[HN Gopher] Yemen's bifurcated monetary system
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Yemen's bifurcated monetary system
Author : rwmj
Score : 85 points
Date : 2022-01-31 17:11 UTC (5 hours ago)
(HTM) web link (jpkoning.blogspot.com)
(TXT) w3m dump (jpkoning.blogspot.com)
| Guthur wrote:
| And this is inflation illustrated. When they talk about inflation
| being a rise in prices they are talking bullshit it is simply
| that they created more fiat currency and so devalued what was
| there before, as perfectly illustrated.
|
| The importance of this distinction is that when your currency
| devalues its because the goverment (central bank branch thereof)
| consciously choose to print more and devalue it for you.
| pavlov wrote:
| There are other causes of inflation, and a commodity-based
| currency makes it harder to control.
|
| You can see this in action in the historical inflation chart
| for the pound sterling (GBP), where data is available since
| 1750:
|
| https://www.in2013dollars.com/UK-inflation
|
| The gold standard was suspended in 1931. You can see wild
| swings between inflation and deflation before that year (with
| an overall trend towards inflation, as the pound did lose value
| over the centuries). Most economists believe steady low
| inflation is preferable.
| aftbit wrote:
| However most of the inflation that happened to the GBP
| between 1750 and 2022 happened in the last 100 years. PS100
| in 1750 was worth PS400 in 1922 and PS24000 in 2022. That's
| 4x in 172 years vs 60x in only 100 years.
| pavlov wrote:
| I think the WWI experience soured the British political
| class on the gold standard: wild inflation during the war,
| followed by serious deflation when it was time to rebuild.
| The swing is impressive in that buying power chart.
|
| Also, I'm sure the average British voter likes what has
| been achieved in the past hundred years and prefers
| inflation to having no money in a rigid class society.
| notahacker wrote:
| Yep. Having 15% inflation cancelled out by 15% deflation
| is superior to relatively consistent 2% inflation for
| rich people who don't need to spend their money, and
| prefer to preserve their wealth over decades without
| risking investing it in something productive. It's not
| for people who can afford 15% less food that year, or
| people trying to invest money in actual businesses.
| dang wrote:
| " _Avoid unrelated controversies and generic tangents._ "
|
| https://news.ycombinator.com/newsguidelines.html
|
| The more generic topics tend to be more predictable, and they
| also tend to suck the smaller, more specific topics in like
| black holes. The result is repetitive discussion about the same
| few things, which is bad for curious conversation.
|
| Past explanations:
|
| https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...
|
| https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...
| overtomanu wrote:
| even the northern rial inflated because the dollar inflated.
| but i think theres no doubt that money printing did cause
| inflation
| einpoklum wrote:
| Let's remember that Yemen is under effective blockade by the
| Kingdom of Saudi Arabia with the US and gulf allies; and that
| people are starving and dying because of this fact - in addition
| to the bombardment of civilian targets, and civilians, by KSA.
|
| And this was the case already 4 years ago, see:
|
| https://www.dw.com/en/yemen-is-the-biggest-humanitarian-disa...
|
| and some recent UNHCR info:
|
| https://www.unhcr.org/yemen-emergency.html
|
| so, with respect to the interesting financial situation - bear
| that in mind.
| hammock wrote:
| There is something missing in this story, which is the unified
| Houthi resolve to not accept post-2016 bank notes. And that
| resolve is not without cost - one example being the awareness
| campaign around serial numbers, and I'm sure there are many
| others.
|
| Without that resolve, the money is "fungible" again.
|
| If the same thing were to be tried in the US, you'd have to have
| everyone in a given region (say, Florida) agree that only
| pre-2022 dollars would be accepted, or else it wouldn't work -
| all the money would still be fungible. And they'd have to have a
| reason to do that. The widespread availability of inter-regional
| ecommerce makes it even more complicated, because what would
| really stop a Floridian from taking advantage of that? What are
| you going to do, stop trucks at the Florida border and make them
| show proof that the bill of sale was paid in pre-2022 dollars?
|
| Also, obviously, only works in a cash-based society. There are no
| serial numbers on the dollars in your checking account.
