Comment by echoangle
15 hours ago
I mean as someone managing a state. If there’s a guaranteed way to make money by holding your currency, you’re not really incentivized to invest your money in semi-risky endeavors. Why would I fund a company to make me some single digit returns if I can just hold the money? If the central bank would actively enforce a deflationary currency, nobody would invest anymore.
This justification never makes any sense to me. There’s already a safe way to make a percentage back that will generally be higher than inflation: government bonds, offered by the very same government that supposedly wants inflation. There are even TIPS bonds in the US that match inflation directly. And people do measure whether or not a risky investment will make more than just holding bonds. Inflation just screws over people who don’t have the ability to invest their money into other assets.
If you buys bonds you’re not sitting on money.
The bond seller is intending to put it to productive use to generate the yield.
This differs from deflation where people will (more the before) actually sit on money and not buy bonds. Then people who need liquidity cannot get it as the money supply drys up.
This is true for corporate bonds, but governments plan on generating their bond revenue by taxing citizens (which I guess could be a whole separate conversation on whether or not that’s productive) and by printing more currency, which seems rather circular in logic.
There's still relative rates of return i.e. 100% of money isn't in gov bonds even though it should outperform inflation