Silvio Gesell proposed the idea of FreeMoney, which posited that money loses value over time. As such, this can accelerate circulation, as no one would want to bear the cost of holding on to currency.
Along the same lines, in a hypothetical situation where every citizen is given a certain amount of cash in their hands, with a caveat that the money will disappear (or not be valid) after a certain time (say 48 hours), where would it ultimately flow to?
Would love to hear your opinions.
Dear Mohamed Mahees Raheem,
In such a situation, hyperinflation would instantly arise if the depreciating money was replaced with new money and much larger amounts. Alternatively, part of the cash turnover would be replaced by barter exchange, i.e. as part of the exchange of goods without the use of money. In addition, people could abandon the use of this type of money, which after 48 hours becomes worthless, junk money, and in such a situation people could, for example, replace this type of junk currency with a cryptocurrency, as long as a specific cryptocurrency would not lose its value so quickly.
Best wishes,
Dariusz Prokopowicz
Dear Mohamed Mahees Raheem,
In such a situation, hyperinflation would instantly arise if the depreciating money was replaced with new money and much larger amounts. Alternatively, part of the cash turnover would be replaced by barter exchange, i.e. as part of the exchange of goods without the use of money. In addition, people could abandon the use of this type of money, which after 48 hours becomes worthless, junk money, and in such a situation people could, for example, replace this type of junk currency with a cryptocurrency, as long as a specific cryptocurrency would not lose its value so quickly.
Best wishes,
Dariusz Prokopowicz
In this hypothetical case, money is no longer a store of value, a reliable unit of account (due to hyperinflation), and not a medium of exchange (48 hours time constraint). The logical answer would be, it is NOT money anymore. People will abandon it to other monies (reverting to the barter system and to currency substitution).
Lilian Mboya Currency crisis involves additional factors that are not assumed in this hypothetical situation.
Think there's an interaction with technology and financial factors. If able, would convert to a technology accessible and source is legal, government backed currency (Euro, Yen, USD). If technology accessible and source is illegal, relatively stable cryptocurrency. Else, most accessible, more stable currency, then barter.
Excessive spending, this is the first thing that low-income people will do, especially on consumer goods, as a usual mode of consumption for them. As for those with high income, they will often resort to buying commodities of somewhat fixed value, such as gold ... My question is whether this announcement will be accompanied by the issuance of a new currency, for example .. Such a situation I doubt that the new currency will gain confidence, and I doubt that confidence in the monetary policy of the country itself will be shaken
Niam A.Fawaz h as posited a replacement currency scenario and Dariusz Prokopowicz has posited hyperinflation either of which could make your story real. The response to those scenarios would result in different defensive actions which could include barter as suggested by Valrie Chambers or wait until the old currency is replaced by the new, hopefully in an orderly way.
In any case money is near value-less already as it is only backed by government promise, which is in turn heavily indebted to the bond market. This is the case with all the major currencies: US dollars, British pounds, Euros, Japanese yen.
This is really more of an accounting issue than something for financial economics, but the finance aspect of valuation does bear upon this situation - consider that finance and accounting are flip sides of the same coin. If currency were to lose all value in 48 hrs., it would tilt the fish tank of capital such that all money would flow toward and be exchanged at steadily declining value to zero to obtain short-term PPE or other easily negotiable goods that could be exchanged for the new money scrip (when circulated).
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