One take away from the previous posts is that at moderate interest rates, the frequency of compounding doesn’t make that much difference. A nominal interest rate of 12%, compounded continuously, is effectively a 12.75% interest rate. Compound less than continuously, say monthly or daily, and the effective rate will be somewhere between 12% and 12.75%.
But now say interest is 50% per month. Simple interest would be 600% a year, but nobody would accept simple interest. Compounded every month, the effective interest rate would be 12975%. Compounded daily it would be 38433%. And compounded continuously it would be 40343%.
What I find hardest to understand about hyperinflation is that people continue to use hyperinflated currency far longer than I would imagine. Once you start using a clock rather than a calendar when doing interest calculations, I would think that people would abandon the inflated currency in favor of something harder, like gold or silver, or even cigarettes. And eventually people do, but “eventually” is further out than I would imagine. It’s absurd to haul paper money in a wheel barrow, and yet people do it.
I'm sure there are some decent theories as to why. The answer is something I'd expect to read in a Dan Ariely book.
I love so much that the in the developed world hyperinflation is something beyond comprehension. That's a good sign :')
If there's any interest, I could give a full account on the hyperinflationary path, to explain what this author wonders about (and what he got wrong).
That would be super interesting. Personal stories about this are scarce.
Here Sr: #1049683
On the works Sr!
You know there's tons of interest!
I think you already saw it but just in case! #1049683
Right away Sr!
Probably because there aren't all that many options. When there are alternative options, people will probably use them.
This is from a comment on the article:
I suspect it's similar to the set of reasons why people prefer to accept dollars over bitcoin.
I do think the SoV function of fiat basically vanishes during hyperinflation, but it's still the MoE, so monetary velocity goes through the roof.
I completely agree. Inflation is already something that degrades your money in the fiat model, and when we talk about hyperinflation: it is a very high, out-of-control inflation, in which prices increase rapidly at the same time that the currency constantly loses its real value without you being able to do anything. The Fiat system is a total fallacy.
I liked this part:
"It's absurd to transport paper money in a wheelbarrow, and yet people do it."
In my home country, hyperinflation has been going on for over 15 continuous years!!
And the results have been devastating!!
Even after so many years abroad, I still feel its effects because I have to send money or remittances to my oldest daughter, who is still there, and the money I sent her in soles from (Lima, Peru) loses a lot of purchasing power once it arrives there!!
Wow! If the local currency or the banknotes circulating in that country had all the "Zeros" that have been removed from their nominal value, there would undoubtedly be people carrying wheelbarrows of paper...