How do people deal with this in real life? I mean, is there a way to safeguard savings in such a scenario, or have enough money for day to day purchases like food ?
In this case, I think a new money supply is needed or no one will want to sell anything, as they’d be stuck with a much more depreciatimg asset.
I have a simple definition of money that I haven’t seen anywhere else:
Money is the most liquid asset in an economy.
What would that be in Venezuela at the moment? Rice?
Yes indeed, that's exactly how they solved this issue in Brazil: https://www.npr.org/sections/money/2010/10/04/130329523/how-...
[0] https://en.wikipedia.org/wiki/Assignat [1] https://en.wikipedia.org/wiki/Early_American_currency#Contin... [2] https://en.wikipedia.org/wiki/Reichsmark
You can only get so many officially though, and it's hard, so the black market is huge but the rates are very high.
Some people earn in dollars, I've spoken to a doctor for example, who now works making machine learning training data on several platforms just to earn in dollars (like tagging images, etc. like MechanicalTurk).
It's such a waste of potential.
(Oh and another fun one was always when my grandma tells of the month where the money wans't enough for a month they had to live of their own potatoes exclusively for 2 weeks cutting into their income)
Coping mechanisms:
- Money in saving accounts gets instantly shifted into more stable financial assets so the "returns" are approximately the inflation rate.
- Banks get really good at working fast. We had same-day nation-wide cross-bank settlement of checks.
- "Proxy" stable semi-currencies are used. The government would post several daily indexes like UFIR, TR, which could be used to refer to approximately stable values over a period of time. (one of those indexes, URV, eventually became the currency that is used today.)
- Products don't have prices stamped on them. For example, monthly magazines would have alphabetic codes that could be converted to their actual cost by looking at a table which was updated every few days. (You can see the remains of this system in used book stores where books are sometimes still stamped with small zodiac signs, though the tables are no longer updated)
The basic flow of life is: get paid, _immediately move money to a bank account or you are dead_, get used to the idea that value denominations increment over time. In practice you are constantly thinking in terms of indexes rather than the "real" monetary value.
So the "bank account" you are refering to is (or is a practically automatic gateway too) one of those "more stable financial assets" you mention above.
The fact that the banks can be trusted to do that is a sign of some kind of orderliness. I wonder if such an option exists in Venezuela right now.
The urgency of payment was handled implicitly by the banks. Salary payment was traditionally done using checks (back in those times, later bank transfer) where one would go personally to the employer's treasury, get a check, and absolutely had to go deposit that check on the same day or lose a non-trivial chunk to inflation. Settlement happened on the same day before midnight. (A system based on physical pieces of paper and signatures moved money faster in the 80's in Brazil than electronic bank transfers in Europe today.)
As for deciding what amount should be paid: there were rules to define by how much salaries would grow month after month, compensating for inflation, so it would even be possible to prepare the checks a few days before pay day. Inflation was high but the inflation rate wasn't that unpredictable month-to-month.
For the other 99% of the population, you just can't deal with it. Venezuela is literally a failed state right now. Even well-off people literally cannot afford to buy bread and rice, never mind "luxuries" like medicine.
Just to put the 1 million bolivar coffee in perspective - the current monthly minimum wage is just over 5 million bolivars.
We often read about these cases of runaway inflation and market collapse, and from the way they're described, it seems logical that the result would be completely antithetical to human survival. And yet, somehow, these societies do seem to stagger along. The question is: how? What is the day-to-day reality for people in these places? How do they get the food and water necessary to stay alive?
[1] - https://www.reuters.com/article/us-venezuela-food/venezuelan...
My guess is they are people with government connections that allow them to buy dollars at a discounted price and then sell them for a huge profit.Or just pay directly in dollars. In any case, the government has the security forces and a huge civilian militia, so it won't starve, no matter what is happening to anyone else.
There's thousands of people everyday that illegally emigrate on foot to Colombia, Ecuador, Peru, etc. Some people have been able to acquire foreign currency in the black market.
He used an example of buying a can of tuna as soon as you get paid. If you wait you won’t be able to afford that tuna with the same paycheck again and even if you don’t want the tuna now you may need it later, or it could be more useful for bartering than cash.
Basically you get rid of your cash in favor of tangible goods ASAP at every opportunity.
If you earn in the local currency you're toast.
Purchases? You need to barter.
https://www.theguardian.com/world/2018/feb/19/venezuelas-new...
https://www.reuters.com/article/us-crypto-currencies-venezue...