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Alasdair Macleod: The real determinants of currency value
By Alasdair Macleod
GoldMoney, Toronto
Thursday, July 6, 2023
There are two components to the inflation story: the cycle of bank credit, which left to itself is self-cancelling, and the longer-term erosion of currency values. In examining the causes, this article goes back to monetary basics to explain what is required to make a currency's purchasing power stable.
Economists generally seem unaware of the importance of credit in the economy. In a world of fiat currencies, they wrongly take central bank currency to be money, and also routinely describe bank credit as money. But they are credit, which drives everything, not only statistically recorded credit but in our personal relationships as well.
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Since the Bretton Woods Agreement was abandoned in 1971, the loss of credit's attachment to sound money has been ruinous for its purchasing power. These events are obviously linked. Yet the long-term increase in money supply, or more correctly bank credit, is not the main reason for the loss of purchasing power.
In this article I explain that even under a gold standard currency is entirely credit, and why the secret to stabilising its value is to link credit to that of gold, which remains the only true legal money. ...
... For the remainder of the analysis:
https://www.goldmoney.com/research/the-real-determinants-of-currency-value?gmrefcode=gata
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