HyperInflation is Eating the World – Terrence Hooi

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Sudan’s amounted to 63.4% in 2019 — Is Hyper Inlfation Eating the World?

Marc Andreessen penned his famous “Why Software Is Eating the World” essay in The Wall Street Journal five years ago.

Today, tech or non-tech corporation quickly understood the idea that “every company needs to become a software company”. It is easy to think especially in the First World Countries that software is the solution for everything.

However is considered almost a cliché in the innovation economy that software is the foundation. Everyone knows that. But people might take for granted for instance the stability of the US Dollar.

People living in developed economies might not feel the effects of hyperinflation and may take for granted the access to stable currencies. Imagine if you live any of the following countries with hyperinflation every year, these people literally have to go into the street to exchange their local currencies for dollars in black markets. In some developing countries, the government imposed capital controls to stop people from moving hard currency out of the country.

The Financial Times reported in 2013, buying day-to-day necessities like rice, oil, flour, milk, medicines and toilet paper becomes extremely difficult. People in the country are literally losing body weight (24 pounds per year) with 90% poverty rate because the currency is agonisingly misaligned. Venezuelans are going hungry. 6 out of ten said they are going to bed hungry because they don’t have enough money to buy food.

Zimbabwe’s central bank allowed its citizens to exchange the country’s almost worthless currency for US dollars. Its 100trilliondollar note is worth just 40 U.S. cents.

More than a hundred years ago, Argentina was the eighth-largest economy in the world, rivalling the United States. To cure inflation, the Argentine government in the twentieth century resorted to printing money like crazy to finance its welfare state. Decades later, Argentina was facing succession of currency crisis called hyperinflation where inflation reached as high as 5,000%. In fact, the government tried to criminimalize anyone outside the administration to publish an inflation figure that contradicts the figure shown. This ultimately failed as devaluations of the Argentine peso has destroyed public confidence which is hard to restore.

In countries like Zimbabwe the Zimbabwe dollar was worth more than the U.S dollar when it first became independent in 1980. Today, the 100-trillion dollar Zimbabwe bills (worth 40 US cents) has become a hot souvenir item among tourists. Imagine how much wealth has been destroyed instead of creating wealth with monetary expansions.

If printing money created wealth, there’d be no poverty left on earth.

1.) What is Money Really?

Throughout history, money has been used to facilitate trust between both sides in a transaction. Capital & investment flow into countries with stable money like the US Dollar.

Stable currency is the foundation of prosperity. Stable money gave birth to innovations like the steam engine, railroads and the industrial revolution.. When money is made artificially unstable by government, the information ends up being corrupted.

During the 2008 global recession, the U.S federal government implemented strategies to lower interest rates and quantitative easy that resulted in a dramatic drop in the value of the dollar. The fact is, by holding your wealth in cash, it is actually eroding. Say you had $100,000 cash in year 2000, in 2019 the value is only around $51,000. In other words, 51% of the value of your money has evaporated based on average inflation per year of 3.36%.

2.) Why Dollarization for Developing Economies

As of this publication in Q3 2019, Argentina’s yearly inflation is 47.6%, Egypt 20.86%, Nigeria 12.09%, Venezuela 929,789.50%, Sudan 63.29%, Yemen 41.77%.

When people lose trust in a currency, this gives rise to alternatives like the now-banned Liberty Dollar and the more recent Bitcoin and other cryptocurrencies. However, price volatility is one of the biggest barriers to adoption of cryptocurrencies like the Bitcoin. The failure of widespread adoption of Bitcoin might include the fact that Bitcoin is unregulated and anonymous. If users cannot be sure the purchasing value is a stable measure of value, cryptocurrency cannot function as an instrument of trust.

According to Gresham’s law, people tend to hold the “stable” or accurately valued money while dumping the “volatile”. So how do we create trust and remove the barrier to widespread adoption of cryptocurrencies? Stability- stability is a fundamental block if cryptocurrency is to fulfill its role as an instrument of exchange in the marketplace. Our primary objective should not be about speculating in a cryptocurrency but to create one that preserve our money. Biti’s mission is to create stability and a result of this process might encourage the formation of new capital needed to finance the Apples, Googles of tomorrow around the world.

3.) When Money goes Worthless

This can be traced back to ancient Rome where the denarius was debased by one emperor after another and eventually the denarius became a piece of junk. Inflation started going up, and like in Venezuela or Zimbabwe today, savings vanished. When people stop trusting money, and trust is non-existent, businesses fail.

So why in 2018, socialist Venezuela, a country that had 10 major devaluations since the 1980’s went as high as 1,300,000% inflation? The printing of money has only managed to meet the short-term need of government’s needs but has ultimately destroyed faith in the currency. When currencies are unstable, it makes it very difficult for local citizens to meaningfully invest in local businesses. Without a reliable currency, exports will drop and ultimately bring in less revenue slowing the entire economy.

Bottomline

Today we could hear startups solving various problems, it is easy to get hung up with the gig economy, Uber of this or that, or chasing the Next Facebook. Hyper inflation is Real and it is happening every day which affects millions are people all around the world.

What if we could solve this one problem that could unlock solutions to thousands more? We believe a unit of Money should be portable, easy to store and most importantly, must be stable.

This work is a first step in this direction.

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