The Cost of Bread

The other day I had an opportunity to speak to a political economist who worked as an MEP for 10 years. She was teaching an adult education class: I had licence to ask my niaive questions so I did.

Q: When a country is poor, why doesn’t it just print more money?

A: Because it could suffer from hyperinflation.

Q: I understand that, that the value of notes and coins gets reduced, but if it happens throughout the country, doesn’t the value of things stay constant? Doesn’t a loaf of bread have a certain value to a nation, regardless of how many dollars, euros, yen it costs?

A: When you get hyperinflation it makes people panic, then they want to get their money out of the banks. The banks always have less cash in the vaults than on their books, and many of their holdings are out on loan, so if people rush on the banks the system collapses

So the measures against hyperinflation aren’t about maths as much as managing human behaviour. Interesting …


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