Okay so as far as I’m understanding it, we have (and also want to have for economical reasons, the amount can be discussed but in general we want that) inflation. Therefore money becomes always less and less valuable, the ice cream will always cost more and more. Can you reverse that process without going into recession/deflation? So will there ever be a point again, at which an ice cream will cost 50ct again (random example)? Can that be reversed by introducing a new currency?
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This is called *deflation*, and it is usually awful for an economy because it means your money becomes more valuable if you *don’t* invest it. That means people don’t invest, which kills economic activity – which in turn kills the job market, which kills the economy as a whole. Economies can handle mild deflation for a short period of time, but not much of it, so governing bodies try very hard not to allow it to happen.
The solution you mention – reissuing currency to not have ridiculous numbers – is common.
Yes. It’s called redenomination and happens actually somewhat commonly around the world. If you look at the list, some country is doing it every few years: https://en.wikipedia.org/wiki/Redenomination#List_of_currency_redenominations
Some countries don’t ever do it. Japan for example just got rid of their divisions on yen (sen, ren) and now everything just costs huge amounts.
If you get a Big Mac in Japan it’s 690 yen. One day a Big Mac will be $690, but by that time it’ll just seem normal and future kids won’t even know about cents.
It’s possible, in theory, that a currency can be ‘repegged’ and have all “old” dollars replaced with “new” dollars, such that each “new dollar” is worth, say, 10 “old dollars”, trade them all in, and now $5 is labeled as 50ct. Countries that have experienced hyperinflation have done this; once they (think they) have stopped the rampant inflation, they’ll get rid of the zillion dollar bills and trade them in for new dollars that are back to ‘reasonable’ face values.
Reversing inflation is simple, but of course simple does not mean easy. Broadly speaking, the total supply of money represents the total value of the economy; the way to reverse inflation is to have the value of the economy grow faster than the government prints money. (It’s possible that if the money supply grows too small, it can actually impede trade and hurt the economy, but we’re nowhere near that.) Of course getting the government to stop printing money is borderline impossible, but that’s hardly relevant to the question at hand.
> Can you reverse that process without going into recession/deflation?
No, the opposite of inflation is deflation so if it reversed then it would by definition be deflation. It doesn’t necessarily need to result in recession but it would be very likely.
> Can that be reversed by introducing a new currency?
Currencies can go through something called “redenomination” where the units of a currency are remapped to reduce their digits. For example the US dollar could change such that $20 equals $1. This would mean $1 of the old bills would equal 5 cents of the new money.
New bills would need to be printed and there would be both a specific changeover date where everyone’s bank account would shift to the new units, and a longer period where old physical money could be exchanged for the newly minted versions. This process is very similar in essence to introducing a new currency, except that the name is retained such that after the shift the currency is still “US dollars”.
This of course would just be cosmetic. An old $20 bill and a new $1 bill would be worth exactly the same amount, and you could express the same amount of wealth using either units. Doing this for the nostalgia of seeing 50 cent ice cream again isn’t likely a worthwhile motivation.
When numbers get large enough, they’ll sometimes revalue the currency and lop off extra zeros. A country isn’t going to do it to make a $5 pint of ice cream cost 50 cents, but if a pint of ice cream was $5000, they might.
I was in Mexico on vacation when they did it about 20 years ago. Peso went from like 5000:$1 to 5:$1 overnight. There were New Pesos issues at the new valuations, and old Pesos were worth 1/1000 the face value, so a 20,000 old Peso was worth 20 New Pesos in the stores, etc. People had like a year to exchange all Old Pesos for New Pesos at the bank.
Look at 1939 for examples of what inflation led to and what stronger currencies emerged afterwords.
Yeah. We have inflation. Ideally around 3%.
>Therefore money becomes always less and less valuable, the ice cream will always cost more and more
Yeah, over time. And you always get paid more and more.
>Can you reverse that process without going into recession/deflation?
You kinda lumped two things there. Reversing inflation IS deflation. Literally. By definition. But an economy could grow during deflation. It’s just unlikely.
>So will there ever be a point again, at which an ice cream will cost 50ct again (random example)?
It’s very unlikely. The people who print money aren’t going to stop printing money.
>Can that be reversed by introducing a new currency?
Well sure…. But then the ice-cream cone isn’t 50 cents, it’s worth 50 imaginary internet dollars or something.
(Now, some things DO drop in cost. Like…. long-distant phone calls. Or the price of food. Or 50 gigaflops of computation. And that’s because we’ve gotten better at making stuff. Tech improves the human condition. But that’s not what you’re talking about.)
You could stop money printing and just wait for the economy expand such that prices decrease, or create deflation and remove dollars from circulation.
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