How do countries end up with worthless currency? Like countries who’s dollar bills lie on the ground or are burned for warmth because it has no purchase power anymore
In: 174
There are a only a set amount of goods and services produced by a country.
As the government of that country, you have a claim to a certain amount of those goods and services.
As people provide this share to the government, the government gives them receipts equivalent to the value of that share to redeem as taxes so the cycle can continue.
A government that finds it too politically difficult to collect outstanding receipts as taxes, or feel that they are not claiming a large enough share of output, may instead continue printing receipts to attempt to claim a larger share of the country’s goods and services with less political cost.
Newer receipts printed while existing ones are still outstanding reduce the overall value represented by those receipts. More receipts will then be required to be printed in order to claim the same value each year, especially if no new taxes are created to remove excess receipts from the economy. Eventually, new receipts will form such a small share of the claimed value as to be nearly worthless. Though the total share represented by those receipts remains the same.
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