Eli5: why can’t we just “deflate” money, and why is it bad?
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The first guy pretty much answered the question, so I’ll go on a bit of a tangent. In the big picture, money is not a good in itself. It’s a mechanism to facilitate trade. People tend to get hung up the day to day and how much they can buy, but big picture policy makers want to have enough in circulation that economic transactions are not hindered by lack of money but risky transactions are not encouraged by too much in circulation.
Depending on what’s happening more or less money can be easily created or destroyed as a policy lever to facilitate a healthy economy. It can be a blunt instrument and not the only one, so policymakers have to be careful with a balancing act that is monetary policy so that every move they make is a net benefit to the system as a whole.
This is one of the driving forces behind the crypto or gold people. They want to remove the ability of a central authority to manipulate monetary policy. Generally This comes from a place of self interest. They tend to have a lot of money already and hate the thought of a central bank printing a bunch more to, say, devalue the currency in order to make a nation’s international trade more competitive. In this example the overall economy gets healthier and more manufacturing jobs are created, but their personal wealth in the bank decreases relative to someone in another country. Stuff like this is an ongoing tension that’s always going to be present. Again, there’s always going to be winners and losers when monetary policy is adjusted. The key is keep it where the overall economy is the most successful.
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