Is inflation linked to money creation?
We often hear the following argument: the surge in inflation from 2021 to 2024 is linked to the growth in the money supply over this period. We do not believe in this theory: Money creation was very rapid from 2008 to 2019 without any inflation appearing; Money creation consisted in a substitution of money for bonds in the portfolios of banks and private sector economic agents; if money and bonds are highly substitutable, this substitution does not lead to a change in the economic equilibrium; Bond sellers are institutional investors, non-residents or affluent households who do not use the proceeds of these sales for consumption; Money creation coincided with strong growth in the United States and weak growth in the euro zone, without any significant difference in inflation rates; On the other hand, money creation is reflected in asset prices (equities, cryptocurrencies, gold, etc.), which corresponds to portfolio rebalancing behaviour.