Hyperinflation vs electronic payments?

Discussion in 'Economics' started by miamicanes, Nov 19, 2008.

  1. Has there been any country that's experienced real, honest to god hyperinflation (not just "high" inflation... I'm talking about Zimbabwe-scaled hyperinflation) where debit and credit cards were able to be used nearly everywhere, with pervasive internet access and realtime price information readily available to consumers?

    Traditionally, the biggest real-world daily problem for people living in a country with hyperinflation hasn't been rising prices per se... it's been the need to spend substantial amounts of time every day babysitting their money. Depositing every cent they don't need right this instant so it can compound along with inflation. Withdrawing suitcases and wheelbarrows full of money to go shopping. Lines at the bank and panic-buying.

    On the other hand, if your free cash were in a checking account paying 4,100% APR to counteract the ~4,000% annual rate of inflation, and you were able to pay everything from parking meters to mortgage payments via debit card or electronic funds transfer (with nearly-instantaneous funds clearing... something that's been technologically possible for years), it would represent a MAJOR shift from traditional hyperinflation. Your biggest problem would be less a matter of logistics than just trying to keep prices straight.

    Hyperinflation could also present lots of interesting new business opportunities. If gas prices were increasing by dollars per day (along with everything else), how much would you pay (in current dollars, of course) for a program that takes advantage of your PDA phone's internet and GPS, to query the prices of gas at nearby stations and use their observed rate of price increases to figure out which one is the most cost-effective to visit, taking drive time into account?

    By the same token, what impact would the availability of applications like that have on the hyperinflation itself? In the past, one thing that fueled ongoing inflation was the perception that everyone else was increasing prices, too. If you (as a business owner) literally knew from second to second how prices up your entire supply chain affected your costs, you knew how much your competitors charged, and (most importantly) your CUSTOMERS knew how much your competitors charged, too... well... that changes the rules quite a bit.

    For the first time in history, we might get to see what happens in economic conditions that would traditionally spark hyperinflation, but with consumers armed with the kind of realtime pricing information that has never before existed to exert downward pressure even as costs increase.

    Among other things, businesses like Amazon.com (if they can keep their shipping costs under control, possibly by merging with someone like FedEx or UPS) would be in a SPECTACULARLY good position to profit from hyperinflation, because consumers could directly compare prices in stores to online retailers, and instantly lock in their prices upon payment.

    Food for thought :)
  2. I never got the impression that bank interest rates actually kept up with the rate of hyperinflation. Read some of the stories here. People who just kept cash in banks during hyperinflation were nearly wiped out.
  3. Well, I'm basing most of my assumptions on what I've been told by parents of friends who lived in Argentina during the late 80s... a point when ATMs were becoming common, but electronic payment processing was still in its infancy.

    Hmmm. The more I think about it, the more interestingly paradoxical it becomes. If the Fed were going crazy printing money, it would obviously feed inflation. But if consumers could use PDA phones to engage in item-by-item bargain hunting (possibly purchasing via internet and paying via debit card to lock in the price, then going to the store to take delivery), it would subject merchants to INSANELY cutthroat price competition.

    The only kind of stores I can think of that could even survive a situation like that would be an Ikea-like Amazon-ish retail store, where you're expected to make your purchases online, then go to the store and scavenge through the warehouse yourself to actually get the items. It would mean they wouldn't have to worry about putting prices on items in the store, because customers would have paid for the items before even setting foot inside. It would let them eliminate 99% of their cashiers, and would reduce just about every profitable store to the ambiance of a Sam's Club (if you shopped entirely on price and bought online, the appearance of the store itself is almost irrelevant).

    It would ALSO probably make companies like Mastercard and Visa the most profitable companies on earth. If every item in a grocery cart ends up getting paid for in realtime, with a small transaction fee per micropayment, whomever's collecting those payments is going to have one hell of a revenue stream.
  4. Bank rates don't keep pace with inflation, let alone hyperinflation.
  5. Hyperinflation has to do with confidence & supply. I dont see how it has anything to do with electronic payments vs cash and all that.

    Its sort of like...lets say i start hoarding gold at 750 per ounce because I am scared the dollar will start falling...Gold goes to 1,000. Do i sell? not yet...gold goes to 2,000. Do i sell now? Tempting, but i've noticed that the costs of goods are getting more expensive also...maybe i will hold my gold a little longer. Gold then spikes to 10k. I know something is seriously wrong and no way am i going to trade my gold bars for worthless dollars. Only thing is, the rest of the world is saying the same thing. The less people that want your dollars, the more you gotta pay them to trade. Doesnt matter if its gold/food/ or a new big screen TV.
  6. They might not be linked in lockstep or by force of law, but they HAVE to eventually try and keep up, or they'll end up losing their deposits. Banks are subjected to stiff liquidity ratios, and are as leveraged as they can legally be. As long as every dollar withdrawn by a depositor destroys ten dollars of the bank's liquidity, banks will be doing anything and everything they can to attract deposits, even if it ends up destroying them in the process.

    I was only in elementary school at the time, but I still remember seeing ~5% interest on bank savings accounts around 1980, and I'm pretty sure I remember seeing 6-7% or higher rates on CDs as recently as high school.
  7. > Hyperinflation has to do with confidence & supply.
    > I dont see how it has anything to do with electronic payments vs cash and all that.

    Simple. Thanks to the Fed, nobody in America will EVER lose their deposits to a bank failure (at least, not the first $100k) -- even if the Fed has to outsource Dollar-printing to 15 other countries to keep up with the demand, and ends up inflating the Dollar's real value into oblivion while doing it. Ergo, no runs on banks, and no direct consequence to depositors if their own bank happens to fail. Right there, that eliminates 80% of the problems faced during the Depression and in Weimar Germany. The only task left is for banks to keep their liquidity ratios satisfied by paying sufficiently high interest to keep attracting deposits... and making it back by charging extortionate interest and fees to their credit card customers.