If the ideal inflation rate is around 2%, won’t money eventually become worthless?
In: Economics
If you only hoard your money in a vault? Yes, that’s the point.
2% inflation is high enough that you don’t want to hold your life savings as cash because it will lose a lot of value over ten, twenty, thirty years. You are incentivized to **INVEST** your money somewhere in the economy where it can be put to work growing businesses and creating jobs.
2% inflation is low enough that most forms of investment with beat that and grow your money. It’s also low enough that it doesn’t really affect day to day household finances beyond what to do with your Retirement fund.
Not really? Sure, the cash you have in your mattress will be worth less the longer you let it sit there.
But $1,000 will still be $1,000, it will just be less able to buy much as time goes on.
At some point, if we take the US as the example, the penny will certainly become worthless, and not used other than in virtual transactions.
As time goes on, we’ll shift to larger and larger denominations. The $1 item will be $5 then $10, then $20, then eventually $100. So one penny might be essentially worthless at some point (or already!), that doesn’t really matter, because no one will care about pennies as anything other than useless details on a ledger.
By the time any of it matters logistically (will pennies/dollars still exist when cheap things are $1000?) we’ll be on to all electronic/virtual transactions anyway, so the fact that we go to higher and higher numbers won’t matter.
At some point, just for ease of language, we’d then come up with a new ‘dollar’ type term. $100,000 (or whatever) would be called a “c-dollar” or whatever, and we’d start to talk about things in c-dollars. “that will be 3 c-dollars please.”
Plus really the core value of money is mostly based on labor and if we automate labor we are going to lower the value of money and debt and mosty equity other than stuff we can’t build or mine with yet more labor… like land.
You might be mistaken for thinking this also means there is more money in circulation, but this is not true! It acts as a counterbalance to the people who remove money from circulation, such as the super rich.
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