As mentioned above, why do you they use such high numbers for a relatively low value item?
In: 0
At some point in their past they experienced intense inflation, where the value of their currency went down very quickly relative to the price of buying things – situations where e.g. something that cost one unit yesterday might cost four today and twelve tomorrow. Some countries where this happened have since issued new currencies with better-looking numbers (e.g. saying ‘1 new unit is worth 1000 of the old unit’), but some haven’t felt the need.
It’s the same reason that in the past you could actually buy small things for $.25 USD, and now that much money is effectively worthless. It’s just happened more and faster for some other currencies.
A famous example of this is Germany in the 1920s, where money ended up so worthless that people were burning banknotes as fuel. The worst historical example of this was the Hungarian pengő after WW2, which was replaced by the forint in 1946 at a rate of 400,000,000,000,000,000,000,000,000,000 (400 octillion; 4×10^(29) ) pengő to one forint. (As of today, the exchange rate is 395 HUF for 1 USD, meaning that 1 USD is currently worth 1.58×10^(34) old Hungarian pengő.)
They weren’t always that way. Over time, the value of money goes down (inflation), so the prices of things go up. It’s happened in the US and other countries too, you used to be able to get candy at a corner store for a dime, good luck trying that nowadays. For countries like the ones you said, the inflation has just been much more severe.
There are a few possible reasons for this, one of which is inflation.
OK, since this is the eli5 subreddit, I’ll explain a bit about how inflation works:
Let’s say you have $5 and you want a pack of gum that costs $5. Your friend has $10 and wants the same pack of gum. There is one pack of gum. Is the gum going to you, who will pay $5, or your friend, who will pay $10? Clearly, if the person who owns the gum wants money (and they do, this is a constant and unchanging fact: everyone wants money always), they will give the gum to your friend with $10 and you get no gum. In this case, when you say “what does a pack of gum cost?”, the answer is $10, because that’s the price the pack of gum sold for. That’s called “demand-side inflation”, where the demand for a product increases such that the seller can increase the price of goods because people are willing to pay more due to high demand.
Now, I’m unsure about the current currency of Zimbabwe, but many years ago the President of Zimbabwe decided that his people were very poor, and thus he would give everyone a bunch of free money so they wouldn’t be poor and they would like him more and he would retain power. Well, the problem with this is that, now where before you might have $5 for a pack of gum, now you have $50 for the same pack of gum. Cue demand-side inflation, now a pack of gum costs $50. You can still only buy 1 pack of gum; you haven’t become any richer by getting this free government money (in terms of gum-dollars), but the number on the price sticker has been multiplied by 10. The people of Zimbabwe were still poor; the money printing didn’t work. Even though people had 10x as much money, the prices increased by 10x so it evened out. So, thought the President of Zimbabwe, if that didn’t help, let’s just go harder and faster. So he did, and shortly thereafter a loaf of bread in Zimbabwe was tagged at billions of dollars, because of how worthless the money was due to this inflation.
Shortly after this, the currency of Zimbabwe was so devalued that the people of Zimbabwe decided to stop using it, and adopted other countries’ currencies as their own for normal transactions (I believe the US dollar was the major one). Since it appears (from your post) that the Zimbabwe dollar is back in action, I’m not sure what changed.
A second possible reason for this is due to international currency valuations.
Let’s say you are a small, poor, undeveloped country (like, for example, Zimbabwe and Thailand). You don’t have many exports, but you have many imports, because you need to import a lot of stuff e.g. food, medicine, technology, from other countries.
Here’s the problem with imports: A Thai Baht is only worth something in Thailand. A US company who sells widgets in Thailand wants to be paid in US dollars; they have no use for Thai Baht, because nobody can use Thai Baht in the US. So, whenever import company X in Thailand wants to import product P from company Y in the US, they have to convert Thai Baht to US dollars so they can pay for the product in the relevant currency. This is known as “foreign exchange” or “forex”.
The problem that small, underdeveloped countries face is that they need a lot more supplies than they export. Of course, the above example works in reverse; if US company Y wants to import from Thai company X, then Y will need to convert US dollars to Thai Baht in order to pay. The problem is, when the import/export is out of balance, the country that is doing the import needs the export country’s money much more than the export country needs the import country’s money. In essence, you have the following problem: The developed country’s forex trader (let’s use the US as an example) says to the undeveloped country’s forex trader (using Thailand as an example): “I don’t actually need Thai Baht, but I’m going to do you a favor of giving you some US dollars. But I’m going to need a SHITTON of Baht to make it worth my while. How much Baht can you give me?”. If the number is too low, then the Thai import company doesn’t get their import deal, so they need to fork over a lot of Baht to get the US dollars they need. Because of this, the relative value of the Baht and the USD goes out of balance and the Baht is devalued against the USD.
Now, the problem is, for the Thai company, the Baht has to come from somewhere. The company can’t just materialize Baht out of thin air. So, if you’re an import company in Thailand, you’re going to charge a large amount of Baht for your imported American products, because you have to pay a shit ton of money on the foreign exchange market to get the USD to import those products in the first place. This is one example of what is known as “supply-side inflation”, where the price of getting the goods to market has risen and so the consumer must subsidize those increased costs. And that’s (one reason) why Thai prices have such high numbers.
I’m sure there are other factors at play as well, but these are two possible reasons.
To add a third answer for countries such as japan its becasue they don’t have any smaller denominations so Yen is closer to meaning cents than it is to meaning dollars.
Latest Answers