A better use for Banknotes

[squarecoinman]

   

A little friday fun Me making a cake knife

[Alex Island]

Much better to do Origami..

[squarecoinman]

wow the origami is very nice

[Alex Island]

https://www.facebook.com/reel/619070836848941


Today I saw this story. In the video, a man says that he bought an old house from some old man, and on the second floor he removed the boards of the old floor. And then shows what's there

[krishna]

https://www.facebook.com/reel/619070836848941


Today I saw this story. In the video, a man says that he bought an old house from some old man, and on the second floor he removed the boards of the old floor. And then shows what's there

Seems a pile of inflammable garbage now

[Alex Island]

Seems a pile of inflammable garbage now

Maybe yes. But it is interesting that I recognize all these banknotes, because I used them and remember what they could buy. Banknotes from 5 rubles to 50 rubles of the USSR flash in the frames. At the time when this warehouse was created, the official rate was 60 kopecks for 1 US dollar. That is, if it were then exchanged for dollars, then this pile would be almost twice as large.

[Figleaf]

Maybe yes. But it is interesting that I recognize all these banknotes, because I used them and remember what they could buy.

What they could buy would depend on what the shops had in stock. I am sure you remember the empty shelves and the queues in front of shops. This was the Soviet way of inflation: buying costs time. Retirees could afford the time. Others had to steal it. People would disappear from their job to stand in line. The bitter joke on that situation was "We pretend to work; they pretend to pay us".

Banknotes from 5 rubles to 50 rubles of the USSR flash in the frames. At the time when this warehouse was created, the official rate was 60 kopecks for 1 US dollar. That is, if it were then exchanged for dollars, then this pile would be almost twice as large.

Except that the ruble was not convertible. The official rate applied only to statistics. Incoming tourists got a much better rate. They had to exchange a fixed amount per day and could not sell rubles back. Those who spent more than the fixed amount bought rubles very cheap on the black market, which could be hazardous. For international trade, there was yet another rate, used primarily in settlement agreements such as those with India: Indian exporters got paid in INR by the Indian settlement institution, Russian exporters got paid by the Russian settlement institution in Rubles, likewise with imports. The two institutions settled their accounts with each other at the agreed fixed rate, at or close to the commercial rate.

Things came to a head in April 1991. I worked in an international organisation at the time and followed the events closely. The official rate was $1.70, but only Soviet officials used it. The commercial rate was $0.57 and the tourist rate was $0.17.

Prime minister Pavlov made the ruble convertible and introduced a weekly "auction" of rubles. On the first auction, the going rate was $0.036, close to the black market rate. The economy instantly became dollar-based as inflation went through the roof. The rate of exchange ruined Russian savers and made their salary a pittance. Poverty swept the country, turning people away from "capitalism", eating the produce they could grow themselves if they had a garden or plot of land and causing a wave of disgusting prostitution among the landless. Only the Mafia and the oligarchs flourished. It was by far the biggest and cruellest policy mistake I ever saw. We are still picking the fruits of that arrogant behaviour in 1991.

Peter

[krishna]

What they could buy would depend on what the shops had in stock. I am sure you remember the empty shelves and the queues in front of shops. This was the Soviet way of inflation: buying costs time. Retirees could afford the time. Others had to steal it. People would disappear from their job to stand in line. The bitter joke on that situation was "We pretend to work; they pretend to pay us".

Except that the ruble was not convertible. The official rate applied only to statistics. Incoming tourists got a much better rate. They had to exchange a fixed amount per day and could not sell rubles back. Those who spent more than the fixed amount bought rubles very cheap on the black market, which could be hazardous. For international trade, there was yet another rate, used primarily in settlement agreements such as those with India: Indian exporters got paid in INR by the Indian settlement institution, Russian exporters got paid by the Russian settlement institution in Rubles, likewise with imports. The two institutions settled their accounts with each other at the agreed fixed rate, at or close to the commercial rate.

Things came to a head in April 1991. I worked in an international organisation at the time and followed the events closely. The official rate was $1.70, but only Soviet officials used it. The commercial rate was $0.57 and the tourist rate was $0.17.

Prime minister Pavlov made the ruble convertible and introduced a weekly "auction" of rubles. On the first auction, the going rate was $0.036, close to the black market rate. The economy instantly became dollar-based as inflation went through the roof. The rate of exchange ruined Russian savers and made their salary a pittance. Poverty swept the country, turning people away from "capitalism", eating the produce they could grow themselves if they had a garden or plot of land and causing a wave of disgusting prostitution among the landless. Only the Mafia and the oligarchs flourished. It was by far the biggest and cruellest policy mistake I ever saw. We are still picking the fruits of that arrogant behaviour in 1991.

Peter

India saw similar things in the late 1970s and till the mid-1990s, the exchange rate was fixed as per central bank policy, there was a black market for the INR at much lower value, but when the balance of payments crisis struck in 1991, common sense prevailed and we started to deregulate our market and currency gradually, in such a way that it did not affect the economy so severely
Even today we have a limited capital account convertibility, where an individual cannot transact more than US $2,50,000 in a financial year (Conditions apply). The same painful situation is being played out in Pakistan & Sri Lanka currently, resulting in massive devaluation and severe hardship for the common citizen.

My observation in the myriad instances of mis-governance is that, the so called rulers do not know how to run a government, it's all hit and trail, filled with bigotry to fuel hatred against the rival political force, who are also as rotten, if not more (E.g. Aang Sang Su Ki), core issues of governance are rarely addressed. There is rarely a report card of performance (even self-made). And the voters are swayed by issues which do not affect them to a large extent.
In countries which the masses are not asset rich, like India, people only own assets in form of cash and some gold, that's why India has a very high savings rate of 30 to 35% , cash is a security and not just means of transacting
In case of such devaluation, it would be an unimaginable misery on the masses. There has to be a nuanced approach to governance, rather than just ham-handedly crushing the lives of the powerless

[Figleaf]

I remember the Asian crisis in 1997, krishna. I made a study on it that gave me my 5 minutes fame in life and I am still holding papers that would be of interest to a serious academic institute for economic history if I could find one. It was very painful both for the rich, whose capital in their own currency vaporised in foreign currency terms and the poor, who paid by way of fast inflation.

Importantly, 1997 was a crisis that was not caused by government policy, but by the naive attitude of the US government towards idiotically rich vulture capitalists who could afford to speculate against the reserves of a central bank of another country. BTW, the Russian "reform" policy I described above was heavily influenced by the same theories, those of the Chicago school, to whom any form of consideration for the population was a form of communism. They wreaked havoc in Chile also.

You have to separate carefully the goal of creating a dual price system, which creates a black market and is really difficult to undo and the goal of a fair tax system, which includes getting tax evaders to pay up and ultimately, to combat corruption, the major factor holding back developing countries. The first is a benefit for people with "connections", such as the nomenklatura in the Soviet Union. The second is a benefit for those who can't or won't evade the law as well as for state financing.

You can have an unforgettable extended holiday trip on a quarter of a million dollars, so that limit is typically aimed at people spiriting away black rupees (begotten, but not declared for taxes) before the tax man cometh. Such kind of rules potentially stabilise the economy.

Modi's attempt to catch black rupees by changing banknotes show that there is a condition: the measure must be well prepared and fairly executed, or those who know about it in advance will slip through and the burden will fall on the innocent. That's hard in the face of corruption, so the circle closes. It can be done though. In Italy, it was done by a group of judges (mani pulite). In Portugal and Spain it took a popular revolution. In Greece it is an ongoing, but successful process. Zelensky has promised to do it in Ukraine.

Peter