Quantity Theory of Money

If the inflation rate of a country is higher than the inflation rate of other competing countries, the price competitiveness of the goods and services will decline. Its exports are relatively expensive, and imports are relatively inexpensive. This will exacerbate the trade balance of the current account. As export demand diminishes during inflation, foreigners' demand for their own currency will decrease and domestic import demand will increase, demand for foreign currency will increase.

Economic concepts are increasingly appearing in literature on encryption currency. Currently popular among Chris Burniske (here) and Vitalik Buterin (here) is the theory of money (quantitative theory). Quantitative theory is very useful for analyzing and understanding the economy using tokens, but some of its usage is incorrect. The purpose of this article is to clarify the correct way to use quantitative theory in token economy.

The monetary method depends on the theory of money in macroeconomics. First, the money supply (Ms) is the amount determined by the central bank. In volume theory, money is aimed at exchanging media. Economic gold demand is proportional to the overall price level and the actual output. For example, if the overall price level doubles, the economy needs twice the transaction amount. The same way of thinking applies to actual output quantity. after that,

Basecoin has demonstrated its stability mechanism from monetary quantity theory (QTM) which states that the overall price level of goods and services is directly proportional to the money supply. According to the author of Basecoin, because of this theory, central banks that manage inflation can only perform functions at a high level and can expand or contract money supply based on price fluctuations. QTM has been endorsed as a long-term theory, but it was challenged by famous economists. Both Hayek and Chandler believe speed is not related to the currency level, but the erroneous assumption that change in money supply tends to be offset by the opposite change in speed.