| aeternum wrote:
| Even a subset of merchants is enough to produce an effect. I've
| been to a few countries in which many merchants will accept USD
| but only notes in good condition as the banks give them a hard
| time if the bills are torn or marked up. Some merchants would
| trade the marked up/torn USD at a discount to face value while
| others would simply refuse to accept those bills.
|
| The interesting thing was how quickly I too considered the torn
| bills less valuable even though I could easily take them back
| to the US where they were completely fungible.
| notch656a wrote:
| Sounds like a good opportunity for someone to buy up bills
| from these money changers at a discount and then perform some
| international arbitrage.
| notahacker wrote:
| Even as someone who once got asked to name my own exchange
| rate if I could swap rupees for some British currency the
| local kids had begged for their "coin collection", I don't
| think there's much profit in moving damaged banknotes from
| Myanmar to the US (or even Cambodia)! Damaged dollars
| naturally find their way into the hands of tourists who
| won't have difficulty spending or exchanging them when they
| leave the country
| notch656a wrote:
| Make sense. My anecdotal experience in third world money
| changing is the banks are most strict. The gray-market
| exchangers are a little more liberal and then private to
| private transaction is the most liberal. Paraguayan banks
| straight up refuse to take certain year of $100 notes
| because they were burned by some forger years ago, so
| they just black-list entire series of notes no matter how
| crisp and authentic they are.
| onlyrealcuzzo wrote:
| The example in Florida is hard to imagine.
|
| Most spending is credit.
|
| How could that possibly be enforced in a credit-based economy?
| RobertoG wrote:
| from: https://sanaacenter.org/publications/analysis/8674
|
| "The Sana'a-based branch continued to operate under Houthi
| control, having kept the vast majority of the central bank's
| staff, informational archives and purview over Houthi-held areas,
| which include the country's largest population centers,
| commercial markets, and business and financial hubs."
|
| So, you split the country in two, one with "the largest
| population centers, commercial markets and business and financial
| hubs" but the loss of value of the currency is because the poorer
| side print more notes.
|
| I suppose that when you have a hammer everything looks like a
| nail, and when you have a website about "sound money" everything
| supports your theories.
| cryptica wrote:
| This is the clearest evidence we have of a government trying to
| sabotage the monetary system of a country to steal the proceeds
| of its citizens' labor via inflation. Thankfully for some
| citizens of Yemen, they can opt out of being exploited by
| choosing their salaries to be denominated in and paid with 'Old
| Rial' currency.
| aatharuv wrote:
| This is the exact same thing that happened in Iraq after the
| first Gulf War back in 1991.
|
| The northern part of the country, defacto-ruled by the Kurds had
| their own version of the Iraqi dinar, known as the Swiss dinar,
| as it had been printed by a Swiss bank note printer.
|
| Due to the sanctions the central Iraqi government had to resort
| to locally printed bank notes of poorer quality for new notes.
| However, these notes couldn't reach Iraqi Kurdistan which had a
| fixed money supply. The Swiss dinar was soon worth 150 of the new
| Iraqi dinars.
|
| Both of these have since been demonetized and replaced with a
| unified Iraqi-dinar, after the toppling of Saddam's government.
| RobertoG wrote:
| Well, following this view, I suppose that there is not point in
| sanctioning Russia as they are threatening them, as sanctions
| can't cause inflation.
| aatharuv wrote:
| Sanctions can certainly cause inflation. They just cause less
| inflation if the government (Iraqi Kurdistan) isn't printing
| any more paper, or more inflation if the government (the rest
| of Iraq) decided to print its way out of debts.
|
| And sanctions can certainly cause inflation if it becomes
| more expensive to import goods (or make them locally
| instead).
| RobertoG wrote:
| But what if it's the other way around? What if, because
| sanctions or war or whatever causes inflation, governments,
| in order to avoid the worse outcome of what would happen if
| they stop working totally, have to create more money.
|
| Then, inflation is what creates money, not the other way
| around, and the narrative should be a very different one.
