Perhaps you know that inflation was rampant in Brazil in the late 80s and early 90s. Year after year economic stabilization plans were introduced by one president after another, but none of them were able to fix the problem. Eventually though President Itamar Franco did succeed, along with his then finance minister Fernando Henrique Cardoso. What did they do differently?
Well, for one thing they called on the advice of economist Edmar Bacha, who had come to appreciate something that others hadn’t. You see, previous administrations had focused on fiscal and monetary policy, but they hadn’t tackled the problem of inertial inflation. Inertial inflation is the phenomenon where prices are raised in anticipation of future inflation. If the perception is that inflation will continue unabated, businesses raise prices continually even before there is a concrete need to do so, which in turn fuels additional inflation in a feedback loop.
For Edmar Bacha it was clear that, even if fiscal and monetary policy were improved, if Brazilian citizens did not have confidence in their currency as a store of value, inflation would prove unstoppable.
The Mind Trick
So what could be done? The perception of a currency is not only a technical issue, it’s also a social one. You could even say it’s about faith. So Edmar Bacha proposed a mind trick of sorts. In the “Plano Real” implemented by the finance minister, a non-monetary currency was introduced that would serve only as a unit of account. This “fake” currency–the aptly named “Unidade Real de Valor” (Unit of Real Value)–was legislated as the only currency in which wages, prices and taxes could be listed. But the only cash people had in their wallets were of the existing Brazilian currency cruzeiros. So how did that work in practice?
Let’s take a concrete example. When people went to the store to buy groceries, they saw URV on price tags. In order to know how much they would actually need to pay, people needed a way to convert between URV and cruzeiros. So each day the central bank published the official cruzeiro to URV exchange rate in the newspaper, along with a table to assist with conversions. Customers and shop-keepers used this table at the register to complete transactions in cruzeiros. But in terms of comparing the price of one good to another, that was all in URVs. What’s more, when people got paid they saw URVs on their pay stubs. So while the cruzeiro to URV exchange rate would change every day, the URV prices of goods and the URV amount of their wages stayed stable. The result? People started to think in URVs!
Once people starting thinking in URVs, the last step of the “Plano Real” was to get rid of cruzeiros altogether and make URVs a real currency, which happened in July of 1994. By that time, people believed URVs to be stable and valuable, and therefore inflation was tamed–to the benefit of the economy at large. The stabilization of the country’s currency was viewed so positively by the electorate that the finance minister became Brazil’s president in 1995.
Application to DApps
DApp developers have a similar challenge in that users need to pay their bills in dollars or some other fiat currency, so they are of course used to thinking in terms of fiat. Unfortunately the result is that some DApps present dollar amounts prominently or even exclusively in their user interface. While this may help onboard some percentage of inexperienced users, I’m of the opinion that it hurts the ecosystem in the long run.
To mention a specific example, Cent displays USD values prominently throughout their user interface, even though it works primarily with ETH.
Recently on the Into the Ether podcast, Cent’s leadership lamented that some users are confused when they think they have X dollars one day and they go to withdraw the next day and it says Y dollars instead.
As an additional example, Coinbase Earn–though not a DApp–takes the same approach by saying e.g. “Earn $50 of XLM!”
Some say the solution is to feature a stablecoin such as DAI instead of ETH. I disagree. One of the promises of crypto is to take control of money supply from central banks. Stablecoins are just a digital version of fiat currency; the banks can continue to issue and devalue them to their hearts’ content.
Others say no, we need to use ETH, but we need to display both ETH and USD next to each other in the user interface. But what if DApps were to use a simple mind trick inspired by that of Edmar Bacha? What if, instead of displaying ETH next to USD, DApps displayed only ETH throughout their user interfaces, and only displayed USD when clicking or hovering with a mouse? As a crude example:
In the case of a mobile device, it could be a long-press, swipe or some other gesture to reveal the fiat equivalent. While certainly not novel ideas, such design patterns are currently underused.
Are users going to want to know the value of their crypto in fiat terms? Yes, of course. But we shouldn’t necessarily make it too easy for them to see it. Make it an extra click. Doing so will help users to start thinking in terms of ETH. And the more users think in ETH, the less relevant volatility versus fiat becomes.