Understanding Emission and Inflation without Technicalities

Hello friends how are you? Today I want to bring you a topic that for many is not completely clear, including me until I decided to do a little research to know these 2 definitions well, although they seem to be the same, that is not the case, they are 2 terms that, although they look similar, are different, Throughout this post I will try to explain it as best as possible without so many technicalities and try to bring it to a language that is as natural and understandable as possible, join me.

Among the many economic terms, there are two words, "emission" and "inflation", which are often mixed up as if they were the same thing. But stop there! In truth, they are like distant cousins: they are family, but not close. Understanding the difference between the two is very important to understand a little more about economic policies and make better financial decisions in the future.

So what is the “Emission”?

The Issuance is nothing more than when a Central Bank or a protocol decides to print new bills or cryptocurrencies on the market. That my friends is the emission. Now what happens if this issue is launched to finance public expenses, this could generate debts or worsen those that already exist and create distrust. But if instead this emission is made to help the growth of the economy a little, it could stimulate growth and employment, this case would be the ideal, right? Too bad it's almost always the first option. There is also the case of Bitcoin and other cryptocurrencies that follow an already predefined issuance plan.

But what about inflation then?

It is simply the general increase in the prices of all or almost all products such as bread, milk, eggs, meat, clothing, toiletries, and a long etc., this is measured with something called "price index", which What it tells us is if our currency is losing value. What could be the causes of inflation, a high demand for products and low production, or that production costs have increased, a natural disaster, a war and guess who else, well, the emission too.

There are many examples of countries in which inflation has grown without limits thanks to the uncontrolled issuance of money by their central banks. I am going to talk about the example that I can speak about first-hand, in the middle of the pandemic, an intelligent person in my country (Cuba) thought that it was a good idea to raise salaries and print a little money, all this when the economy of this country He has been backing down for more than 30 years, we all know the result.

So how are Emission and Inflation directly connected?

Well, I'll get ahead of you a little. As explained by the quantitative theory of money, if there is more money in circulation, prices tend to rise. Imagine that you have more money but the availability of goods and services remains the same, you wouldn't mind paying a little more and that's when the beast (Inflation) breaks loose. Here we have not taken into account other determining factors such as supply and demand, economic policies, which if all of this is combined, disaster can occur.

And once again I turn to my country, to the previously mentioned increase in salaries and decrease in products and services, add that a policy of this country has always been to limit the supply of products to the population, always putting "obstacles" to that individuals matter. You already know where the disaster leads. Cuba is the perfect example of all these factors combining to lead to inflation.

Now after knowing a little more about Emission and Inflation, why should we care to differentiate them?

What a good question, right? Here I leave you some reasons.

1. To Understand Inflation and Fight It: If you only think that it is the emission's fault that there is inflation, you would be falling into the trap of thinking that reducing the circulation of cash is the solution. Spoiler: that can lead to economic recessions and even more serious problems.

2. To Evaluate Economic Policies: If you only see emissions as the culprit, you could lose sight of the fact that sometimes it is the solution. It can stimulate the economy, finance public spending and control the money supply.

3. To Make Smart Financial Decisions: If you think that all cryptocurrencies are better just because you confuse emission with inflation, you would miss the advantages of other currencies. Diversification is key.

In conclusion and to conclude, Emission and Inflation are not the same, but they are similar. Issuance is launching new currencies, while Inflation is the increase in prices. Although Emission may be one of the causes of Inflation, it is not the only one. I hope you understand a little more about what each one is and the differences between them and that it helps you make better financial decisions in the future. Until next time.