Traditional Culture Encyclopedia - Photography major - Why does inflation lead to currency depreciation?
Why does inflation lead to currency depreciation?
The most important thing about money is the measurement of value, that is, money is mainly used to measure the value of goods. The total amount of money circulating in the market is actually the reference of the total value of goods circulating in the market. For example, the currency that can be used to show the value of a bicycle in the market is 200 yuan. However, when the number of bicycles has not increased, the currency circulating in the market has been increasing. The currency that can only be used to reflect the value of bicycles has risen from 200 yuan to 250 yuan, so the price of bicycles has become 250 yuan. The value of bicycles has not changed, but the price used to measure their value has increased by 1/4. This is what we call inflation. So the reasons for inflation are nothing more than two aspects. On the one hand, the amount of money used to measure a commodity has increased, but its value has not increased. On the other hand, under the condition of constant currency circulation, the number of commodities has decreased.
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