Topic: Real Inflation only happens when Central Banks print High Denominated Notes? (Read 409 times)

I think this would be irrelevant.

Inflation happens when there is an abundant supply of cash in the market with only less demand. Due to the amount of cash circulating, the value of the goods will definitely increase which translates to inflation. If the government opts to print cash in the process, the amount of cash circulating would skyrocket, increasing further the amount of goods which then translates to high denominations of money.

It would be irrelevant if bills are printed only as $100 since the value of goods in the market would not change. Instead of paying one coffee for $1000 (assuming hyperinflation), you would pay the coffee ten (10) $100 bills in the process.

Hyperinflation happens when the government of a particular country overproduces money just to aid the budget deficit they are currently facing. Whenever the government decides to print excessive money without matching the resources, products, and services offered, we must anticipate inflation soon after. Printing a lot of money isn't always the answer, but most leaders tend to do this without even thinking of the consequences it will cause their constituents and their whole country's economic state in general.

Even if the highest denomination bill will remain to be $100, if the government will print so much of it without proper regulation, inflation can still possibly happen. If a country is already experiencing hyperinflation, printing larger denominations would be one of their possible options. However, this could just cause greater trouble since hyperinflation is already existing, and printing additional money with larger denominations won't solve it that instant. All the money they will produce will be rendered worthless as long as there is a huge imbalance going on in the economy. Full dollarization would be one of their best options, but it has so many consequences to be think upon as well.

This is the correct answer right here. If you do not print high denomination while there is a high inflation that means the money will not be enough, and you will have people begging for food instead of dropping the inflation, you are not fighting inflation and winning just because there is a limited amount of cash in the market, you are still having a battle with poverty while people failing to find any money to pay, something that became a billion when it was just few thousand due to Zimbabwe level of inflation will not be dropping down to thousands just because there is no cash for it.

Governments and mainly central banks are just helping people to survive at that point, keep printing that high denomination so that you can help people. Don't get me wrong I am not saying keep doing that only to print more money, that is devaluation, I am saying do that because people do need that in paper, when it is already in the books.

Ofcourse. As long as your citizens are producing Good Things (more like good trees producing good fruits) in sufficient quantity.    Your printing should go into rewarding those producing enough good things, and can also be based on the number of people the good things have changed their lives for good. There are several ways to test and see how many people your fruits have really blessed .

You don't necessarily have to sell your fruits and you need to make sure the fruits get to everyone who needs them

If you must print , be very transparent and make sure the money is put to good use and bears much fruits. Any country that can guarantee this should be able to print.  And i believe there are system/tools like decentralized system that can help make safe printing possible if developed the right way

IMO, a low rate of inflation is neither bad, nor good. It doesn't mean that salary increases only occur when inflation is there. In high-inflation countries, salary increases have no value, because the purchasing power goes down even with higher salary. Also, if the argument is true, then there should not be any salary increase in countries with almost zero inflation, such as Japan and Switzerland. Ideally I would prefer 0% inflation, so that the value of our savings remain intact. But anything less than 5% is OK under current circumstances.

This is absolutely ridiculous.

You're getting cause and effect mixed up here. The reason why central banks would print high denominations in the first place is due to inflation. Printing high denomination notes itself does not necessarily cause inflation - just look at the Titans and Giants that are issued by the British government to facilitate interbank transactions.

The U.S. dollar is bound to decline to its intrinsic value of zero as a matter of time. Think of it as exponential decay whenever you store value in cash.

Nope you are describing a hyperinflation, inflation happens all the time, a normal and stable inflation rate is a sign of growth in the economy of a country plus it's not as bad as you think it is, if it is stable and a controlled inflation that is, because it's one of the many reasons for salary hikes and increase in your investment values because they keep up with inflation. Inflation isn't as bad as many think it is.

To become richer, a country must produce and sell something. It can be in the form of products, services, or natural tourism potential. If this goes well, it will be safe for a country to print more banknotes. So that people can increase their purchasing power.