| Laforet wrote:
| Russia had double digit inflation rate in 2015 after
| sanctions over Ukraine came into effect. It was only kept
| below 5% through a combination of devaluation, austerity and
| high interest rates, all of which have ramifications.
|
| Americans love to complain about their 7% inflation rate in
| 2021, and that is just about the average in Russia over the
| past couple of decades.
| DoreenMichele wrote:
| Interesting piece but I found the chart confusing. I don't know
| how you would do it better but the way the chart was done
| suggested to my mind that the devalued notes has actually gone up
| in value and I only sorted it out by reading the explanation very
| carefully -- that the "going up" green line actually represents
| "It takes more of these to get a dollar than it used to."
| LatteLazy wrote:
| I thought one of the issues the confederacy had was that as it
| shrunk geographically, the money supply remained the same, and
| you got high inflation without even being able run the usual
| deficits...
| Sporktacular wrote:
| Interesting but doesn't mention that the deliberateness of the
| effort by KSA/UAE to devalue the YER as an economic weapon so as
| to destabilise the Houthi control of the North. The result has
| been widely reported, and avoidable, economic famine and loss of
| life savings, as well as a mildly increased, but ineffective,
| pressure on the Houthi administration.
|
| The effort to ever more closely approximate the older notes is
| going to continue for this callous reason, more so than the
| South's purchasing power reason given, which would only make
| sense in the presence of large trade flows with the North anyway.
| WalterBright wrote:
| Once again, we get a lesson in the true cause of inflation. No,
| it is not supply chain issues, profiteers, speculators, wage-
| price spirals, energy prices, etc.
|
| It's simply an excess of money created by the government, so the
| government can spend money without raising taxes.
| DoreenMichele wrote:
| I had a similar thought. Like when Spain imported so much
| silver from the Americas and prices went up.
|
| If supply of goods and services stays stable while money supply
| increases, the result is price increases. I don't know why this
| seems so hard for some people to understand.
| WalterBright wrote:
| The US had inflation after the California and Yukon gold
| rushes flooded the country with gold.
| WalterBright wrote:
| People don't understand because they don't want to
| understand. Biden is just the latest President in a long line
| since Wilson who doesn't want to admit what causes inflation,
| because that would mean their spending policies are to blame.
|
| It's better to blame everything else.
| notch656a wrote:
| Same story everywhere. Fixing inflation is a long and
| painful process; more so the worse inflation already is.
| There's no way inflation can be unwound in one election
| cycle without popping asset prices. No politician is gonna
| want to unwind this in a timely manner because it will mean
| their certain downfall (and by the time we see the payoff,
| in several years, people will have already forgotten the
| fiscally responsible steps taken by the politicians which
| initially looked painful).
| zamadatix wrote:
| I think that's obvious as well but only because you specified
| "goods and services stays stable" whereas the parent comment
| specified they were irrelevant. There is more than one cause
| of inflation, it has to do with the ratio between the
| quantity of goods/services and the quantity of money not just
| the value of one or the other. Lately I think the majority
| has been due to the money supply changing but that doesn't
| make all of the other factors false causes that didn't
| contribute.
| [deleted]
| labster wrote:
| Cool insight, but that doesn't explain the US, where most new
| money is created by private bank loans, not printing physical
| currency.
| WalterBright wrote:
| The money supply is set by the Fed, which creates whatever is
| needed for Congress' spending bills.
| 0xcde4c3db wrote:
| Do you have any sources that describe this? I was under the
| impression that the US money supply arises from a highly
| dynamic process not directly subject to any single
| authority, especially depending on overall productivity and
| how "hot" the finance sector is running.
| zie wrote:
| That's not really accurate, the parent comment is much more
| accurate, but like all things in complex economies, the
| details get complicated fast. The Fed certainly has some
| control, but not like you imply(also one needs to define
| money supply, as there are multiple kinds involved in the
| US system).
|
| It's the Treasury that's responsible for paying Congress's
| spending, not the Federal Reserve. They don't get to invent
| money, though they do get to print it and they do get to
| create it through borrowing.
