Troubled Currencies

For academics, the term "troubled currency" might be a term of art. But for people who are faced with such a currency, they know a troubled currency when they see one. Today, this is the case for millions of people around the world — most notably in Iran, North Korea, Argentina, Venezuela, Egypt and Syria.

A troubled currency is one in which users have lost confidence. When users no longer think a currency will retain its purchasing power, they attempt to dump it for a stable foreign currency (or commodities). As the demand for the troubled currency evaporates, its value vis-á-vis stable foreign currencies collapses, and prices for goods and services sold in the troubled currency soar. As this process develops, expectations about the currency’s ability to retain its purchasing power deteriorate, and a doom loop ensues. At the extreme, doom loops can culminate in hyperinflation — an inflation rate of over 50% per month. This, however, is rare. Indeed, there have only been 56 cases of hyperinflation.

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Kathleen M. Packard, Publisher
Ralph J. Benko, Editor

In Memoriam
Professor Jacques Rueff
(1896-1978)

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