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I read a while ago that some petrol stations where accepting credit card payments in Venezuela and it got me thinking...
When you get a run at the bank and everybody withdraws their cash, price of good goes up and the then actual value of the local currency goes down.
Would this situation be avoided if the country was cashless because you wouldn't need to withdraw you money as it would be held in stable conditions?
I think it might because in theory there in infinite cash circulating in the economy. I say infinate cash, i mean infinetley more than just banknotes/fiat currency.
If you can’t withdraw it, it would just disappear wouldn’t it? Prices would stay the same, but no one would have any way of paying for it?
Would you not just use your debit or credit card to pay for it?
You just can't keep it under your mattress.
I don't think it would stop it, it might actually speed it up.
If you can't get at physical cash you're going to spend it on stuff even quicker as it devalues in the bank. The reason people withdraw it is to buy commodities that are increasing in value. Whereas if banking collapse is part of the problem people only withdraw the cash to keep it safe, not spend it.
it would just disappear wouldn’t it?
Only if the bank collapses, which would be less likely if you couldn't get physical cash out to exacerbate the problem and make it self fulfilling. Not the same as hyperinflation but potentially part of the spiral of events.
inflation > people withdraw cash to spend > further inflation of prices > bank begins to collapse > more withdrawals > more inflation > banks collapse > government injects cash to help liquidity > hyperinflation.
Maybe the OP is onto something.
Can the card machines accept payment in other currencies?
So if a litre of petrol cost, say 10 Bolivars or 1USD one day, and 100 bolivars the next the person with the card could still pay 1USD, whereas the person paying cash would now need to have 100 Bolivars?
If inflation ws getting silly the retailers would be happy to take payments in more stable currencies I guess, Rands were quite ueful in Zimbabwe for example.
Or would the bank account the card was linked to have to be in that currency too? It would still take 100 Bolivars when the guy paid 1USD on day two.
Ignore me
When ... everybody withdraws their cash, price of good goes up
I thought it was the other way round, price of goods goes up so everybody withdraws their cash, so that they can spend it while it's more valuable.
I guess if prices are going up then doesn't matter if you pay with cash or card, prices will still go up.
Using card will propel inflation beyond what cash would so make it worse like @thisisnotaspoon says.
So it is the cause of the inflation and the govs ability to keep it under control that matters then.
Seems to be that printing money causes inflation if gdp doesn't keep up then it can tip over to hyperinflation.
Yes you could, although hyperinflation has historically occurred in less developed more cash based countries.
Hyperinflation occurs when the government prints money to buy its bonds. The supply of money increases causing the value of each unit to fall.
At some point consumers decide they only want to hold cash for the minimum time necessary and go straight out to buy hard goods. Velocity of money increases which exacerbates the inflationary spiral.