Most emerging and developed market currencies have depreciated significantly against the US dollar in 2021 despite the aggressive monetary policy of the Federal Reserve.
In addition, emerging economies which benefited from the rise in commodity prices also saw their currencies weaken despite strong exports. Inflation in developing economies is therefore much higher than the already high figures posted in the United States and in the euro area.
The main reason behind this is a problem of depreciation of the world currency which impoverishes the citizens.
Most central banks around the world are implementing the same expansionary policies as the European Central Bank and the Federal Reserve, but the results are disproportionately harming the poor as inflation rises, especially in essential goods and services , while fiscal and monetary imbalances increase.
Many emerging economies have implemented a very dangerous policy of increasing the twin deficits – fiscal and trade deficits – under the mistaken idea that this will accelerate growth. Now, growth and recovery estimates are falling, but monetary imbalances persist.
Therefore, most of the currencies are falling against the US dollar. The policies of the world’s central banks are as aggressive, if not more, than those of the Federal Reserve, but without the global demand for the US dollar. If the global sovereign-currency nations continue to play this dangerous game, local and international demand for their currency will evaporate and dependence on the US dollar will increase. More importantly, if the Federal Reserve continues to test its status as a global reserve, all fiat currencies could suffer a loss of confidence and a shift to other alternatives.
States issue currency, which is a promise of payment.
If the private sector does not accept this currency as a unit of measurement, a generalized means of payment and a store of value, backed by the reserves and demand of the private sector mentioned, the currency is worth nothing and is not money . In the end, it would be useless paper.
There are many examples of government currencies that are neither a store of value nor a generally accepted means of payment. From the sugar of Ecuador, which has disappeared, to the Argentine peso or the Venezuelan bolivar, the examples in history are countless.
In Cuba, inflation is now estimated at 6,900% due to the lack of demand for a worthless currency with no real demand or reserves to support it.
The state does not create money, it simply issues a means of payment – money – using the credibility of private sector demand to issue its promissory note. Like a debt issuer who loses repayment credibility, the value of that promise fades if the currency doesn’t have private backing.
The State therefore does not “create money”, it creates a means of payment accepted or not.
More importantly, the value of currency and its use is not decided by the government. It is decided by the last private sector agent who accepts the promise to pay because he assumes that it will retain its value and acceptance as a means of payment.
As such, when a government creates far more promissory notes, currencies, than actual local and international demand, the effect is the same as a massive default. The government simply impoverishes the citizens who are forced to use the currency and destroys the credibility of the value of government promissory notes.
When a state creates a currency without any real reserve or demand, it destroys the money.
When the government issues money – promises of payment – which are neither a store of value nor a generally accepted means of payment or units of measure, it not only does NOT create money, but destroys it by shrinking the purchasing power of poor captive citizens. who are forced to accept his notes and little pieces of paper (officials, retirees, etc.)
When the government destroys the purchasing power of its currency, it robs captive citizens by paying them in a currency that is worth less every day. This is a massive pay cut for unprotected people.
This is what we are seeing in many countries around the world, a massive reduction in wages and savings created by government intervention in the monetary balance to its own advantage. Governments profit from inflation because they pay their debt in a currency of decreasing value and they impose a fall in the price they pay for the wages and services of the sectors which provide services to the issuer of the currency. Even in developed countries with relatively stable currencies, inflation is a big advantage for governments who collect higher revenues from monetary taxes (wages, profits and sales taxes) … and a big negative for savers and investors. real wages.
Some say workers could benefit because wage growth will rise along with inflation. It is simply incorrect. Wages, at best, can increase with the CPI (consumer price index) which is a very low measure of inflation and a basket created by government agencies to reduce real inflation in an average of goods and combined services. However, even when you consider the CPI, the vast majority of workers do not even see an increase in wages that offsets its rise. This is why median real wages are falling in the United States.
Those who say that the state “creates money and spends it”, and only has to create the money it needs to finance the public sector because it will be accepted by the rest of the economic agents, should be obliged to receive their salary in Argentinian. pesos and enjoy the experience.