Why can’t hyperinflation be fixed by creating a new currency? or just stop printing?
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We live in the era of fiat currency which means money is only backed up by the trust people have in the issuing government. If there is no trust, a new currency doesn’t change that. In a hyperinflation scenario stopping new money from entering circulation would mean that there is no money to go around as the inflation has made the currently existing money worth so little. People can’t buy stuff and that would be even worse.
By the time hyperinflation has been reached, faith in the currency and the government’s ability to manage a currency is already gone. Lenders will be charging such high premiums that things become unaffordable without printing even more money – or else letting the entire economy crash.
And printing a new currency is literally an admission of them failing to handle a currency. Why would people trust them with a new one? This is why countries that go into hyperinflation tend instead to have to resort to adopting another country’s currency (and so adhering to the terms and conditions laid out by that foreign country).
That’s why countries should ideally not get into hyperinflation in the first place.
Inflation is the difference between how much money is available versus the amount of goods and services the people who use it have. If you have a lot of money but nothing to buy/sell you have inflation, if you have lots of goods but little money you have deflation. When you change the currency you are trying to rebalance the money supply so that the stuff the money represents is appropriately represented.
Currency only has value because it has stability and confidence in it’s value.
Printing a new currency and ignoring the old currency does not imply stability nor confidence.
If you stop printing, you stop it getting worse, but don’t do anything about the existing inflation. You’d need to destroy a load of money to do that, which has been done before.
Making a new currency is possible, but difficult. All of a sudden, everyone’s money is worthless and needs to be exchanged for the new one, usually at a poor exchange rate. If you don’t then address the cause of the inflation and restore public confidence, you’ll just suffer the same problem.
It can in certain instances. Countries have done it before. It’s why the old Zimbabwean $100 trillion banknote is a novelty souvenir worth very little. There’s a new currency now.
But remember that “hyperinflation” and “inflation that consumers find irritating or burdensome” are not the same thing. Hyperinflation isn’t when a gallon of milk is $4.10 this year when it was $3.75 last year. If you look into instances of hyperinflation, you’ll see stories of people burning stacks of cash for warmth, or taking wheelbarrows full of money to the store to buy a loaf of bread. A government isn’t going to revalue the money or create a new currency until inflation gets to be that dire because that would be a lot of work and upheaval for something that can be fixed through less explosive means. People don’t like being told that the money they do have is literally worthless, even if it was practically worthless before.
Or. The US government should simply declare it is debt free and “reset” back to zero.
What other country out there could actually make us pay?
Brazil did it with the Real – It can be done, but, it takes more than a new piece of paper.
Inflation can be caused by many factors – Government economic policy, supply chain issues, and public confidence all drive it. If those negative factors remain, then a new name for the money won’t solve a thing.
In the late 70s / early 80s, we went through a period of significant inflation that was defeated, in part, by making the cost of borrowing / new development so expensive as to choke off demand. This is a less destructive way to resolve inflation issues than creating a whole new currency, at least in a first world country.
Hyperinflation in the traditional sense means the currency has died, i.e. there is virtually no demand for it. So it can’t be fixed in any way, you need a new one.
The real answer is that governments that get to the point of hyperinflation have so many problems that there is no way out. Yes, they can stop printing, but then the government collapses from lack of funding, and the country is sent into chaos.
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