Money and credit - Ivanov V.М.

11.3. Forms and methods of anti-inflationary policy

The main forms of stabilization of monetary circulation, depending on the state of inflationary processes, are monetary reforms and anti-inflationary policy.

Monetary reforms were carried out under conditions of metal currency circulation - with a silver or gold standard, and after World War II, when the gold and gold standard was in effect.

At the end of wars and revolutions, the stabilization of monetary circulation as one of the most important ways of economic recovery was carried out with the help of:

• nullification;

• Restoration (revaluation);

• devaluation;

• denominations.

Nullification - the announcement of the cancellation of a highly depreciated currency and the introduction of a new currency.

Restoration (revaluation) - the restoration of the former gold content of the monetary unit.

Devaluation - a decrease in the gold content of a monetary unit.

Denomination is a method of "striking out zeros," that is, increasing the scale of prices.

Anti-inflationary policy is a set of measures for state regulation of the economy aimed at combating inflation.

In response to the interaction of inflation and demand inflation, two main lines of anti-inflationary policy emerged: deflationary policy (or demand management) and income policy.

The deflationary policy is the methods of limiting monetary demand through monetary and fiscal mechanisms by reducing government spending, raising the interest rate for a loan, strengthening the tax press, limiting the money supply, etc. The peculiarity of the effect of deflationary policy is that it, like Rule, causes a slowdown in economic growth and even crisis phenomena.

The income policy assumes the parallel control over the prices and the salary by their full freezing or an establishment of limits of their growth. For social reasons, this kind of anti-inflationary policy is rarely used, because, firstly, the slowdown in prices leads to a deficit for some goods, and secondly, price growth is restrained only for a certain time, and with the lifting of restrictions is again accelerated.

Variants of anti-inflationary policy are chosen depending on priorities. If the goal is to contain economic growth, then a deflationary policy is carried out, if it is supposed to stimulate economic growth, then the policy of income is preferred. If the goal is to curb inflation at any cost, then both methods of anti-inflationary policy are used in parallel.

Indexing (full or partial) means compensation for losses as a result of the depreciation of money. At first this method was applied at the end of the 40's - the beginning of the 50's under inflation caused by the transition from the military economy to normal market conditions.

Forms of containment of controlled price growth are manifested, firstly, in freezing prices for certain goods, and secondly, in containing their level within certain limits. Such control has been preserved in all leading developed countries.

This control is even more important for developing countries, where a stable level of retail prices for consumer goods is supported by government subsidies, which ensures a low but stable standard of living for the population.

Competitive incentives for production include measures to directly stimulate entrepreneurship by significantly reducing corporate taxes, and by indirectly stimulating savings for the population (tax cuts from the population).