But, if a country just prints more paper money without producing or selling anything, what will happen? As a result, there will be no state income and prices will immediately rise. This will make it more difficult for the people. Because if left unchecked, prices will continue to rise rapidly.

This is really funny and the analysis of the wealthy with the devalued notes carried around by the Zimbabwean kids  
Zimbabwean currency have been devalued as a result of inflation. This has brought extreme poverty to the them.
America has done well to keep the dollar currency stable and not devalue it by printing higher denominations. America print notes during Trump and Biden currently but they have also brought policies to reduce inflation by introducing taxation. Printing of notes isn't really the big issue but to have a proper plan not to allow devaluation.

The inflation comes when government prints huge amount of money not from the highest denomination number, if a government prints more money just because there is not enough circulation in their economy will leads to hyper inflation.

But every government is printing money but at certain rate which keeps  the inflation under control, so governments which are experiencing inflation should generate income from someway instead of just printing it.

This isn't true at all.  If anything, the incentive not to enter hyperinflation would outweigh printing money just because you can.  Despite what you must think, the federal reserve isn't run by people with zero economic knowledge who just can't resist creating money for the sake of it.

I do remember that, though I'm not convinced that anyone in the government (or at least anyone who would have final say in the matter) was seriously considering that coin.  I didn't click on that wikipedia link, but if my memory serves me correctly that idea was floated around the time when precious metals were skyrocketing in 2011 or in the years when they were declining but still very high-priced (2012-2014).

I also remember reading a lot of criticism of that trillion dollar coin and ended up agreeing that it would have been a silly idea indeed.  But hey, the Fed is printing money like there's no tomorrow so if you look at it in that context, a $1 trillion coin/banknote isn't completely outrageous.  They've proven that they can create money out of thin air with no immediate consequences, so why not?  Makes me wonder why we're all still paying taxes.

The final result of hyperinflation is that money becomes as worthless as the Zimbabwean currency. That's what we see in the country's economy. 100T is not a normal value but if converted it doesn't even reach 1 USD, until their government passes a lot of currency to deal with its hyperinflation. Yuan, USD, even the rupee, are very unique.

               This may prove to be true but quite a shallow way of looking at it. Trees can be replanted, yes. But it is not instant, and the land for these trees aren't being maintained thus it reduces due to modernizations. And with this we are seeing even stricter regulations in an attempt to preserve or minimize the abuse on using not just lumber but a wide variety of raw materials. Now, while it is true that fully automated manufacturing using AI and smart machineries is the trend nowadays, it doesn't mean that everyone has already adapted to it, nor does it mean that adopting such manufacturing methods are cheap. Not to mention it's lack of availability for certain parts of the world. That's how I understand our today.

And they seriously considered minting a Trillion Dollar Coin*

* but that, in fact, had nothing to do with inflation

Nowadays we often talk of Quantitative Easing, but bear in mind that QA is just one of many tools a central bank may use to inflate the money supply.
The only reason we talk about it so much is that it was the tool of choice after the 2007/2008 banking crisis.

Also, as a reminder to everyone: inflation is just colloquial for price increases.
Literally, inflation stands for the much narrower fact of an increase in money supply.
"Inflation" in the form of "everything getting more expensive" can also be a result of a higher throughput of money (velocity of money), i.e. people spending their money faster, instead of holding it. This can be a result of a lack of trust in price stability, but may also have other causes, e.g. low wages, high living costs etc.
"Deflation" on the other hand may result from people holding on to a lot of their money in the form of savings, which can be a result of higher wages, lower living expenses (e.g. housing costs, gas prices) and may also be due to a lack of opportunities to spend money (e.g. less travel during Covid-lockdowns).

Basically, there can be a huge number of reasons why we experience "inflation" or even "deflation".
Central banks on the other hand only have a limited toolbox to fight either, and all the tools are clumsy and work their magic comparatively slowly, if at all.
That's why Quantitative Easing was the level of choice to fight an impending deflationary phase after the massive contraction of money supply after the breakdown of the US housing market.
It was an appropriate, and most of all, fast response to the massive failure of the private banking sector.
We have yet to experience an inflationary "fallout" from the massive QA post-2008 and so far the "best" we can hope for is a slight increase of inflation post-Covid.

