How can inflation be controlled by the narrow concept of money supply?

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By focusing on the narrow concept of money supply, policymakers can implement strategies that reduce the circulation of money in the economy, addressing the root causes of inflation and stabilizing prices over time.

M1 includes physical currency (paper and metal) and demand deposits (current accounts) that can be quickly accessed for transactions.

By increasing reserve requirements, central banks can control the amount of money that banks are able to lend. When banks are required to hold a larger portion of deposits in reserve, they have less to offer for loans, which can reduce money supply growth. This tightening of M1 can dampen inflation.

By regulating lending standards and credit availability, central banks can also influence the growth of M1. If credit is tight and lending slows, money creation through bank lending decreases, which can help prevent excessive inflation. By closely monitoring the M1 money supply in conjunction with inflation rates, central banks can adjust their policies (interest rates, reserve requirements, etc.) to align with their inflation targets, ensuring that inflation remains within the desired range.

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Understanding the underlying economic theories and reviewing the scientific literature can provide deeper insights Zouyene Sadek into effective inflation control strategies.

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Ref/

• Friedman, M. (1968): "The Role of Monetary Policy" discusses the relationship between money supply and economic stability, emphasizing the long-term effects of money supply on price levels.
• Bernanke, B.S. & Blinder, A.S. (1988): "Credit, Money, and Aggregate Demand" explores how monetary policy and money supply can influence inflation and economic activity.
• Borio, C. & Lowe, P. (2002): "Asset prices, Financial and Monetary Stability: Exploring the Nexus" provides insights into how changes in M1 affect financial stability and inflation.
• Mishkin, F.S. (2001): "The Transmission Mechanism of Monetary Policy: Lessons for the Future" elaborates on how monetary policy, through managing M1, impacts inflation.
• Taylor, J.B. (1993): "Discretion versus Policy Rules in Practice" discusses how adherence to rules (such as those controlling money supply) can better stabilize prices compared to discretionary policy-making.

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Imo: Inflation is the perfect hidden tax. The government makes the currency less valuable by issuing more units of fiat money, partially dissolves its debt in real terms, collects more taxes, and presents itself as the solution to rising prices with subsidies in an increasingly worthless currency. Many citizens want more government control of the economy to curb rising prices. It is the worst strategy imaginable. Interventionist governments never reduce consumer prices because they benefit from inflation, dissolving their political spending commitments in a constantly depreciated currency.

When a politician promises that he or she will cut prices, they are always lying. A weaker currency is a tool to increase government power in the economy. By the time you find out, it may be too late.

Money is credit, and government debt is fiat currency. Currency depreciation is inflation, and inflation is equivalent to an implicit default. No interventionist government or central bank wants lower prices because inflation allows the government to increase its power while slowly breaching its monetary commitments.

If you want lower prices, you should give less economic power to governments, not more.

التضخم هو الضريبة الخفية المثالية. فالحكومة تجعل العملة أقل قيمة من خلال إصدار المزيد من وحدات النقود الورقية، وتحل جزئيًا ديونها بالقيمة الحقيقية، وتجمع المزيد من الضرائب، وتقدم نفسها على أنها الحل لارتفاع الأسعار من خلال دعم عملة عديمة القيمة بشكل متزايد. يريد العديد من المواطنين المزيد من السيطرة الحكومية على الاقتصاد للحد من ارتفاع الأسعار. إنها أسوأ استراتيجية يمكن تخيلها. فالحكومات التدخلية لا تخفض أسعار المستهلكين أبدًا لأنها تستفيد من التضخم، وتحلل التزاماتها السياسية في الإنفاق بعملة تتراجع قيمتها باستمرار.

عندما يعد السياسيون بأنهم سيخفضون الأسعار، فهم دائمًا ما يكذبون. فالعملة الأضعف هي أداة لزيادة سلطة الحكومة في الاقتصاد. وبحلول الوقت الذي تكتشف فيه ذلك، قد يكون الأوان قد فات.

المال هو الائتمان، والدين الحكومي هو العملة الورقية. انخفاض قيمة العملة هو التضخم، والتضخم يعادل التخلف الضمني عن السداد. لا تريد أي حكومة أو بنك مركزي تدخلي انخفاض الأسعار لأن التضخم يسمح للحكومة بزيادة قوتها بينما تخرق ببطء التزاماتها النقدية.

إذا كنت تريد انخفاض الأسعار، فعليك أن تمنح الحكومات قوة اقتصادية أقل وليس أكثر.

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PS///The Austrian Economic Viewpoint/pdf attached, for your perusal.

1.Increasing CRR

2.Increasing bank rate

3.Increasing repo rate

4.Reducing SLR, or

5. by formulating monetary policy such that interest received on savings is increased which encourages people to save more and spend less.

Controlling inflation through the narrow concept of the money supply, specifically M1, involves several key strategies:

1. **Understanding M1**: M1 includes the most liquid forms of money, such as cash and checking account deposits. It reflects the money readily available for spending.

2. **Monetary Policy**: Central banks can influence inflation by adjusting the money supply. By decreasing M1, they can reduce the amount of money available for spending, which can help control inflation.

3. **Interest Rates**: Raising interest rates can discourage borrowing and spending, effectively tightening the money supply. This leads to a reduction in M1, as less money circulates in the economy.

4. **Open Market Operations**: Central banks can sell government securities to absorb excess money from the economy, reducing M1. This action decreases liquidity, which can help bring down inflation rates.

5. **Reserve Requirements**: Increasing the reserve requirements for banks means they have to hold more funds in reserve and can lend less, thereby reducing the money supply and M1.

By implementing these strategies, central banks can effectively manage the M1 money supply to help control inflation.

It is impossible to control inflation with the M1 unit. As long as commercial banks have the ability to create money out of thin air and as long as there is interest on money, inflation will always exist. The central bank will never be able to control inflation.