| notch656a wrote:
| Expansion through private debt used to be limited by bank
| reserve ratios. Of course now that reserve ratio is
| nominally 0, the limit imposed on this expansion is a
| little more vague and uncertain.
|
| ----------------
|
| >Used to as in when the currency was gold backed and not
| really fiat, you mean? Sure, but that also didn't work
| very well.
|
| I'm talking about fractional reserve banking. In 2020 the
| reserve ratio was eliminated (set to 0%). Was not at all
| referring to gold backed or gold standard.
| kqr wrote:
| Used to as in when the currency was gold backed and not
| really fiat, you mean? Sure, but that also didn't work
| very well.
|
| Loans in a fiat currency are not limited by reserves. If
| there is high demand for money, private institutions will
| lend money and then borrow reserves at whatever rates
| they get to cover the difference.
| rmbyrro wrote:
| Inflation is a form of taxation. A perverse one, because the
| poorer you are, the more you pay.
|
| And a lot of people on this forum still don't understand the
| value of adopting a non-inflationary currency which governments
| can't control supply.
| hammock wrote:
| >the true cause of inflation
|
| The definition* of inflation (monetary inflation). The Austrian
| distinction between monetary inflation and price inflation is
| instructive.
|
| See for example https://www.quora.com/What-is-the-relationship-
| between-monet...
|
| And from the horse's mouth (Mises):
|
| >There is nowadays a very reprehensible, even dangerous,
| semantic confusion that makes it extremely difficult for the
| non-expert to grasp the true state of affairs. Inflation, as
| this term was always used everywhere and especially in this
| country [the United States], means increasing the quantity of
| money and bank notes in circulation and the quantity of bank
| deposits subject to check. But people today use the term
| "inflation" to refer to the phenomenon that is an inevitable
| consequence of inflation, that is the tendency of all prices
| and wage rates to rise. The result of this deplorable confusion
| is that there is no term left to signify the cause of this rise
| in prices and wages. There is no longer any word available to
| signify the phenomenon that has been, up to now, called
| inflation. It follows that nobody cares about inflation in the
| traditional sense of the term. As you cannot talk about
| something that has no name, you cannot fight it. Those who
| pretend to fight inflation are in fact only fighting what is
| the inevitable consequence of inflation, rising prices. Their
| ventures are doomed to failure because they do not attack the
| root of the evil.
| notch656a wrote:
| It's always baffling to me people can simultaneously defend
| fairly liberal voluntary trade while supporting a command
| economy on one of the most important elements to trade --
| currency. Clearly building an economy on an insidious command
| denominated currency threatens the entire market.
| all2well wrote:
| How do you explain the situation in Japan? Their money supply
| has grown steadily over the last couple decades, yet they've
| seen basically no inflation.
|
| See: https://tradingeconomics.com/japan/money-supply-m2
|
| and: https://tradingeconomics.com/japan/inflation-cpi
| [deleted]
| Retric wrote:
| The normal explanation is money is a lubricant for the
| economy, as the economy grows so must the money supply or you
| get deflation. On top of that some percentage of physical
| money is lost or destroyed every year. Picture what would
| have happened if the exact number of bills in 1922 where in
| use in 2022.
|
| That said there are a lot of different short vs long term
| effects.
| nradov wrote:
| In calculating the effective size of the money supply you
| have to factor in loans marked to market. In a fractional
| reserve lending system, when a borrower defaults money is
| essentially destroyed. A lot of loans in Japan are still
| being held on the books at face value. The fact that there
| has been no inflation is evidence that many loans will
| eventually default.
| WalterBright wrote:
| Inflation is the increase in the money _in excess_ of the
| value of goods and services the money represents.
| anonporridge wrote:
| Implicit taxation without having to get consent from the
| governed.
| danuker wrote:
| But it is also explicitly taxed (if you avoid holding the
| currency). Capital gains are income.
| [deleted]
| anonporridge wrote:
| Luckily, you get a nice discount if you can stay out of the
| currency long term and qualify for long term capital gains.
|
| Basically, currency inflation is very well designed to suck
| value out of the poor and working class while the rich have
| plenty of breathing room to float through the flood.
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