Setelinleikkaus: When Finns snipped their cash in half to curb inflation

The tricky part isn't money on a digital ledger. That's easy enough to handle with e.g. a one-off deposit tax (IIRC used as recently as the Euro crisis). There's no operational problem here, it just needs to be legislated to happen. Executing the operation properly might take a while (it's not something they'd have a process for), but banks must already have in place systems for e.g. freezing assets which could be used to buy time.

Bonds can just have a haircut on their nominal value, which is pretty much standard operation procedure during a financial bailout.

The real problem is deposits in foreign banks in foreign currencies. In the modern world by the time a country would be looking into this kind of a measure, a lot of the capital will have already fled. In this case the blocker is jurisdiction / sovereignty, not any kind of technical limitation.

Fascinating piece of financial history I hadn't heard about. Imagine your government telling you to literally take scissors to your money, it's like a weird mix between arts & crafts hour and monetary policy. Though I suppose we're already halfway there with our modern central banks, just without the satisfying snip-snip sounds.

The Finnish experiment failing because people just deposited their cash in banks first is a classic example of Goodhart's Law in action. Or as I like to call it, "If you tell people you're going to cut their money in half, they'll find a way to keep it whole."

What's really interesting is Belgium's more successful approach, they went full scorched earth on 2/3 of their money supply and somehow managed to pull off an economic miracle. Makes our current inflation-fighting tools look rather tame in comparison. "Sorry, best we can do is nudge interest rates up a quarter point at a time.

> It's not just the size of Operation Gutt that is striking to the modern eye. It's also the oddity of the tool being used. Today, we control inflation with changes in interest rates, not changes in the quantity of money. To soften the effect of the global COVID monetary overhang, for instance, central banks in the U.S., Canada, and Europe began to raise rates in 2022 from around 0% to 4-5% in 2024.

It's a bit more interesting than 'the central bank sets interest rates'.

Simplified: the central bank decide on an interest rate that they want to see. By itself that decision doesn't do anything.

What happens next is that they buy and sell government bonds in the open market. The interest rate can be seen as the inverse of the price of bonds.

If the central bank wants to see a lower interest rate, they buy bonds with freshly printed money to drive up their prices, ie drive down the interest rate.

If the central banks wants to increase the prevailing interest rate, they sell government bonds from their inventory and essentially destroy they money they receive in return.

So even when the language of modern central banking talks about interest rates, they still change the quantity of money to implement that.

(This is all simplified, especially with the interest on excess reserves that was popular with the Fed for a while. And there's also repos and reverse repos etc.)

Turkey dropped six zeroes off their currency in the 2000s.

Technically, you could describe that as cutting 999,9999/1,000,000 of their money supply. (Especially if they had done a funny dance like the Finnish, where you would use some scissors to only keep the tiny top left corner of your old notes, and can exchange that for new ones.)

In practice, people saw the Turkish currency reform as merely a cosmetic change, not an actually reduction in the money supply.

See https://en.wikipedia.org/wiki/Revaluation_of_the_Turkish_lir...

From your perspective the war started in 2022.

In reality that phase of the war started before. Russia did not improvise this war. They started disrupting the supply in 2021 to ensure that Europe would not fill their strategic reserves / winter storage during the summer, thus insuring maximum leverage when they needed it. This is well documented [1]

Note that this is just talking about this phase of the war. Hostilities started in 2014 when parts of Ukraine "suddenly self-liberated" themselves. Helped by mysterious soldiers in professional but unmarked uniforms.

[1] https://www.banque-france.fr/en/publications-and-statistics/...