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Money and credit - Ivanov V.M.

11.3. Forms and methods of anti-inflationary policies

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

Monetary reforms were carried out in conditions of metallic money circulation - with the silver or gold standard, as well as after the Second World War, when the gold or gold dollar standard was in effect.

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

• nullifications;

• restoration (revaluation);

• devaluations;

• denominations.

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

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

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

Denomination is the method of striking through zeros, that is, enlarging 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 factors of demand inflation and cost inflation, two main lines of anti-inflationary policy took shape: deflationary policy (or demand regulation) and income policy.

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

The income policy presupposes parallel control over prices and wages by freezing them completely or setting growth limits. For social reasons, this type of anti-inflationary policy is rarely applied, because, firstly, a slowdown in price increases causes a shortage of some goods, secondly, price increases are restrained only for a certain time, and accelerate again with the lifting of restrictions.

Anti-inflationary policy options are selected based on priorities. If the goal is to restrain economic growth, then a deflationary policy is being pursued; if it is supposed to stimulate economic growth, then income policy is preferred. If the goal is to curb inflation at all costs, then both methods of anti-inflationary policies are used.

Indexation (full or partial) means compensation for losses resulting from the depreciation of money. At first, this method was used in the late 40s and early 50s with inflation caused by the transition from a military economy to normal market conditions.

Forms of restraining a controlled rise in prices are manifested, firstly, in the freezing of prices for certain goods, and secondly, in restraining their level within certain limits. Similar 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 state subsidies, which ensures a low but stable living standard of the population.

Competitive stimulation of production includes measures both to directly stimulate entrepreneurship by significantly reducing taxes on corporations, and to indirectly stimulate savings for the population (reducing taxes on the population).