When trust in fiat money collapses, the foundation of the monetary system erodes.  Governments running perpetual deficits and printing money to cover them set the stage for this collapse.  Purchasing power diminishes steadily, and with it, the essence of honest transactions fades.  A system built on promises becomes one where value dissipates.  Short-term gains in international trade mask the deeper truth: fiat currency can’t sustain long-term stability.  Another form of money must rise to fill the void.

As purchasing power plummets, fear grips holders of cash.  Each day they delay converting their cash balances into tangible assets, their wealth shrinks.  The demand to hold cash vanishes.  Money in accounts and incoming wages is spent with urgency, not for necessity but to escape the depreciating currency.  This rush leads to a frenzy of spending on durable goods—items with intrinsic value that outlast the declining money.  The phenomenon, which Ludwig von Mises aptly described as the “flight to real values,” signals the beginning of the end for fiat money.

Goods are bought not for immediate use but to safeguard against the vanishing value of paper currency.  The paper money, once accepted as a reliable medium of exchange, becomes increasingly unfit for the role.  Demonetization begins, forcing the search for a replacement.  Commodities, immune to mass production and devaluation, emerge as viable alternatives.  As panic spreads and rainy-day funds are liquidated into tangible assets, the pace of demonetization accelerates.  This process is irreversible and inevitably leads to a reckoning.

Cash loses its role as a safe store of value.  Even those whose circumstances remain unchanged find themselves poorer as their savings shrink.  Rainy-day funds transform into reserves of gold or other commodities that maintain value over time.  The mass expenditure of cash creates the illusion of economic vitality—what Mises termed the “crack-up boom.” Yet this boom is hollow, with skyrocketing interest rates reflecting not growth but the evaporation of future purchasing power.

Demonetization is not an apocalypse.  Physical and intellectual capital remain.  The infrastructure for production persists, even as fiat money fades.  However, any remaining cash holdings represent losses borne by individuals.  The unchecked printing of money paves the road to destruction, leaving only two paths forward: halt the printing and repudiate the debt or continue the march toward collapse.  The former requires courage—a trait rarely found in those wielding political power.

Though demonetization disrupts the established order, it also sets the stage for rebuilding.  It clears the path for a more honest and sustainable economic foundation.  Let the process be a reminder: clinging to illusions only prolongs the pain.  Prepare for the inevitable, embrace real values, and contribute to the reordering of a civilization that refuses to be conquered by delusion.

Reference

Ludwig von Mises; The Causes of the Economic Crisis