It is hard to grasp for those who have experienced this first-hand. For instance, the Indian rupee in its present form can be traced back to 1835. Predictability is a must for individuals and businesses, whether it is for retirement planning or starting a new manufacturing plant. Such planning can stretch decades into the future: it is not uncommon for young professionals in their thirties to be saving for their retirement at 60s and the long retirement thereafter. Then suddenly a horrible scenario when everything a professional has  worked for/saved during their career suddenly becomes worthless due to hyperinflation. And imagine this happening repeatedly.
Most associate hyperinflation with Germany of 1920s, but it continues to be depressingly common even today. Venezuela over the past two decades, Zimbabwe in 2008, Russia, and most of Eastern Europe after 1992 have all witnessed hyperinflation, where prices rise by 50% within a month. Mostly, hyperinflation is caused by a government that spends more than what it receives from taxes, and resorts to printing money to pay its bills. Left uncontrolled, hyperinflation ensues, with prices of goods and services moving up daily. Savers suffer, and any kind of forward-looking planning becomes impossible.
During the 1980s, Latin America – especially Argentina, Brazil, Venezuela and the other smaller economies like Bolivia and Peru – all had repeated rounds of hyperinflation. TGovernments would print ever higher denomination notes to meet its expenses, the old currency would become worthless in a matter of months, then three zeroes (sometimes six zeroes) would be lopped off and new currency would be brought in. From 1980 to 1991, Argentina went through four different currencies (view attached image). Brazil also ran through multiple currencies in the same period.
Many countries which have witnessed hyperinflation tend to be repeat offenders. Venezuela, Zimbabwe, and Turkey have all come out with new currencies since 2000 And are likely to need a new currency soon, given sustained high inflation.
Unless policymakers change, disastrous policies are unlikely to change on their own. Most of South America has left the cycle of hyperinflation behind. With an outsider like Milei in the saddle, Argentina, the second-largest economy in the continent, may finally have the opportunity to break from the past.
Amit Bhandari is Senior Fellow for Energy, Investment and Connectivity, Gateway House.Â
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References
[1] https://apnews.com/article/argentina-inflation-milei-currency-cuts-peso-devaluation-beddb4f7fd0021463653af37908bcb78
[2] https://www.imf.org/external/datamapper/profile/ARG
Source link : https://www.gatewayhouse.in/argentinas-new-political-currency/
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Publish date : 2023-12-21 03:00:00
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