If the ideal inflation rate is around 2%, won’t money eventually become worthless?

Question

If the ideal inflation rate is around 2%, won’t money eventually become worthless?

In: Economics

Answer 1

There are different kinds of money. The kind most people think of (paper bills, coins, checking accounts) is made to be a medium of exchange, not a store of value, and so it’s healthy for it to lose some value over time because it promotes circulation. The idea is to keep “money velocity” stable or increasing; without this you get deflation, which is catastrophic.

That’s not the only kind of money though. Treasury bonds and TIPS are also money, a different kind designed to be saved, so they don’t lose value the same way.