Can they ever be reset? Or will one day a regular chocolate bar cost for example €50? House that costs €200k cost €1,000,000? Will the likes of the euro or US dollar one day be the same as currencies such as the YEN where “1” of them is essentially worthless?
In: Economics
I have literal billions in Zimbabwean currency hoping it goes back to being on par with the US dollar. Have them just for fun, but maybe one day…
The important thing to keep in mind is that the actual number doesn’t matter except relative to other things. An economy in which you have a list of prices {A,B,C,…} and people’s earnings {X,Y,Z…} is equivalent to one in which every price is {kA,kB,kC…} and earnings are {kX, kY, kZ…}
if you add a zero to every bill simultaneously, then absolutely nothing that anybody cares about changes: you can buy the exact same things with the same amount of labor. It doesn’t matter if it takes a hundred yen to buy the same stuff as one dollar if everyone earns a hundred times as many yen. One penny is essentially worthless, but when’s the last time you bought something with a pile of pennies? When’s the last time you suffered because your piles of pennies weren’t valuable enough to afford something with? You just use the hundred penny bill or the two thousand penny bill and it’s fine, just as the Japanese use their hundred yen bills and two thousand yen bills.
The amount of money that you call “one” isn’t important, it’s just a number.
Inflation affects things in different ways and isn’t uniform.
House prices are more volatile than chocolate bars and house price inflation has been well above the inflation rate for most of the past 30-40 years, but is also prone to crashes that would not be seen in the chocolate bar market.
But since an ideal economy has an annual inflation rate of 2-3%, then yes eventually (assuming few economic shocks and no replacing of the currency) a chocolate bar would cost €50.
Comparing the euro and dollar to yen is a bit difficult. Japan has undergone periods of deflation (which is bad for an economy), and still had a yen to dollar conversion in the thousands.
What we’ve seen lately is a fall in the value of the yen relative to the dollar/euro which has made Japan cheaper for foreigners when converting from their own currency (so the value of 1 yen is low in absolute terms, but the value of an average european or american salary compared to Japanese prices is suddenly higher). Whether a euro or dollar will ever be equivalent to 1 yen in the future will depend on the future values of both currencies.
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