A Possible End to Inflation?
I have mainly highlighted in prior blog posts about what could happen if inflation continues the way it has. Prices of everyday goods that consumers are forced to pay just because there is no getting around it, and the purchasing power of money decreases every year. However, in this post I would like to take a different stance, that is to stop inflation in its tracks as a whole. How would we go about eliminating inflation? If there is an idea of how to end it, why have we not done it yet? Stick around to find the answers to all these questions.
How can we do it?
One possible way to decrease inflation and hopefully end it as a whole mentioned by Granville is having a strong central bank independence (CBI) from the government. Having the bank be utterly independent of the legislature would rely heavily on the credibility of the bank. Granville mentions that “the public will be more inclined to believe that an independent monetary authority, by dint of its autonomy and detachment from the tactical play of current policies, will be capable of implementing its mandate year after year and without fear or favor. Moreover, in a virtuous circle, that very public expectation will, in turn, facilitate the central bank’s efforts to lower inflation”.
What does this mean?
This statement has a lot going on, so I would like to break it down for you in what I think Granville is trying to get across. He is saying that if the banks were in entirely in charge of money and not the government or legislature, then people will be more open to the idea of trusting these banks if they have credibility. It is tough for the general public to trust policymakers and politicians because we never honestly know if the decisions they make help the community or just help them. But if the bank themselves were in charge of the monetary authority, the public would have to believe that policies announced by the independent bank were carried out and will continue to be carried out.
Why have we not converted to complete CBI?
Granville states the reason this may be tough to implement is that it may cause the “illusion of CBI as some ineffable higher state when in reality it is merely a contingent arrangement that that does not differ materially from any other political expedient.” If the general public is not fully backing the CBI, it would be because they may think that doing this may turn the banks into there own form of the political group causing the banks to act by there own interest rather than that of the peoples. I do not know if this idea of giving the banks all the monetary authority would be a good idea because this idea has never been implemented before so there are no statistics on whether or not it would work, but then again, you have to risk it to get the biscuit so anything could be worth trying.
Granville, B. (2013). Remembering inflation. Princeton: Princeton University Press.
