Foundations of Fiduciary Currency
How a Currency Dies
Hyperinflation is not just fast inflation. It works in a different way.
7 min75 XP available4 challenges
Earliest cause at the top
Prices rise, because more money is chasing the same goods
The first round looks like ordinary inflation
The government cannot pay its bills from taxes or by borrowing
Lenders say no, and taxes bring in too little
The real value of taxes collapses, so the gap gets bigger
Taxes are set today but paid later, in money worth less
People spend it the moment they receive it
Keeping cash for even a week now means a sure loss
It covers the gap by creating money
The central bank buys the debt nobody else wants
Faster spending pushes prices up even more
The same money changes hands much more often: this speed (“velocity”) makes it worse
Answer to continue.