In DS9 Quark makes a throwaway line about the Great Monetary Collapse that happened during his early lifetime. He describes it as a period caused by "rampant inflation and currency devaluation."
This description might seem puzzling at first, because the Ferengi have always been shown to use hard currency. Hard currencies are generally deflationary currencies, with a fixed or at least limited supply and a growing (and hoarding) population. The only way a currency can rapidly inflate is to increase the supply of the currency, or alternately for there to be a shortage of things to buy.
In short, inflation requires too much money chasing too few goods.
I hypothesize here that the Ferengi experienced an economic collapse caused by replicator technology, specifically the point at which replicators became able to create gold. The Ferengi experienced this shock more severely than most other cultures, not only because they use hard currency, but also because they revere it.
What happens to an economy when replicators show up? The answer is not inflation. A replicator makes goods for cheap. If you can conjure up your Raktajino out of thin air and energy, the price of a Raktajino is going to plummet to the cost of that energy. As long as you are not on board a ship which needs to ration energy, cheap becomes functionally free.
This is the apparent engine behind the Federation's economy. In Federation space, everyone gets a protein resequencer, and there is no more hunger. Then later, everyone gets a more replicator, and clothing is free too. Every year a new advancement, and every advancement brings a new thing that the citizens can conjure up.
But the Ferengi do not think like that. If your religion is based on making a profit, you do not give away the source of free goods. The Ferengi likely had a small number of early entrepreneurs with a monopoly on replicators, setting their prices to what the market would bear.
Even under this system, the prices must fall. As long as the Ferengi compete, seek profits, and can produce goods indistinguishable from one another, prices must fall. Cartels can form to prop prices up, but a cartel only lasts until someone new gets a replicator. Sooner or later, everyone will get a replicator, and the Ferengi will have to find other ways to make a profit.
The shock of cheap goods can collapse economic sectors. Yet progress marches on. Where the Ferengi ran into problems wasn’t the production of goods, but of their reverence for hard currency.
The Ferengi relationship with currency is not like other cultures. At the start of TNG: The Outpost Ferengi did value gold, to a point of finding it offensive that the Federation officers would wear it brazenly.
Now Ferengi are not unique in finding value in gold. Everyone used to value gold. During TOS: Devil In The Dark, they were willing to risk the lives of workers despite deaths just to get access to the gold and platinum, and when they finally made peace with the Horta they were quite happy. Archer uses gold bars to negotiate with the Ferengi, who accept this even after it is made clear they are gold, not gold-pressed latinum.
But by the events of DS9: Who Mourns for Morn, a distraught Quark makes clear, gold is absolutely worthless. This is a radical change, but the evidence suggests it is not merely a continuity change.
We must then ask, when did gold become worthless? Quark does seem to value it only a few seasons earlier, in DS9: Little Green Men, but this happened when Quark was far in the past, and knew he was in the past.
The best example I can find of worthlessness comes from TNG: The Price. While some details are lost on-screen, the original script has some stage direction which I think is instructive.
[Goss] turns the sack upside down and a pile of gold bars spills out across the tabletop.
GOSS: I'll match anyone's best offer... and add the gold on top of it.
He holds out his hands in a fait accomplit motion. Sits back in his chair, with a confident grin. Bhavani reacts, nonplussed. Picard EXITS...
So from the script it's clear, Goss thought gold was useful, and no one else in the room did.
We can then assume that at this point in time (2366) the Ferengi (or some subset of them) were behind in replicator technology, and it resulted in Goss making a fool of himself, bargaining with someone he valued, and no one else did.
This is a society on the brink of collapse. In fact the collapse may already be happening behind the scenes.
Why didn’t the Ferengi see this coming? I believe the Ferengi religion left them blind to the danger. Ferengi do not merely value gold as a good. In fact, they do not merely value it as a currency. The existence of the Blessed Exchequer paints an interesting picture of the Ferengi relationship with their currency. Every Ferengi believes that their afterlife is determined by their ability to make a profit. Thus, every gold bar held by a Ferengi is their spiritual salvation.
The destructiveness of a currency collapse cannot be understated. Quark comparing it to war trauma is played for laughs, but it was not funny to him. If he has any belief in the afterlife, it was was an existential threat to him.
Replicators didn't just crash the economy of the Ferengi. It threatened to damn their very souls.
In fact I would speculate there is a reason why the Ferengi use gold trappings around latinum. The shape, the weight, the feel of currency matters to them. Visiting the Nagus requires the paying of respects, literally. Pressing latinum into a metal was convenient. Pressing latinum into gold was an important symbolic transition.
Leaning into some apocryphal sources now, a little beautiful tidbit emerges. In DS9: Ferengi Love Songs we learn that the Grant Negus who preceded Zek, called Smeet, presided over one of the largest market slides in recent Ferengi history, and was assassinated in office. Thus he likely saw the effects of free gold. According to the Legends of the Ferengi, Smeet was credited with writing the 89th, 202nd, and 218th Ferengi Rules of Acquisition. The 218th rule, according the the DS9 Comic Baby on Board reads as follows:
Sometimes what you get free costs entirely too much.
Small correction: It should be too much money chasing too few goods. Too many goods on the market causes deflation, increasing the effective value of currency. If the Ferengi had used the technology responsibly they could have, at least theoretically, balanced the increasing supply of goods and gold to avoid catastrophe.
Except I doubt the first Ferengi to get their hands on replicators used them to mass produce goods. The first replicators were used to produce vast quantities of gold bars, that were immediately dumped on the market to buy up every hard asset and extravagance the owner could imagine. Hyperinflation took over. As the value of gold fell to nothing, other materials probably rose in prominence, only to be crushed by over replication. The only unpredictable part of the collapse was that they didn't settle on dilithium crystals as a currency.
Corrected! That slipped through in editing (I had originally started by describing deflation) and it fortunately does not change the central idea.
I absolutely agree that this would happen if the first replicators the Ferengi got could actually produce gold. However I do not think all replicators are created equal. The most clear example of this is that the ability to synthesize a uniform is clearly shown in Star Trek: Discovery, but this predates the TOS series, where gold has been shown to have value.
I believe replicator technology followed a track from chemical synthesis (the Enterprise era protein sequencers) to full on assembly of anything reasonably simple that you have the atoms for, and then finally the ability to do full on nuclear alchemy and make elements. (And not just make the elements, but make them at an energy cost less than the cost of digging up natural elements from the ground.)
There are two reasons I think dilithium doesn't make as good a currency as latinum. The first is that the value of dilithium was propped up by the fact that it is both rare and used up, and dilithium recrystallization was a known technology by the time of the collapse. This meant its value wasn't very stable.
The second reason is that latinum, by virtue of being a liquid, can be easily split and combined. While its inconvenient to "make change with an eyedropper", you can with a bit of work take a bar of latinum and break it down into slips and lose no value. But does dilithium dust retain the same value as a whole crystal? Most modern crystals do not have this property. For this reason, latinum was likely to win out.
Another third reason, pure speculation, is that Ferengi culture was already primed to think in terms of bars and slips due to gold, and thus gold pressed latinum was functionally the same. That might not seem as important to you or me - many of us now just treat money as a number in a computer somewhere - but remember that to the Ferengi these are religious totems. Symbology matters.
That sounds reasonable to me. Dilithium would be a fine medium of exchange to buy a starship or a moon, but its worthless as dust so small purchases would be impossible. I suppose you could work around that problem with a trusted authority issuing shares of a whole crystal, but what fool would trust a Ferengi selling shares in a priceless crystal youll never see.