Ban on Inflation

There is no inflation in Taler Bullion and its variants. Neither monetary inflation nor price or purchase power inflation are permitted.

The original meaning of inflation is now referred to as monetary inflation. This is the creation (or continued existence) of money for which no underlying value guarantees its full backing (anymore). It is lucrative to create unbacked money, especially for the party creating it, because it increases purchasing power at no expense. Likewise it is interesting to create partially backed value, because it multiplies the purchasing power for that one party.

To all but the one introducing surplus currency, the situation is unattractive, because they see more money available in total than the total value that it represents. The ratio between money and value will eventually adapt by demanding more money, in that average ratio, for the same value. In other words, the purchasing power of the money is eroded. Inflation is a one-sided advantage to the party creating the money.

This is precisely why old currency systems relied on precious metals, shells and such. It was not until the introduction of paper money that the idea of partial backing was even possible.

The term inflation was invented to refer to the blowing-up of the money supply all by itself. Nowadays, the term is confusingly used to (also) represent the increase of prices, or the reduction of purchasing power, but this only happens when the ratio between currency and underlying value erodes.

In a system with full backing, inflation does not happen.

Banking systems create money whenever consumers need a loan, and if they suddenly need to cough up more money than they imagined they turn to a central bank, which acts as a lender of last resort, to supply the necessary money. All this is possible in a partially backed systems.

Partial backing is not vile in itself. The underlying idea is maximal fluidity of money, so that a maximum amount of supply meets a maximum amount of demand. This is a reasonable system inasfar as it meets true human needs, or makes them cheaper. This property is perhaps not true for all trading, but the structures do not evaluate that and so there's a mixture of good and bad in all this.

These reasons for partial backing are very much concerned with markets and trading, so active fleeting uses of money. It is destructive for another use of money, and that is saving value for later use, such as in a pension fund. These are now also dependent on these fluid concepts, and subjected to their risks. This is a negative side to the call for fluidity. The solution is simple enough; use different monetary systems for investment-fluidity and for value-saving. Taler Bullion, but also its variants, are designed for the latter function because there already are so many money systems for the former.