted 2y ago[deleted]
- neilwilson 2y agoInterest on reserves is very much still in place[0]. Open Market Operations haven't been a thing since shortly after the 2008 Financial Crisis. https://www.federalreserve.gov/monetarypolicy/reserve-balances.htm https://www.federalreserve.gov/monetarypolicy/reserve-balanc...
- flanked-evergl 2y agoI live in Norway, most people I know in private life that are of working age do not actually work, and for the most part they have better lives than I do, and I do work. The amount of people on sick leave have absolutely skyrocketed. 60% of welfare benefits in Norway go to immigrants and the population in cities grows faster than new homes are built. The causes and solutions of inflation are not complex. People just don't want it fixed.
- JackYoustra 2y agoSeems like most people work? Who do you hang out around? https://data.worldbank.org/indicator/SL.TLF.CACT.NE.ZS?locations=NO https://data.worldbank.org/indicator/SL.TLF.CACT.NE.ZS?locat...
- Aachen 2y ago> I live in Norway, most people I know in private life that are of working age do not actually work Can't say it any better than this: https://news.ycombinator.com/item?id=42244367 https://news.ycombinator.com/item?id=42244367
- labster 2y agoI wonder if anyone left his uncut so he could show it off later? It would certainly be more attractive to numismatics later on.
- dathinab 2y ago> To our modern sensibilities, this is a wildly invasive policy. is it? not really cutting the "value" of money in half always had been a important emergency tool countries had and sometimes used and "moving" half of the value into a found which even pays out some years later is tbh. quite a fair way to do it (instead of just literally halving the money value permanently)
- flanked-evergl 2y agoFixing inflation is simple, people keep voting for it to not be fixed, so the inflation remains and gets worse.
- BJones12 2y agoYes it is. It's the biggest wage theft in history.
- dathinab 2y agoif it's the biggest then what with the cases where monetary value was cut in half without giving anything back? No bonds no nothing. Because that would have been on of the alternatives. With another being to not do anything and everyone losing as much or more due to inflation and a post war economy crash. Did it suck badly, sure, obviously. But the alternatives weren't exactly better.
- tantalor 2y agoThe uniquely invasive aspect is forcing people to spend half their money to buy bonds. That doesn't happen very often. It reminds me of "trillion dollar coin". In both cases, the average person loses their buying power. https://en.wikipedia.org/wiki/Trillion-dollar_coin https://en.wikipedia.org/wiki/Trillion-dollar_coin
- akira2501 2y ago> quite a fair way to do it Are your parents retired? Ask them if they think this was fair.
- neilwilson 2y agoThis is all very interesting historically. However the rise of repo markets has rendered the money=medium of exchange, bond=store of value belief pretty much redundant. Rehypothecation more so. Banks are liquidity providers. If they think they can make a turn they'll discount any asset into money for you.
- dr_dshiv 2y agoWithout getting political, please, does anyone have a good argument for the expected inflationary pressures of the next year or two? Tariffs will make prices go up, investment in infrastructure will make prices go up… but on the other hand, AI & robotics seems to be a deflationary pressure… where does one go for scenario analysis of the next year or two? This article scared me a bit with the notion of banks implementing “quantitative freezing.”
- pjc50 2y ago> Without getting political > inflationary pressures of the next year You can't really separate these two. If central bank targeting is left alone and the policies implemented aren't too disruptive (i.e. not the wild claims of the campaign), then it won't move much. If some of the wilder claims are implemented, all bets are off.
- marcosdumay 2y agoOk, you mean on the US... Keep in mind that the US government (like almost the entire world) has control of inflation, and through more means than you will think of. Anyway, all of those are real factors, but inflation is a monetary phenomenon. Those two don't need to have any kind of correlation. Personally, I have not follow US news closely enough to understand what Trump wants to do with monetary policy.
- dfxm12 2y agoIn addition to tariffs, expelling millions of people out of the country will have inflationary effects as well, in many different ways [0]. 0 - https://www.nytimes.com/2024/11/13/business/economy/trump-immigration-inflation-prices.html https://www.nytimes.com/2024/11/13/business/economy/trump-im...
- nabla9 2y ago>Today, we control inflation with changes in interest rates, not changes in the quantity of money. That's not full truth. In the last 20 yeas central banks do their big and sudden moves using "Open Market Operations". They buy or sell money like assets in market and effectively increase or limit the quantity of money.
