How does a new currency stop inflation?

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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?

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18 Answers

Anonymous 0 Comments

If the value of a currency is bound to the previous currency then what you are describing is “redenomination”, not really a “new currency”. In that case the inflation of the old currency does affect the value of the new notes as you would think.

To address your broader question, yes introducing a new currency isn’t going to solve inflation. You would also need to address the underlying problems with the economic system that lead to the inflation in the first place. Zimbabwe for example had several massive redenominations between 2006 and 2009 that didn’t stop their financial disaster.

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