Apparently, every time a currency falls victim to hyper inflation, sooner or later the country is gonna introduce a new currency to solve the problem.
But how does that help? If let’s say the us dollar lost 90% of it’s value every day, and you introduced a new currency, one of which is equal to 5 us dollars, wouldn’t that new currency, as it’s value is bound to the dollar, instantly lose 90% of it’s value every day as well?
In: 712
It’s just psychological.
Inflation is stopped when people and businesses decide that their currency is a good investment and stop spending it all on the days they get their wages fearing it will lose value otherwise.
The easiest way for a government to do that is to raise interest rates. Now spending becomes more difficult (loans are more expensive) and holding currency becomes more profitable (savings accounts pay more).
This is pretty much exactly what’s happening all over the western world now. First people spent too much and now central banks are raising interest rates.
But it’s not always as simple as that. In countries that depend on import a lot, a trade balance can also have a big effect on currency rates and inflation. But that’s just economics nuances that to be honest have to looked at case by case.
Latest Answers