Financial Innovation Makes Sense During High-Inflation

Financial innovation makes sense when economy needs liquidity or it wants to raise funds. When the economy is in blues and wants to boost consumption or facilitate a particular level of consumption, say subsistence-living or some form of social-security. Innovation of financial instruments make best sense when the economy is experiencing high inflation because it sucks liquidity from customers' hand and place it to more responsible hands. Interest or gains from financial instruments are partially, from the point of view of the composition of rich and poor in a population, a reward for postponing consumption, and partially a reward for accumulating wealth. But, when the onus is on Central-Banks the former is a bigger concern because it directly adds to inflation, in the form of prices of basic goods and services, and higher rate of inflation is direct hit on poor stomachs earning subsistence wages or earning very-low. Therefore, on occasions of high inflation the Bank may choose to reward better for postponing consumption than just accumulation of wealth in a discrete way. At last, to conclude, financial-instrument-innovation makes a better sense in times of high inflation rather than creating it, meanwhile the poor is busy with his two-squares of meals and save very little to reach banks.