The E-Sylum:  Volume 10, Number 13, April 1, 2007, Article 19

BANKNOTES, INFLATION, AND CURRENCY REVALUATION

An article published this week by the libertarian Mises Institute 
mentions the new "radioactive money" of Iran mentioned in an earlier 
E-Sylum issue.

"The Islamic Republic of Iran has just issued a new 50,000 rial 
banknote. An eye-catching feature of the banknote is the atomic 
symbol on its reverse side, an orange-hued representation of six 
electrons in orbit. 

"While less explicit than its atomic symbol, another part of the 
banknote speaks to the continuing break-down of the Iranian economy. 
The denomination of the note — 50,000 rials — is much larger than 
that of the highest banknote previously in circulation — 20,000 rials; 
which 20,000 rial note was only issued three years ago. In both cases, 
the notes were issued because rampant inflation was making the 
currency of the country awkward for use as a medium of exchange.

"Prior to the revolution, it took 70 rials to buy 1 US dollar. Today, 
the official exchange rate is 9,300 rials to 1 US dollar, and there 
is a vibrant black market in dollars."

[The article discusses similar inflations in Argentina, Brazil, 
Yugoslavia and Zimbabwe, and pictures an interesting 1,000 cruzado 
banknote of Brazil overprinted 1 new cruzado, illustrating how that 
currency exchange worked in practice. -Editor]

"Argentina and Brazil mastered the art of legal pick-pocketing, and, 
thus, proceeded to run very rapid rates of inflation for prolonged 
periods of time. However, so as to prevent hernias in the use of money 
as a medium of exchange, they had to print larger and larger 
denominations of banknotes (as Iran is now doing), and even they had 
to periodically call in the outstanding money and exchange it for 
new money at a ratio of, e.g., 1,000 to 1.

"Over the years, Brazil exchanged cruzados for cruzerios, new cruzados 
for cruzados, cruzerios reals for new cruzados, and reals for cruzerios 
reals. Thus, Brazil was able, over an extended period of time, to 
aggregate even more inflation than the former Yugoslavia, or in Germany 
during the short-lived period of the Weimer Republic. In the ancient 
world, Rome had similarly mastered the art of legal pick-pocketing 
through debasement of the coinage. Over time, the denarius of Rome 
became increasingly orange, as the coins were recast with less silver 
and more copper, with periodic exchanges of nearly all-copper denarii 
for new silver denarii at exaggerated exchange rates."

To read the complete article, see: Full Story

  Wayne Homren, Editor

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