No, you've got the cart before the horse.  High-denomination banknotes are printed because there's hyperinflation, not the other way around.  Those notes are printed to make spending huge number values of whatever currency is hyperinflated more convenient than, say, carting around a wheelbarrow full of cash.

You know, they used to print very large dollar value banknotes in the past, no?  I'd have to look this up, but I'm pretty sure the US used to print $100,000 bills (or at the very least there used to be $10,000 bills).  There wasn't a hyperinflation situation then, and those banknotes were only really ever used for large cash transactions between banks and such.  They existed well before money was electronic, so it was the best they could do at the time.

In any case, I'm pretty sure the US would have to experience a severe inflationary episode (or flat-out hyperinflation) before the government started printing those high-value banknotes again, because the reason they stopped making them in the first place was to make it harder to transact illegal business with cash--to the best of my knowledge at least.  That's why $100 is the largest denominated note in circulation, despite the fact that a $500 or $1000 bill would probably be useful to many people.

Take into account that if we talk about "printing money" most of the time we are talking about Quantitative Easing. In this concept, in theory not a single banknote has to be printed, because all the magic occurs between banks and the central bank, and digital money is used.

Basically, Quantitative Easing means that the central bank increases their buys of bonds issued by 1) the government or 2) local businesses (the central banks always buy a certain quantity of these bonds, but in QE phases, they strongly increase these buys). As these assets are bought from banks, this increases the liquidity of them, making it possible to give out more loans (this has only secondarily related to fractional reserve, liquidity is far more important, and some countries like the US have abandoned fractional reserve anyway). This is what can be (a part of) a cause for strong inflation.

So there can be "emission-based" inflation without any physical banknotes being printed.

But there are often several factors. In countries like Venezuela, and to a lesser extent Argentina, there is little confidence in the local currency, which creates an artificially low demand for it (and high demand for dollars, euros and sometimes Bitcoin). In this situation, QE fastly leads fastly into more inflation. But this is not always the case. The European Central Bank tried to rise inflation for the last 10 years with QE but rarely reached their goal of 2% annually in the euro zone - currently it seems 2% could be reached or surpassed, due to the post-corona boom.

What is the point in having trillions if it does not have an intrinsic value .

Inflation can be different types and hyper inflation is a direct result of a government printing too much money and the valuation of goods and services keeps on increasing and bad government policies for years are one of the major reasons for every country that suffered hyperinflation around the globe.  

It is not directly affecting with a government printing notes of higher denomination but it has an indirect impact because once hyper inflation sets in the government will be forced to print out notes of higher denomination to balance the ease of spending in the market.

When hyperinflation sets in people usually dump their local currency to something stable and usually they go for USD or EURO and now with BTCitcoin they can very well choose them rather than looking for other fiat currencies.

The lumber prices had nothing to do with inflation, just like the chip shortage.
This is one of the few really good articles about his, pointing out he obvious causes:

https://www.forbes.com/sites/billconerly/2021/05/22/why-lumber-and-plywood-prices-are-so-high-and-when-they-will-come-down/

Low-interest rates, higher demand, the inability of increasing capacity short term, disruption at mills because of sporadic covid cases shutting down production, basically the perfect storm. Besides, lumber prices have dipped again below 900, down from 1670, they are at January levels, a few more months and they will drop more, next year after we have a dad season in construction but still full capacity production they might return to normal levels.

No, printing a higher denominated note is just a recognition that the inflation is out of control, after all we know governments do not like the privacy that cash brings, in fact there were 1000 dollar bills before but they stopped printing them precisely for this reason.

However governments can hide inflation by avoiding this, as many people in developed countries are using electronic money already, something that increased due to the pandemic, also most of the money that was printed went to different markets like the stock market and this one and not towards common products and services reducing the real inflation significantly.

What we are missing out on this is that if you own an asset you are getting richer, whereas if you own fiat or working for fiat then you are getting poorer no matter how much you are making, because you are now poorer compared to your old self even if you are not technically poor. Stock market is not the solution, it's assets, if you own something that is not tied to fiat, and it is something valuable all of its own then you are going to be rich.

