Selected Essays of Axel Leijonhufvud
Economists of the Twentieth Century series
Chapter 10: On the use of currency reform in inflation stabilization
10. On the use of currency reform in inﬂation stabilization* A successful deceleration of inﬂation will not by itself promise a future of monetary stability. That requires ﬁscal balance over the longer run and monetary discipline in each short run. The macroeconomic literature on inﬂation stabilization nonetheless tends to devote more attention to the problems of bringing down the inﬂation rate than to those of keeping it down – perhaps because the former seem more technocratic and less fundamentally political than the latter. In attempts to stabilize very high or hyperinﬂations, currency reforms are frequently a component of the stabilization plans. The most common type of such reform, namely the one that simply ‘sheds zeros’ from a nominally inﬂated standard of value, is also of minimal interest. A second type subjects part of the stock of money (and of money substitutes) outstanding to simple expropriation or else to forced conversion into bonds of more or less long term. Such measures simplify the stabilization task if price controls have effectively prevented the price level from catching up to the stock of money that has been created. From the standpoints of individual property rights or of distributive justice, however, they will almost inevitably be arbitrary. This kind of currency reform was used in the West German stabilization following World War II, has been imposed in the Soviet Union in the past and seriously considered again in the present. Neither of these two common types of currency reform...
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