Central banks don’t “supply” dollars to cities, states and nations, rather dollars are an automatic effect of production in cities, states and nations. Contrary to what economists of the monetarist school believe, central banks don’t need to concentrate on managing so-called “money supply,” nor could they manage what is a market phenomenon in the first place. Central planning doesn’t work.
Money in circulation is production determined, which means wherever there’s production there is trusted money circulating as though placed there by an “invisible hand.” See Syria at present.
Before the fall of dictator Hafez al-Assad, New York Times reporter Raja Abdulrahim reports that “Even the utterance of the word ‘dollar’ could land someone in prison.” Despite this, dollars still circulated, albeit quietly. Abdulrahim writes that currency dealers like Mohammad Murad exchanged monetary mediums like the dollar and euro quietly. “If a customer needed dollars or euros,” Murad “would go to the person’s house, bills hidden inside a sock.
Yes, dollars circulated in authoritarian, murderous Syria because market goods did. And market goods, services and labor require trusted money to facilitate the exchange of same, meaning the dollar is everywhere, including in countries where it’s not legal tender, nor is it legal.
What’s notable about Syria is that subsequent to al-Assad’s fall, foreign-currency exchanges “have sprung up seemingly everywhere.” Illegal under al-Assad such that currency trading was as previously mentioned conducted secretly, not it’s out in the open.
Will the increase in so-called “money supply” boost the economy as monetarists imagine, or cause inflation if the supply is too much? No, and no. Money is an effect of economic growth, not an instigator. What’s powering the increase of dollars in circulation is store shelves where it’s now legal for foreign brands to be featured on them.
Where there are market goods, there are yet again trusted currencies that are offered up for those goods. It’s natural economics. No one brings goods to market in return for “money” that will exchange for quite a bit less. The dollar circulates in growing amounts in Syria precisely because Syrians want roughly equal value for what they bring to the market.
As for inflation, to say that a currency can circulate “too much” on the way to inflation is like saying there can be too much production. No, production is limitless, and by extension so is the so-called “money supply” limitless.
What causes inflation is currency devaluation, which is a policy choice. And it’s also a choice that results in a circulation decline of the devalued medium of exchange. Hopefully the latter reads as a statement of the obvious.
If not, go back three paragraphs. Written there is the basic truth that no one brings goods to market in return for “money” that will exchange for a lot less. Legal tender in Syria doesn’t circulate as much because it’s not trusted nearly as much as the dollar and the euro.
Does falling “supply” of the Syrian pound or lira signal suffocation of Syria’s economy and “recession” for money-in-circulation obsessed monetarists? No once again. Money is once again an effect. If there’s production there’s logically exchange, and where there’s exchange there’s reliable money. See the dollar’s rising circulation in Syria yet again.
It’s but a reminder that governments or central banks doing the business of governments can’t limit so-called “money supply” as much as they can limit production. With freedom ringing in Syria, production is up, which means exchange is. Hence money. Yes, Syria, much like every city, state and country, is a thorough rejection of monetarism.