It is all the Robert Kiyasaki I have been watching talking right now but he is right, and crypto is not a bad solution neither, just like gold, and house or business or stuff like that which you can own. Getting a loan is a bad thing if you are doing it short term and have no income, buying a house to live in with loan is not easy for example, but getting a loan to earn more instead and getting a waaaay long term, like 25 year term loan that helps you profit? That is the way to become a rich person.

I remember 20 years ago a can coke was like 30-50 cents. Now its over $1 each.

When you say without anyone noticing too much of inflation then that means prices has increased very slowly over time so people didn't notice it like that can of coke example I gave above. This is called slow inflation meaning the fed are meeting its annual 2-3% inflation target correct?

If for example a can of coke went up to $10 each overnight from tomorrow then people will notice inflation straight away right?

So if the fed are meeting its annual inflation target like they have been for decades then what's up with all these inflation hedge services? Is there a need for a inflation hedge when inflation is slow and gradual over decades?

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But how many of those high denominated banknotes are in circulation in those societies there and are they rare?

In the UK the highest denominated note is £50 but its rare to see this banknote. Even retail banks in UK stock less of this high note due to security reasons.

In Zimbabwe you see everyone carrying $100 Trillion Zimbabwe dollar notes.

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Trees are not scarce and is a raw material. Trees can be replanted for more trees yet lumber prices were at all time highs weeks back. Is it because of inflation? Production nowadays is suppose to be cheaper compared to decades ago because technology and Ai and automation nowadays makes production more efficient, Automation requires less manpower so should be cheaper right so prices rising due to inflation not because of production costs?

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The US can lose its world reserve currency status when scary inflation happens however you said the people at the top wont let it happened. So this means they are manipulating inflation data to make it look like there's no high inflation? If they can get away with it by keep doing this manipulation then how can Bitcoin a inflation hedge compete with this high level manipulation?

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In high/hyper inflation countries there's no metal coins there for change after buying something because every price there is highly inflated price anyway that is paid for in notes only and you get change back in notes only not in coins?

So the true benchmark test to see whether a country has high/hyper inflation is walk into a candy store there and buy a penny sweet with a $1 and you get 99cents back in change and if you do get change back in metal coins then that means there's no inflation worries in that country?

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If central banks takes the cashless society CBDC notes then paper money notes bills wont exist anymore, this means 100% of the money supply will be on ledgers/derivatives correct?

If CBDC's can be on their centralized digital blockchain ledgers then can inflation still be possible on this new money system where centralized entities can easily manipulate the data on the centralized blockchain or delete entries from that blockchain or easily reset that centralized blockchain to start fresh again after a financial crash? Similar to like a factory reset of a phone after a system malfunction or crash but lose all data.

Otherwise can data on a centralized blockchain be backed up but then again the backed up data can be edited/manipulated easily.

[moderator's note: consecutive posts merged]

Yes you are right striking off a few zeroes is always better than issuing high-value notes but it's only a temporary solution to get the economy going it cannot be a solution for hyperinflation at all. I think the only successful way we have been able to solve the hyperinflation crisis is by dissolving the national currency altogether and using any stable foreign currency in place of that to alteast ensure equitability among all the citizens because in a hyperinflationary situation those among the top tiers who receive their incomes from the government directly are in a much better situation as they spend it before new money supply has kicked in. Also, black marketing and Hoarding by bureaucrats can be stopped using this method only. Hyperinflation is a very difficult situation to handle and especially for the very intelligent economists of that country because of whom the country is in this situation in the first place.

