If you live in the west, you likely take financial stability for granted. Currencies like the US dollar, British pound sterling, and euro are the basis for international trade, have large economies behind them, and relatively stable monetary policies. The same cannot be said for the rest of the world.
A small example of this is Brexit, where British citizens decided to leave the European Union. The British pound fell dramatically on the news. But even this price movement (seen in the chart below) is relatively mild.
In this article, we’re going to explore financially unstable countries around the world and then take a look at how crypto may be able to provide part of the solution.
German Papiermark (1923s)
In the 1910s and 1920s, the Weimar Republic (the precursor to modern Germany) used a currency called the papiermark. Colloquially referred to as the “mark”, this paper currency was originally begged to the price of a gold mark. That said, after the end of World War I, the currency fell into hyperinflation.
In 1914, 1 paper currency mark could be traded for 1 gold mark. By 1919, the exchange rate was 10 paper to 1 gold mark. In July 1923, it took 101,112 park mark to purchase 1 gold mark — and by September 1923, the exchange rate was 13 million to 1!
The money became so worthless that people burn papiermark to fuel fires or as insulation in their walls. The paper had more value itself than as a medium of exchange!
Iraq Dinar (1987–1995)
More recently, the Iraqi Dinar went through a period of sustained hyperinflation. From 1987 to 1995, the Iraqi Dinar had an average annual inflation rate of 315%! This means that if a good cost $1 at the beginning of 1987, it would cost $3.15 at the end of the same year. The cost of basic goods and services became too much for most citizens to bare.
Zimbabwe Dollar (2008)
Zimbabwe went through the most dramatic recent currency crisis. The numbers are scarcely believable. First, we’ll start in 2009, with the news that Zimbabwe officially removed 12 zeros from their currency. In effect, 1 trillion Zimbabwe dollars became 1 Zimbabwe dollar.
Why would they do such a thing? Well, because the central bank routinely printed 100 trillion dollar notes but these bills were not valuable enough to purchase a single loaf of bread! From the early 2000s, Zimbabwe experienced rabid hyperinflation. In November 2008, the estimated inflation rate on a monthly basis was 79,600,000,000% (Cato Journal).
As mentioned in the same Cato Institute source, “Hyperinflations have never occurred when a commodity served as money or when paper money was convertible into a commodity. The curse of hyperinflation has only reared its ugly head when the supply of money had no natural constraints…”
How Crypto Can Benefit Financially Unstable Countries
Cryptocurrencies and blockchain create a unique opportunity for countries that are fraught with inflation, unstable economies, high unemployment, or embezzlement. For example, Bitcoin (BTC) has a set number of coins that can be mined: 21,000,000. Each 1 BTC coin can be divided into 1,000,000 segments, in the same way that a US dollar can be divided in 100 cents.
By having a fixed supply of coins, the Bitcoin protocol ensures that hyperinflation is not a possibility. The BTC:USD price can be volatile, but at the end of the day, two counterparties must agree to trade at that price. In a central bank, a single decision can add billions (or even trillions!) to the money supply, devaluing the currency that its citizens hold.
Furthermore, because each transaction is written to an immutable ledger, it becomes much more clear where funds originated and where funds were sent to. Proving that somebody defrauded another or embezzled funds beyond a reasonable doubt because more obvious.
Lastly, because cryptocurrencies are not tied to a specific geography, language, or federal government, international trade can happen much more freely. Today, it is common for countries to adopt stable currencies from other nations. Zimbabwe, for instance, gave up its own currency and locals use the South African rand and United States dollar (among others) instead.
Similarly, countries can either create their own digital currency or adopt common cryptos in order to facilitate international trade with fast settlements and low transaction fees.
At Hilo, we’re developing the first crypto social network. Hilo combines the best parts of an online community with crypto news, portfolios, and more. Together, we hope to create the best way for newcomers and experts alike to chat and discover new cryptocurrencies and token projects.
As crypto becomes more widely adopted, we anticipate that more governments and central banks will start to take blockchain technology more seriously.
Interested in learning more about crypto or Hilo?