- atq2119 2y agoOpen market operations are the mechanism by which the interest rate is controlled. Basically, the central bank sets an interest rate target and then performs open market operations until the interest rate matches the target. That obviously affects the quantity, but the point is that the target is the interest rate. The quantity just ends up being whatever happens to be necessary to hit the interest rate.
- nabla9 2y agoThe target is inflation in both. When you reduce the volume of assets available, or the price renting the asset, you increase it's value. In this case the asset is money. Market interest rate is a signal how effective the action is long before inflation statistics is available.
- readyplayernull 2y agoIt all comes down to math: https://stephaniekelton.substack.com/p/how-to-cut-2-trillion-in-federal?triedRedirect=true https://stephaniekelton.substack.com/p/how-to-cut-2-trillion...
- openrisk 2y ago> To ensure that interest expense falls toward zero over time, Congress could instruct the U.S. Treasury to stop issuing anything with duration beyond a 3-mo T-bill. Voilà! It wouldn’t just save $2 trillion, it would save tens of trillions of dollars over time. umm, not sure if her recipe is meant as a joke (I mean the world is rapidly turning into a bad joke anyway so people getting facetious might be a defense mechanism) but eliminating risk-free money for anything beyond 3 months seems like very... short-termist? No idea what kind of volatility that would do to the broader financial / economic system (including e.g. mortgage finance) but somehow it doesn't sound good.
- sailfast 2y agoReducing inflation always results in pain somewhere, pretty much by definition. Wage decreases, job demand reductions, taxes, higher interest rates, etc. Comes down to a decision about where you want to spread the pain and how, and how you weight that against "time to impact". Unfortunately this compounds misunderstanding of the public because politicians can cause inflation, leave office, then come back to office after saddling the other person with the problem. Fighting inflation rarely results in popularity in the near term.
- Yawrehto 2y agoI wonder what the cleansing element of it in Finland was, given that they voted to join the Axis.
- Seasandthequote 2y agoyou mean WWII? If so, this is just wrong, no-one in Finland "voted" to join the Axis, she was not technically a part of Axis and didn't want to side with Germany at all. GB and Sweden were first asked but they weren't able to help in the defence from Soviet Union. AFAIK they weren't fighting anywhere but their own territory
- noinsight 2y agoFinland did cross the old borders in parts, but we specifically didn’t participate in the Siege of Leningrad and refused all German demands for assistance.
- int_19h 2y agoFinland had quite a few far right figures in its government at the time who were obsessed with "Greater Finland", for which they needed to occupy and annex East Karelia: https://en.wikipedia.org/wiki/Finnish_military_administration_in_Eastern_Karelia https://en.wikipedia.org/wiki/Finnish_military_administratio...
- AcerbicZero 2y agoAxis>Comintern
- misja111 2y agoI guess it refers to collaborators with the Russians?
- enra 2y agoSoviets attacked Finland, and brought it in to the war. Finland didn't want to become a part of Soviet Union (btw no-one did willingly) and Axis was fighting against Soviet Union. Enemy of your enemy is my friend.
- krupan 2y agoIf this second thing last paragraph doesn't make your skin crawl then I don't know what will: "Cash, which is awkward to immobilize for policy reasons, will be gone in a decade or two, leaving the public entirely dependent on bank deposits and fintech balances which, thanks to digitization and automation, can be easily controlled by the authorities. To rein in a jump in inflation, central bankers will require commercial banks and companies like PayPal to impose temporary quantitative freezing on their clients' accounts, but unlike Finland's 1945 blockade, the authorities will be able to rapidly and precisely define the criteria, say by allowing for spending on necessities — food, electricity, and gas— while embargoing purchases of luxury cars and real estate"
- semprity 2y agoIndeed makes my skin crawl. How can one reasonably protect himself from such draconian freezing? Asking for reasonably, not bunker full of gold bars.
- carlosjobim 2y agoBunker full of gold bars. Or foreign currency. Or silver.
- int_19h 2y agoThe problem with all these is that money is kinda worthless if you're unable to spend it, and regimes that are likely to enact such monetary policies will often regulate the use of gold etc as well. A bunker full of gold bars does you no good if actually trying to spend any of it is a crime in and of itself.
- troyvit 2y agoI agree, and when I see foreign currency as an option I think of two possibilities. First, moving to the country that hosts that currency. Second, waiting for the US currency to slide into obscurity and switching to whatever takes over as the global currency. Both are tough choices that rely on either too much time or too much space.
