This system works fine as long as everyone believes in it. But, in many Eastern European countries people no longer have faith in their national currency. This is because hyperinflation has made many currencies worthless.
Ordinary inflation, where prices go up by two or three percent a year, you can live with. But hyperinflation, where prices go up by thousands of percentage points a month, is something else. The worker, literally, takes his pay home in a wheelbarrow. By the time he gets to the store he discovers he needs two wheelbarrows full of currency to buy the week's groceries. Not surprisingly, people look for other means of exchange.
Bartering becomes important: "I'll fix your plugged drains in exchange for a couple of kilos of home-cured ham." Other goods are used as a medium of exchange; liquor and tobacco are popular. Gemstones and precious metals (gold, silver, etc.) become important because they can be exchange for their true value in another country. And, people try to get their hands on money from countries with stable currencies.
Throughout the communist era, Eastern Europeans collected and hoarded U.S. dollars and West German marks. Nobody knows how many billions of these currencies are now squirreled away under the floorboards of Eastern Europe, but it's a substantial amount. When a currency collapses, as has happened in the former Yugoslavia, Ukraine, Russia, and elsewhere, these hidden resources are dug up and put into circulation.
|Printer friendly Cite/link Email Feedback|
|Title Annotation:||Eastern Europe - Economic Reform; hyperinflation leads to barter economy in Eastern Europe|
|Publication:||Canada and the World Backgrounder|
|Date:||Sep 1, 1994|
|Previous Article:||Heritage for sale.|
|Next Article:||The wild east.|