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.
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.
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
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.
The bitcoin protocol seems to go out of its way to ensure that's not true. Bitcoin balances can never be consolidated - you don't pay bitcoin out of a wallet with fungible coins in it; you pay bitcoin out of a globally-unique transaction pointed at the wallet.
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.
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.
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).
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.
There's a different, but very funny story involving another currency, the Maria Theresa Thaler of 1780 (MTT). It was originally struck during the reign of Maria Theresa over the Austro-Hungarian empire from 1740-1780 -- the year of her death. However, it became a major trade currency during her lifetime and the MTT (specifically ones with 1780 on them) became accepted throughout various parts of the world even until today.
The funny thing is, millions of MTTs have been minted up through the 20th century (some estimates put it near a billion coins). They have slight variations, depending on minting details and a few other odds and ends. As a result, MTTs dated 1780 are the only ones accepted. For many years they were also heavily counterfeited creating a major oversupply of them, but also since various countries have continued to produce them conflating what a "counterfeit" is with actual money (the value is mostly in the metals, and counterfeits will use cheaper materials).
They're fun for collectors to pickup, and they're usually worth about the $20 or so the metals in them are worth.
In Zimbabwe most merchants accept a variety of currencies: namely American dollars, Botswanan Pula, South African rands, and the new Zimbabwean dollar. There are of course more that are accepted. I’ve gotten away on more than one occasion using Euros and pounds. It leads to a gigantic forex black market and pain all around in rather unexpected ways.
"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.
The article doesn't say that, thankfully, I was looking for that error as well: they carefully note that its because one side has a fixed money supply, the other does not.
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.
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."
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...
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 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.
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.
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.
However most of the inflation that happened to the GBP between 1750 and 2022 happened in the last 100 years. £100 in 1750 was worth £400 in 1922 and £24000 in 2022. That's 4x in 172 years vs 60x in only 100 years.
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.
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.
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.
>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.
If inflation is "inflating the amount of cash in circulation" then it doesn't seem like something that just happens (i.e. 2% inflation per year is totally normal) but something that is done deliberatly by people.
Why is it done? Why would anyone, especially rich people, that their riches get worth less?
> If inflation is "inflating the amount of cash in circulation"
It's not, except when Austrian school adherents are mistaking equivocation for argument. “Inflation” without modifiers means consumer price inflation. Monetary inflation is a thing, but a different thing. Monetary inflation can contribute to consumer price inflation (that's often it's express purpose, compared to not having the policy, as when QE was adopted to prevent deflation), but it is not what “inflation” without qualifiers means outside of intentionally-deceptive rants from Austrian-school adherents
The rich proportionally have less wealth in $, so this affects them less. Additionally, slight inflation tends to produce economic growth, furthering the value of their investments.
Not just spend, but invest. Consider the reverse situation (deflation):
If you just hide your money under your mattress it is worth 2% more per year. If you are primarily concerned with protecting your wealth, why would you invest in a company that might lose your money? Sure you'll invest some just to diversify and attempt to see larger real returns, but most of your money you can just hold as cash.
With modest inflation, you lose wealth if it is not invested, so people will invest in an attempt to preserve their wealth (with real returns being a bonus).
With extreme inflation, the currency is no longer stable enough to be used as a store of wealth, so you will try to get rid of money as quickly as possible (wile paying off debts denominated in that currency as slowly as possible).
Exactly. If holding onto money made it go up in value, then why would you ever spend it? If you had BTC in 2010 and knew what would happen to its value over the years, would you still buy a pizza with it?
If I was really that hungry, then maybe I'd walk to the grocery store & get some store-brand pasta instead of getting pizza delivered. It's not like spending money is an absolute thing where you spend all or nothing. If I know it's worth my while to save, then I'm not going to spend as much as I would have if I knew that my savings was becoming worthless.
There's a theoretical relationship between the inflation rate and the unemployment rate [1], and the Federal Reserve has a dual mandate which is price stability and maximal employment. You may not agree with the theory, but the Fed's policy is supported by an economic theory.
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.
Command economy of goods/services/financial instruments leads to inefficient markets.
In systems where currency is subject to command economy (perhaps because it is in control by a minority of elected or unelected officials, who have a monopoly of control of the entirety of a national currency), it could result in additive inefficiencies to the entire market if the market is predicated on using that currency in trade. In general industries that are both a monopoly and centrally planned by governance yield sub-optimal results.
Some people generally realize this when considering other goods, services, and financial instruments but oddly there are a number of those same people who fail to consider applying this also to currency.
Thank you. Currency is not subject to a command economy. Governments don't have a monopoly on the issuance currency. Private entities are free to issue currencies.
I'm compelled to use US currency. Explain how I can trade 100% in another currency without being required acquire US currency to pay taxes on the profits on my trade.
> Private entities are free to issue currencies.
Yes and no. The government has a monopoly in some areas. For instance, Liberty Dollar was accused for issuing coinage, despite that coinage never representing itself as legal tender issued by Treasury. [ 18 U.S.C. § 486 ] DoJ suggested at the time they closed in on Liberty Dollar that they could interpret their constitutional authority as also going over restricting private notes in general, but I think the coinage was just their easiest route to secure a felony so they never had to resort to other means they believed they had available. The conviction of Liberty Dollar's owner has been interpreted by some as to set the precedent that silver coinage, when used as a currency, is a violation of 18 U.S.C. § 486.
