Can a government reduce inflation by selling public property – i.e. trading assets for private cash and reducing the money in circulation?


Can a government reduce inflation by selling public property – i.e. trading assets for private cash and reducing the money in circulation?

In: 18

They can. We had a conservative government in Canada do this to appear to “balance the budget”
during their last year in power. This was following record deficits prior to some economic spillover from the previous government.

This is possible. However the government kind of need most of their properties to provide the services to the citizen that they expect. Should the government sell their military equipment to the citizen? Most citizen do not want much military equipment and those who do want it at full price might not be the best people to sell it to. Should the government sell highways? People kind of need those to get around. It is hard to find anything the government can sell, most governments have already been slimmed to the bone from budgets cuts already and private industries have to provide a lot of the basic services which governments previously did. And doing a one time sale of property is a very short sighted way of reducing inflation, it might slow it down a tiny bit temporarily but the things that cause the inflation to be high in the first place is still there.

They can do this to raise money, but largely, the better way to remove money from circulation is taxes – if you sell government property, the government will just have to rent most of it back. So long-term it’s not a great move.

Alternatively, the government could borrow more money than it needs in order to suck cash out.


The way this is actually done in practice is not generally with stuff like public land or buildings or things like that.

The way you’d be likely to see this happen in the United States is via a process called [“quantitative tightening”](, which is the opposite of “quantitative easing”. Essentially, this means that the Federal Reserve will sell financial assets it owns (mainly US government debt aka Treasury Bills) to financial institutions (or at least, that it will buy fewer). The result is that the Fed gets cash, and the financial institution gets the asset, thus removing money from the money supply.

Sometimes governments do sell off public assets for quick cash flow. It’s almost always detrimental in the long term (like when governments sell off infrastructure like railways, telecom networks, or hospitals to private enterprise). The government of the day looks rosy because they meet budget without deficit / wipe out debt. And then in a few years time the system is terrible, but that’s some other future government’s problem.

To make it even more eli5 , here’s an allegory: 20 years ago I was living in Zimbabwe, and my friend had a farm with a crop of avocados. The farmer had to leave for an extended period and left the farm in the care of some workers. They couldn’t work out how to harvest the avocados from the tops of the trees, so they cut the trees down. Made extra profit that season because they got to harvest a bigger crop with much lower labour cost, plus they sold the timber. But obviously that was the end of the avocado farm.