I guess the main reason for the higher denomination note is to reduce the amount of notes in circulation. So instead of bank giving a customer $10,000 in multiple notes (10,000 pieces of  $1 notes)  for example, the bank simply give the customer a single $10,000 note.   That could actually make the owner of the note to spend it easily compared to having the note in many pieces. There are several factors that can actually contribute to inflation but the major one is printing more money than is required and using the money mainly for consumption.  If you could print alot of money and use it mostly for producing basic goods(good ones) that can easily be replicated especially in agriculture, you could easily reduce inflation if the money is distributed based on merit(true merit... not the kind of merits we see around on the internet,lol)

 I however don't think it's good idea use money printed in this manner for scarce resources,unless the printer is a saint and knows what he/she is doing


In regards to the "Starving kids", blame it on the Fiat system, assuming the country kids are actually "starving" . You may need some time to check out the definition of the word "starving" and see if it fits in the context of that part of your post

If they print a lot of smaller denominations, I think it will still have the same effect as that. I think inflation could be prevented if the spending is being monitored and controlled and the wages are growing in parallel with inflation.

Highly improbable! The inflation is nowhere at the point of 100$ dollars bills would be obsolete and you wound need 10x the value on a bill, this is not something that will happen in the near future.

Another thing is that already we're stepping towards digital money (not bitcoin!), cards and bank transfers for larger sums, and the need for bills with the large denomination is simply not there, the 500 Euro bill was a flop, forgetting about the claims of it used for smuggling and other shady deals there was simply no real-world usage for it, cash purchases are limited in most of the EU and shopkeepers would roll their eyes when seeing one.

Long before a 1000$ bill will be printed probably less than 5% of the population would be still paying with cash, and nobody would really care about them having to carry 50 bills instead of 5, the authorities at that point would be more inclined to shut down cash operation and tax evasion than making life easier for them.

I have always argued that it is better to redenominate the currency rather than printing high denomination banknotes. Because when they print banknotes for 100 trillion or 200 trillion, it makes calculation so difficult. Zimbabwean dollar itself was redenominated three times, before it was discarded altogether. Recently Venezuela, São Tomé and Mauritania are some of the countries that tried redenomination. But in case of Venezuela, the impact lasted for only a few months. If the inflation can't be controlled, then these measures are just useless.

Its a fundamental question of supply and demand.

If gold were as plentiful as the sand of the world's beaches and deserts, the high supply would greatly diminish its value. When fiat is overprinted, the same effect occurs. Exclusiveness is a factor in determining value. A limited edition run of 200 units of gold or silver coin. Would probably be more valuable than a limited run of 20,000 units.  We see these trends with collectibles. The more scarce and rare a collectible is, usually correlates with higher value.

A stable supply of fiat will retain its value. While an overabundance of supply (massive printing volume) can carry the opposite effect.

Higher denomination bills are mainly printed when it becomes inconvenient to haul truckloads of bills to pay for basic items like loaves of bread (as occurred with zimbabwe hyperinflation, pictured below) with current denominations in use.

This actually is inversely proportional! Inflation was itself the reason why Zimbabwe had to print a $10 Trillion Note. A need for higher currency notes arises only when the purchasing power of the country has risen which means the currency has got devalued by a certain proportion. One Argument you can give is that high denominated notes will add quickly to the overall money supply but that isn't really the truth because when printing takes place they have a set target of reaching a particular value and then they decide how will they split the denominations. So Either way what you are saying is absolutely wrong.

You have it backwards. Large denomination bills are the result of inflation.

If prices increase by 10x, then people will want $1000 bills for what they previously used $100 bills for and smaller denominations become useless. So the government must print higher denomination bills.

Also, note that about 10% of the money in the U.S. exists as coins and bills. The rest of the money exists in bank ledgers.

Lol! It's other way around! Higher denominations are printed as a result of inflation. Printing higher denominations is not a reason for inflation. The examples you have given for Zimbabwe, has started printing billion dollar notes only after Hyperinflation kincks in and people were literally carrying a bucket full of money to purchase their daily groceries. So printing a hundred dollar bill or thousand dollar bill is not an indication to inflation, rather it is a direct result.

It may seem very scary looking at it nowadays but in reality, the economical state of the USA isn't that bad yet to be comparing it to Zimbabwe. And even if there already is inflation that is a bit high than what the people on top wants to show, I doubt that it'll get so worse that it'll bring the US to its knees. These people on top won't let that happen since as this happens, the US will lose influence over a lot of things and so will they. Now about its possible effects on bitcoin, your guesses are just as good as mine. Speculaing is the only thing we can do about that and hope our worse fears don't ever happen.

