Accordingly, lenders demand a higher interest rate on the rand debt to compensate for inflation and inflation risk. Another example comes from Europe. Before 2000, different European countries had different currencies. Germany borrowed in Deutsche marks, France in francs, and Italy in lira.
Some of Europe’s countries had higher average inflation rates than others, and inflation was also more variable, meaning that it sometimes got out of control. In other countries – Germany being the prime example – inflation was much lower and more stable. So during the 1980s, for instance, West German inflation averaged 2.9%, French inflation was 7.6%, and Italian inflation was 11.4%.