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Another common way to create this breathing space and a slow down in the velocity of money without fixing the exchange rate is by dramatically devaluing the currency to an exchange rate that is credibly defensible given the country’s foreign exchange reserves. Bolivia took this approach under the guidance of economist Jeffrey Sachs in 1985.After creating this halt in hyperinflation, policymakers need to implement reforms aimed to cut deficit spending and the need to print money by reducing public expenditures and raising funds via increased taxes, improved tax collection or privatization of state-owned assets. To the extent that these fiscal policy reforms are perceived to be credible and are actually implemented, then policymakers will have successfully curbed hyperinflation.
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