are the dangers of doing that? Inflation can be decreased by reducing the money
supply. What is the potential downside?
2. The only thing backing up a nation’s currency is faith in
the government issuing it. If this is so, what should governments do to
maintain a stable currency? What actions would undermine a currency?
3. A country that has never had its own currency has formed
a central bank and put you in charge of developing money. It needs to perform
the necessary functions of any good currency efficiently (i.e., being a medium
of exchange, a store of value, and a unit of account). Since your country is
interested in trading with other members of the global economy, other nations
must have faith in its fitness and the currency exchange markets must be
willing to accept it.