               You have to understand that there many causes for inflation. For instance, it can occur when services or products increase price due to the high costs of production in which the culprits are raw materials being scarce and manpower. And thus makes people willing to pay higher prices for the same products and services. The printing you have mentioned isn't really the cause but instead, one of the results of inflation. And like others mentioned, Zimbabwe is experiencing a severe case of inflation leading to such means. It's effects on bitcoin may rather be good though since this just means more inflow of investments due to fear of heavy inflation.

That's true. It is foolish to blame the banknotes for inflation. If that was the case, then Switzerland should be having one of the highest inflation rates in the world. Ever heard of the CHF 1000 banknotes (equivalent to $1090)? But Switzerland has a near-zero inflation. Their currency is one of the strongest in the world and the exporters there recently had to request the government to devalue the Swiss Franc. Similarly, both Singapore and Brunei have $10,000 banknotes and yet have some of the lowest inflation rates in the world.

High denominated notes are printed after inflation takes affect. I don’t think govt print high denominated notes and after that inflation happens. When people have more money (less value of course), they need high denominated notes for easier carrying. Zimbabwe didn’t have that trillion dollar note before inflation, it was printed after the inflation happens in unusual way.

No. Inflation can even happen without anyone else noticing it too much. In fact, I truly believe we are in that stage right now.. where everything gets more expensive every month but not so expensive it becomes obvious. It's much more of a subtle change that affects overall a lot of people already.

Yeah, sometimes this banknote thing happens.. But not all the time. Hyperinflation can happen at a pace so fast even money printers would not be able to keep up with it. Don't wait for new banknotes to come up in order to notice the bad economical events happening. When they start printing them, it's already gonna be too late.

So you reckon we will see a $500 to a $1000 dollar note soon not far off in the future?

But $500 or $1000 notes/bills or even a $1000000 note is nothing compared to $100 Trillion Zimbabwe dollar note.

Theres a thousand billions in 1 trillion, theres a thousand millions in 1 billion so even a printed $1m US dollar note bill is nothing compared to Zimbabwe currency.

The US $ went off the gold standard in the 70s and the $100 US note bill came into existence over 100 years ago from 1914. If the $100 US note bill can still remain leader and king for over 100 years and still remains the highest denominated bill note for to this day then where is the high inflation

All non-backed fiat currencies will eventually experience some level of hyperinflation because the incentives to keep printing are just too high. Imagine having the ability to create money out of thin air with minimal restriction, oversight and effort. Wouldn't you keep printing? Especially when faced with economic distress as seen with the covid19. In other words we will see bigger bank notes in the near future.

Probably keep in mind that high inflation can just be something double digits like 12%+. Zimbabwe's 500%+ inflation shitshow is just a whole different beast hence why they literally have a 100 trillion dollar bill. I don't think it's realistic for us to expect the United States to reach inflation rates THAT bad. (though I'm not saying it's impossible, just a bit far-fetched)

I noticed that every country that experienced high/hyper inflation, the central bank in that country has to print a very high denominated fiat note/bill.

For example in Zimbabwe I see kids carrying notes in their pockets displaying on them $10 Trillion Zimbabwe dollars. These poor starving kids are trillionaires much richer than the richest billionaires like Elon Musk and Bill Gates on the planet on a monetary unit scale.

In the US the highest denominated note bill now is $100.

So the question is as long the highest denominated bill still remains $100 then there wont be any high/hyper inflation worries in the future?

I understand if the Federal Reserve printed a $1000 bill/note then that would be concerning right?

The Fed can print trillions and still print trillions but as long the fed keeps the highest denominated note bill to $100 they they can manipulate inflation in their control correct and keep their $US Dollar still in power?

Bitcoin is a hedge against inflation but if there's no inflation or there is inflation but manipulated to look like there's no inflation then what that will mean for bitcoin?