Does existing debt at a fixed rate in local currency really just functionally disappear? What about variable rate loans – do rates get up in the 100s or 1000s? Do all new lending activities cease, or are they issued in a different currency? Do credit cards stop working? And how is all this money entering the economy? If, in the example of bolivia, the bolivar is losing 99% of its value in less than a year for multiple years, then are employers re-calibrating salaries like every week?
In: Economics
Yes, debt burden gets reduced by inflation. In countries where high levels of inflation or currency fluctuation happen, large ticket items typically financed are priced and transacted in stable currencies like Dollars. So even if Mexico uses Peso as their currency, buying a may take place in U.S. dollars.
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