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Right, a government can force the adoption of a currency by making it the only accepted means of payment for taxes.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Oct 26th, 2008 at 04:56:33 PM EST
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However, they cannot force people to hold balances in the currency if people are confident that the currency can always be obtained at better terms by holding an asset denominated in another money and cashing it in when needed ... which is the hyperinflation scenario.

In the face of hyperinflation, tax liabilities are always easier to meet if they are deferred, unless the tax liabilities are indexed, but then that turns into a disincentive to hold balances in the fiat currency, since the direct way to gain the returns in the currency to meet the obligations are to hold a more stable money.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 26th, 2008 at 05:33:30 PM EST
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