Arnold Kling

Hyperinflation Trauma

Arnold Kling, Great Questions of Economics
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In an article on Argentina on the verge of currency devaluation, The Washington Post describes how traumatized the citizens are by memories of hyperinflation ten years earlier. Considering that the 1930's hyperinflation in Germany still casts a shadow on that country today, this trauma is not surprising. Hyperinflation represents a serious betrayal of trust by a government. It is something akin to letting crime run rampant.

The Argentine solution to hyperinflation ten years ago was to rigidly tie their peso to the U.S. dollar. This peg no longer is a good idea. Plenty of countries are able to conduct monetary policy in such a way as to avoid hyperinflation without fixing their exchange rate. However, the Argentinians interviewed for the story do not seem to think that their government will be able to pull it off.

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