But that is just the US situation. There are over a hundred sovereign nations with their own currencies and each having different ratios of paper to digital money in circulation. The nation of Zimbabwe is probably the best demonstration of the inflation that can be wreaked with paper fiat. They had to remove twelve zeroes from their currency. Obviously, there is no need to do this with digital money.
But there is, I believe, a global pressure building because of the difference in the speed at which digital economies can infuse inflation compared to paper economies. The huge and rapid inflation caused by digital currencies cannot be absorbed by paper economies and, so, they are at severe disadvantages when attacked by outside digital fiat monies.
I picture each sovereign nation as its own tectonic plate. As a digital economy inflates it builds pressures along the places where it intersects with other plates. The pressure caused on one side of that plate get's transmitted against the other side and that plate pushes against yet others and so on. Just like the plates of the Earth build up pressure until there is a break which results in an earthquake, I've come to look at the global economy in a similar way but looking at each economic plate based on the percentage of its paper fiat vs. the percentage of its digital fiat. That ratio determines the plates ability to react to inflation pressures of connected economies.
Just a theory, thought I'd throw it up here.
And Bitcoin would enter in as something of somewhat of an escape valve that can alleviate pressures in different parts of the world (maybe even preventing an earthquake type reaction on a plate).
Yes yes, inflation can be more easily absorbed if it's 100% digital.
They can cut zeroes every day, by reindexing all bank accounts to inflation. The ratio of your money to prices would be the same, and they would go up as normally. It's just that the numerical value would not.
For example:
You have 1000 $ and 1 bread costs 1$
1000% inflation happens
You have 1000 $ and 1 bread costs 10$
So they reindex the prices
You have 100$ and the bread still costs 1$
So you the price would not change, but your money would be devalued. So either the price rises, or your balance shrinks, but the ratio will still grow.