The economy is literally just people passing money around. What causes the value of a currency to decrease?
In: Economics
The main reason for inflation is due to credit expansion by banks.
1. Someone deposits money into a bank.
2. That bank lends out the money to a borrower.
3. That borrower deposits that money into a bank.
4. If that deposit is with the same bank, that bank lends out the money again.
As a result, the money supply keeps expanding despite the amount of notes and coins remaining constant (unless the government runs a non-monetised deficit (where they print more money rather than borrow to fund the deficit)).
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