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Edit: goddamn this thread was active while I was writing, I may have been beaten to it
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The value of a currency is rooted in how much currency you have to trade for a thing, and how easily obtained the currency is. If all you do is multiply the numbers on all the bank notes (aside from the obvious logistical problems) the theoretical effect is nothing so long as everything else changes. A given amount of currency becomes harder/easier to obtain because employers adjust wages to match, and you have to trade 10 times as much for the same stuff, because the shops will also be multiplying all the prices.
Inflation is the value of currency relative to what you can buy decreasing (need more $ to buy the same things), which happens for various reasons in the real economy (and a small amount is a good thing – money getting slowly less valuable discourages hoarding all your money, keeps the money moving). Currencies become weaker if their value relative to other currencies declines (which will happen if one has much more inflation than another, or one is in high demand and hence less easily obtained. Changing the value of currency relative to itself is just an exercise in moving the decimal point.
Real-life example: Zimbabwe’s hyperinflation meant the currency was next to worthless relative to goods, and hence next to worthless relative to other currencies. So they had to issue larger and larger denominations of bank notes to give people something worth carrying around, eventually it got up into the trillions of Z$s on a single note, and similar sized numbers to buy basic groceries and they decided to just chop 6 0s off of everything. So the price of everything in the shops went down by a factor of 10^6, everyone’s pay would have done the same, the value and strength of the currency are unaffected, it just gave everyone more sensible numbers to work with.
BP had the opposite problem – instead of having numbers that are way too big on everything, the numbers were too small and inflexible to be able to ‘make change’ for all the values (relative to real money or the things available to buy in BP) you might want. It’d be like if coins didn’t exist and the lowest note was a 20, everything would have to cost some multiple of $20 and it’d be stupid. This change gives us some sensible numbers to work with so that we can pay for low-value stuff with a small number of BP. man-man edited this message on 11/17/2009 3:34PM |
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Posted On: 11/17/2009 3:22PM | View man-man's Profile | # |