HN Explorer

Crypto and Fiat Currencies

8 points by stuartdaa ↗ HN
Does anyone else wonder why economists, central bankers and other market commentators talk so much about exchange rates, and inflation targets; and never talk about the half-life of currencies?

I find this quote from a central banker sobering… 1 Based on consumer price data, an item that cost R1 in 1960 would today cost R96.79. The rand has effectively lost 99% of its 1960 purchasing power. Given the high inflation in the second half of the twentieth century, figures for the major currencies are similar but not as extreme: the US dollar has lost 88%; the Swiss franc has lost 76%; and the British pound has lost 95% (based on the World Bank consumer price data).

8 comments

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themodelplumber
Just idle talk here but I think there's a lot in the name. Currency is intuitively simple to model and manage as flow.

Look at all the well-used technical models based on fractal self-similarity, from Elliott Waves to simple bear wedges within bear wedges; these ideas must seem pretty daunting for someone looking at applying a more linear and terminal-flow-based model of "hey, things are probably just going to die out".

BTW do you ever wonder why so many water-ecosystem words are used for money? Banks, currency, forecasts...clams even...funny but IMO there's a kind of natural fit there.

stuartdaa
Nice! Plumbing such depths as I raised.... heh heh. BTW scarcity of (usable/potable) water is a bigger thing than many realise.

Please expand a little on your first sentence - the point you are making on the name/s. Thanks

jstx1
> talk so much about [...] inflation targets; and never talk about the half-life of currencies?

Aren't they the same thing? The half-life you're describing is just the end result of compounding the inflation rate over time.

nuerow
Submitter, you cannot discuss a currency's half-life without discussing inflation.

In fact, a currency's half-life is nothing more than a fancy arbitrary value determined from inflation: the time it takes for a currency to lower it's value by 50%.

Also, economists do discuss it, specially within the scope of hyperinflation, but it so happens to not add much value to the discussion, if any at all.

slowhand09
Food for thought. In 1964 you could take two silver dimes and purchase ~1 gallon of gas. Gas was ~20 cents per gallon. Dimes were 90% silver.

Fast forward to 2021. You could take two silver dimes to a coin dealer, sell them for fiat currency, and purchase 1 gallon of gas. Gas is ~$3.50 per gallon, silver is ~$23 per oz, and 2 silver dimes from 1964 contain ~5grams of silver.

But using 2021 dimes, you need 35 dimes to purchase a gallon. Precious metals have kept their value. Fiat currency has lost nearly 90% of its value since moving off the gold standard. The government needs more money, they print it. Based on their promise to pay it back later, with cheaper inflated currency.

mikewarot
An inflation target of 1% implies a half life of 69 years

An inflation target of 2% implies a half life of 34 years

stuartdaa
All good points, thank you. A further question:- if “cost of living” inflation is low, and yet asset inflation is high, who is helped by inflation tracking ignoring the asset inflation? To ask in another way :- shouldn’t CPI baskets include the required quantum of spend on portfolio assets, alongside the groceries etc?