There's also the fact of (USD) currency being legal tender for debts (public and private), and it certainly has a position of privilege in that regard. I'm not sure if I could refuse USD as payment for a judgement, if say a contract or other case were taken to court.
You also may want to view a glimpse into what the apparatus has to say about private issuance of currency [0]:
“Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism,” U.S. Attorney Tompkins said in announcing the verdict. “While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country,” she added. “We are determined to meet these threats through infiltration, disruption, and dismantling of organizations which seek to challenge the legitimacy of our democratic form of government.”
While it may be technically legal, in practice you may be going to bed every night knowing that both the FBI and US Attorneys are going to bed thinking about how you're a 'domestic terrorist' and dreaming up how to make your life hell. In practice if the state apparatus sees what you are doing is wrong they can find a statute with which to destroy you, if they deem it worth their time.
Freedom to use a currency doesn't mean that you can force others to accept said currency. Depending on your choice of a currency you may find nobody that will accept it. Yes, this means you'll be compelled to use whatever currency is the generally accepted medium of exchange in the area where you live. No, that doesn't mean that you live in a "command economy". Freedom works both ways.
I control-f our conversation and the only mention I saw of 'free' or' freedom' was from yourself, not me. Are you debating with yourself?
If freedom to use a currency means that you can't force others to transact in it, then by your own definition we don't have freedom. I'm forced to pay taxes in US Currency whether I want to or not, whether I consent to it or not, even if I have no US currency and never once traded in it nor do I consent to any transaction in USD. I'm compelled to obtain USD.
[freedom] Is a very nebulous concept, I guess it's up to your interpretation as to whether our topic concerns freedom. But sure, it's probably not unreasonable to bring up the comment of freedom, I just wanted to make clear you were the one that introduced the notion of freedom. I find discuss on word 'freedom' are often incredibly difficult to get anything useful out of, because it's such a difficult word to define and work with.
I was talking about command economy of the compelled currency USD, which holds a priveleged legal position in that unlike any other currency in US I have a legal duty and responsibility to transact in it (taxes are the most obvious of these).
The combination of the compulsion, plus the central planning performed by a minority of elected and unelected government officials makes it a 'command economy' of USD for which there is no substitute; it is monopolized. It is simply illegal to trade and use a private currency as a full substitute for USD, and doubly so if you mint coinage.
I believe this monopolized command economy has yielded sub-optimal results, such as the temptation for governments to deliberately debase currency.
I didn't introduce the notion of freedom. You introduced the notion of command economy which implies a lack of freedom. A command economy, or more commonly a planned economy, is an economic system in which a central planner decides what to produce and in what amounts, as opposed to a market economy, where such decisions are made by the producers themselves according to their own judgement. A market economy is not incompatible with the public provision of certain goods and services. In fact, most governments provide policing, armed forces, education and health services, and currency. None of that implies that the economy is a command economy. Nor is it necessarily the case that such public provision of goods leads to sub-optimal results.
I never meant to imply the entire economy is a command economy. I am stating there is a command economy for currency (and parallels in some other nations), and that weaknesses in that economy on which the greater economy may depend can create subpar results in other markets as well as the market for currency itself.
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.
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.
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.
Except that Japan is famously also experienced very low economic growth (plus the same recessions everyone else experienced) over the last two decades. Its money supply doubled though...
Which is why theories of inflation which insist that inflation is equal to how much money the government created are wrong, and theories which don't dismiss the role of other factors aren't.
(especially if the "government printing" theories also fail to understand that the government wanting to spend money isn't dependent on "printing" - at least not in a country like the US and especially not at current bond interest rates - and the private sector wanting to borrow more from banks is)
Or on a more technical level, the interpretation of the Quantity Theory of Money which holds that prices and transaction volumes are relatively steady and so prices are always driven by the money supply is unequivocally falsified by the experience of Japan. Also the US (where inflation didn't double prices of everything over the last couple of years, it was just a bit above normal levels, and you didn't experience deflation or shrinking asset prices when the money supply shrunk a bit a few years ago) or basically any other country and era....
I'm no expert on the Japanese economy, which means I'm not ready to accept the claims about it at face value. Too many times I hear such claims about something I know about, and know why the claims aren't correct or the conclusion is not correct.
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.
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.
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.
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).
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.
Just think about where money comes from that funds deficit spending. There ain't no such thing as a free lunch.
For an in-depth treatment, see Friedman's "Monetary History of the United States". It's not an easy book to read, but it's full of all the information you'll ever want on the topic.
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.
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.
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>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.
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.
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.
That's an illusion. Wages rise in real terms (discounting inflation) when productivity grows. There's a whole body of economics observations and literature on that and we should not ignore it.
If you owe debt without inflation adjustment, that's a protection against inflation. But it requires reasonable amount of financial literacy to be smart and know exactly how and when to use debt as a hedge against inflation.
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.
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.