The examples of the hyperinflation in Zimbabwe or Weimar Republic Germany are often mentioned as a reason why states cannot be trusted to issue currency. However, those making these claims rarely have any in-depth understanding of what happened in Zimbabwe, Germany or any of the other hyperinflationary periods. In reality, each period of hyperinflation happens due to a unique set of circumstances, usually political.
In short, money creation that is undertaken solely to boost government revenue, with little or no regard for the consequences, will be inflationary (as was the case in Zimbabwe). Conversely, printing money to spend into the economy, when performed responsibly and with a view to provide a means of exchange, can deliver a low inflation environment.
Many governments are not known for spending responsibly, particularly when elections are approaching. In order to prevent this conflict of interest, our proposals split the decision over how much money to create from the decision over how that money will be spent, to ensure that money is only created, if necessary, during periods when inflation is low and stable.
A mandate that money is only created when there is not full employment, and that there is a lack in demand would avoid any risk of hyperinflation.
Posted in: 4. Common misconceptions