Why isn’t the time value of money applied to currency in terms of purchasing power? Let’s say I have a dollar from 1930. I should be able to exchange that dollar today anywhere based on its present value, right? Doesn’t make any sense to me but I’m slow
In: 9
Two reasons –
One is economic theory that it’s good that money reduces in value over time as it encourages people to put money into active investments (rather than hoarding), encourages spending (again rather than hoarding), and transfers wealth to workers as the value of savings goes down while wages are *supposed* to go up with inflation (problems occur when this doesn’t happen, like right now!).
The other is practical – how would your bank account work? Would every single dollar you put into your account need to be dated so it’s value is known? Is the value calculated when you pay in? What happens when you take money out, the amount is calculated based on how old the bills you receive are?
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