I understand that money needs to continually be printed as bills and coins are damaged or lost, but wouldn’t any currency be way more stable if it was just printed slower than it’s taken out of circulation?
I understand that money needs to continually be printed as bills and coins are damaged or lost, but wouldn’t any currency be way more stable if it was just printed slower than it’s taken out of circulation?
Printing money isn’t the main driver of inflation. In developed economies, most of the money in circulation is created by private banks through lending.
Most inflation comes from demand outpacing supply. For example, when a war in Iran disrupts oil production, supply shrinks and prices shoot up. Similar thing happens when workers demand higher pay - businesses face higher costs and pass them on to customers through price increases.
Central banks fight inflation with interest rates - not by “printing less money.” When they raise rates, borrowing gets more expensive, people and businesses spend less, demand drops, and inflation cools off.
A little inflation - around 2% - is actually good. It keeps the economy moving. As money slowly loses value, people have incentive to spend it rather than hoard it. At 0% inflation, people have less incentive to spend on non-essentials or invest, because holding cash is costless. And deflation is the real killer - everyone holds off buying because their money will be worth more tomorrow.
2% to 4% is considered healthy inflation, yeah. Below 2 and you get too close to deflation which economists are terrified of for reasons