- haroldkurt506 2y ago[dead]
- lutusp 2y ago> ... snipped their cash in half ... Actually, they snipped their cash in two, not in half. This is one of several afflictions that lurk in modern language, ignored by nearly all. Another is the use of phrases like "similar effect to ..." where "effect similar to ..." is the correct form. Notwithstanding how it grates on one's ear, this second egregious malaprop seems to be the preferred form. Oh, well. Since print is today either dead or dying, largely replaced by chatbot-generated prose, this kind of complaint might be likened to critical assessment of a cave drawing.
- poincaredisk 2y agoThis is a standard English idiom: https://dictionary.cambridge.org/thesaurus/cut-in-half https://dictionary.cambridge.org/thesaurus/cut-in-half. You may not like it, or think it's illogical, but that doesn't make it incorrect.
- lutusp 2y ago> This is a standard English idiom ... Certainly true. > ... but that doesn't make it incorrect. Also true, and not a claim I made.
- Izkata 2y ago> Another is the use of phrases like "similar effect to ..." where "effect similar to ..." is the correct form. They have slightly different meanings. Use the first one when describing the actions that cause the effects, use the second one when describing the effects themselves. Though I suppose "effect similar to" could be used in either case, depending on what came before it.
- hatthew 2y agoWhy did finland expect that to work when >90% of money was in banks? When the article described cutting money in half, my very first thought was wondering what the banks did -- were the bills there also cut on half or were all accounts artificially divided in half? It didn't cross my mind that all money other than physical cash was completely unaffected. Now clearly I'm not smarter than the top economists in a country of millions, so what am I missing? Why did they think it would work?
- yieldcrv 2y agoa bunch of failed monetary experiments that the author gives charitable explanations for
- a3w 2y agoSame link, but with enabled TLS: https://jpkoning.blogspot.com/2024/11/setelinleikkaus-when-finns-snipped.html https://jpkoning.blogspot.com/2024/11/setelinleikkaus-when-f...
- aucisson_masque 2y agoInteresting read but the theory about cash going away in 10 years > Cash, which is awkward to immobilize for policy reasons, will be gone in a decade or two Is a risky one. The are many culture where cash is the way to pay, you use credit card for internet but everything else is cash. I'm thinking of North Africa, which we have many of these people in Europe. There are also the old people, of course they will be gone in 10 to 20 years but then then I'm not sure it would be ok with the general population. Removing cash would have to bring advantage to be accepted.
- dijit 2y agoYet, in Sweden, I have legitimately forgotten how money looks. I haven't handled cash in about 7 years (I’m not even embellishing).
- aucisson_masque 2y agoMaybe it's more of a Mediterranean thing. When I ran my own business i have not one single time been paid with anything else than cash from Arabians. On the other hand, getting cash from regular white people was the exception.
- abfar 2y agoIndonesia's government also implemented this exact policy in 1950. The policy was called "Gunting Sjafruddin" or "Sjafruddin Cut" after the minister Sjafruddin Prawiranegara. Not sure about the impact though. This article wrote about it: https://yohanesnuwara.medium.com/most-thought-provoking-monetary-policy-in-the-world-was-just-happened-in-indonesia-in-1950-127dc1cc51ab https://yohanesnuwara.medium.com/most-thought-provoking-mone...
- kqr 2y ago> So it would seem that the whole operation failed. This surely draws into question the quantity theory of money, one of the basic tenets of monetary economics. A decline in the money supply, all things staying the same, is supposed to cause a fall in prices. Here is a glaring case in which it didn't. Anthropologist Christoffer Gregory (backed up by the Swedish central bank and others) posits a companion to the quantity theory of money, which is the quality theory of money. Gregory studied how it is that people come to value the things they do[1] and brings up several clear cases where people don't value money as highly as they should according to domninant theory. Is it possible that this Gutt operation had a negative effect on the perceived quality of Belgian currency, that this decreased demand for it, and thus lowered its value enough to offset the effect of the reduction in supply? Seems sensical to me that if people worry about the government cutting their notes in half they will request more notes in exchange for another commodity than if they had more faith in the currency. [1]: https://entropicthoughts.com/book-review-savage-money https://entropicthoughts.com/book-review-savage-money
- Green-Man 2y ago>Cash, which is awkward to immobilize for policy reasons, will be gone in a decade or two That's a bold prediction. On par with prediction of how much memory will be enough for personal computing devices in the future.