Glamor Economics

Chapter 105

Chapter 14 Section 6 How Much Currency Is Appropriate to Issue——Currency Issuance

For a long time, banknotes have been used as a means of circulation, backed by physical objects such as gold and silver, such as the gold standard that has existed for a long time.A relatively stable currency enables society to accumulate real wealth.

If the currency issuance increases, it will trigger inflation, leading to false prosperity, which is not conducive to the accumulation of social wealth.Keynes once said about this: "Using (inflation) this method, the government can confiscate the wealth of the people secretly and imperceptibly, and it is difficult for one person in a million people to discover this theft." In the 100s, The Kuomintang government's excessive currency issuance is a typical case.

From August 1945 to August 8, the issuance of legal currency by the Kuomintang government surged from 1948 billion yuan to 8 trillion yuan, an increase of 5000 times. In August 660, the French currency was stopped and the issuance of gold-dollar coupons. The original legal currency was exchanged at a rate of 1320:1948 million.And it is claimed that the issuance of golden round coupons is limited to 8 billion.In fact, in the less than a year since the issuance of gold-dollar coupons in August 1, the amount of issuance has exceeded the original limit by tens of thousands of times.According to reports, by May 300, the currency issuance of the Kuomintang government had increased by 300 billion times compared to June 1, while the national prices had increased by 20 trillion times.According to the price statistics of the national government, someone made such a comparative calculation of the purchasing power of one hundred yuan of legal currency:
In 1937, two cattle could be bought;
In 1938, one scalper could be bought;
A pig can be bought in 1939;

A sack of flour could be bought in 1941;
Buy a chicken in 1943;

In 1945 two eggs could be bought;
1946/1 soap can be bought in 6;

In 1947, one briquette could be bought;
In 1948, you can buy 0.002416 two large rice;
In 1949, 1‰ of 2.45 grain of rice could be bought.

So where did those values ​​go?was looted.Looted by whom?It was plundered by Chiang Kai-shek, Chen Guofu, Song Ziwen, and Kong Xiangxi, the four major families who controlled the bank.The four big families were not rich in 1927, but after that, especially in the 40s, they plundered as much as 200 billion US dollars of people's fat and people's cream (the 200 billion US dollars at that time was equivalent to about 4000 billion US dollars now).Before the liberation of the whole country, the bureaucratic capital of the four major families accounted for 80% of the old Chinese capitalist economy, about 2/3 of the national industrial capital, and 80% of the national fixed assets of the industrial, mining and transportation industries.In addition to methods such as increasing taxes, borrowing heavily, and accepting bribes, using banks to issue banknotes indiscriminately and creating inflation is an important method of plundering.

As Lenin said: "Issuing paper money indiscriminately is to encourage speculation, allowing capitalists to make a fortune by speculation." So, how do we know that there will be no excess liquidity?How much currency is reasonable?How much money is needed in the economy?Dai Genyou, Director of the Monetary Policy Department of the Central Bank, once made a vivid metaphor for the question of whether the money supply is tight: If there are forty meals and forty students, if the distribution is even, it is just right. Can be full.Controlling the total amount of money in circulation and maintaining a basic balance with aggregate demand is the responsibility of the department under Dagan's leadership.If the demand of the market is met, it means that the total amount of currency released has reached the expected goal.

The monetary aggregate plays an important role in the formulation of a country's monetary policy and macroeconomic decision-making. Therefore, the scientific measurement of the monetary aggregate has important theoretical value and practical significance.

[links to related words]

Currency issuance is the difference between the currency entering the circulation from the central bank minus the currency returning to the central bank within a certain period of time.Currency issuance has two meanings: one is that money flows from the central bank’s issuance treasury to the society through the business treasury of each bank, and the other is that the amount of money flowing out of the central bank is greater than the amount of money flowing in.

(End of this chapter)