Just like loose monetary-policy, loose Fiscal-Policy too is
responsible for currency de-debasing... If we are going to follow China then we
will have to go through currency re-denomination every-time inflation is too
high... Too much inflation debases the currency and people start carrying large
volumes of money which is unnecessary, therefore, countries apply
currency-re-denomination which reduces the volumes of notes and makes the new
currency re-denomination stronger, the new currency will be stronger. Higher
re-denomination indicates loss in the value of money… But, the logic is, if
everything’s’ value grows as time passes and investments we make also grow,
then why the value of money decreases as the time passes… The trend across the
developed countries is that their population rate of growth are contracting
which means less demand for their products and they are now too much dependent
on exports for growth, therefore, we can conclude that as the time will pass
supply will eventually outstrip demand and prices will start falling, in one
word- deflation, as we have experienced in Japan, the US and many parts of
Europe… Therefore, the pattern we are observing is that prices will fall as the
economy will grow and supply improves… But, prices can not fall below the
lowest denomination of any currency and in this situation if we want more
demand we can choose to increase the real value of money, a rise in real wages,
incomes and profits… by applying a lower re-denomination of the currency...
But, in lower re-denomination the old currency becomes stronger and the value
of money increases…
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