More than a few places in this world people are trying to better themselves by saving money. Many people without access to formal financial services (or awareness of their benefits) are trying to amass capital by squirreling away cash. If wariness and luck prevent that money from being stolen, their nest-eggs might provide life-saving health care, seed capital for businesses, the means to move, education for children, and numerous other enhancements to poor people’s well-being. I say good for them. But there are people out there who don’t care if government policy stands in the way.
Unknown to many cash-hoarders—unsophisticated investors who should have our sympathy—official government policy in many countries is to inflate the currency. Under stable conditions, such policies might reduce the value of the existing stock of money at a rate of about 2% per year.
That is a boon to governments, of course, which are typically debtors. The policy quietly reduces real government debt by 2% annually without need of raising official taxes. And whether they spend the money themselves or infuse their banking sectors with liquidity, governments use monetary policy to curry favor with important political constituencies, thus solidifying power.