<p>Inflation won't necessarily change the price of goods from country B in real terms, but it will change the relative costs of buying goods from country B now vs saving now and buying goods from country B later.</p>

<p>Under the gold standard, there are no central banks to force the interest rate up when inflation rises. If inflation goes up but interest rates don't go up, then consumers in country A will save less and spend more, leading to a temporary increase in imports from country B. </p>

CC BY-SA 4.0
2019-07-15T16:55:59.873Z
2019-07-15T16:55:59.873Z
Angela Pretorius
<p>The relative increase in inflation of goods in economy tends to be higher than the depreciation of its currency , this increases imports , however if this situation continue for long periods , the currency depreciates due to trade deficit</p>

CC BY-SA 4.0
2020-08-09T20:27:47.327Z
2020-08-09T20:27:47.327Z
Cherry
<p>I am reading Murray's Rothbard &quot;What has government done to our money?&quot; and this is his reasoning for inflation leading to loss of gold reserves to other countries (assuming everyone is on gold standard)</p>
<p>Lets assume everyone is on gold standard. Then</p>
<ol>
<li>Credit expansion in country A.</li>
<li>Prices in A increase.</li>
<li>Increase in imports from country B because foreign goods become cheaper.</li>
<li>Country B redeems A's currency for gold. Hence gold outflow from A to B.</li>
</ol>
<p>What I am confused about is how inflation leads to increase in imports in 3. As monetary supply increases, A's currency would lose purchasing power and so imports would become equally expensive at that point. Why would that not be the case?</p>

CC BY-SA 4.0
2019-07-23T10:54:45.817Z
If both countries are using the gold standard then exchange rates are fixed -- A's currency won't naturally lose purchasing power through devaluation.
Dan
<international-trade><business-cycles><austrian>
Inflation leads to loss of gold reserves
Abdul Rahman
# Inflation leads to loss of gold reserves

(Asked by: username_0 on 2019-07-15)

I am reading Murray's Rothbard "What has government done to our money?" and this is his reasoning for inflation leading to loss of gold reserves to other countries (assuming everyone is on gold standard)

Lets assume everyone is on gold standard. Then

1. Credit expansion in country A.
2. Prices in A increase.
3. Increase in imports from country B because foreign goods become cheaper.
4. Country B redeems A's currency for gold. Hence gold outflow from A to B.

What I am confused about is how inflation leads to increase in imports in 3. As monetary supply increases, A's currency would lose purchasing power and so imports would become equally expensive at that point. Why would that not be the case?

**Tags:** international-trade, business-cycles, austrian

> **Comments:**
> **username_1**: If both countries are using the gold standard then exchange rates are fixed -- A's currency won't naturally lose purchasing power through devaluation.  

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## 2 answers

### Answer by username_2 on 2019-07-15. Score: 1

Inflation won't necessarily change the price of goods from country B in real terms, but it will change the relative costs of buying goods from country B now vs saving now and buying goods from country B later.

Under the gold standard, there are no central banks to force the interest rate up when inflation rises. If inflation goes up but interest rates don't go up, then consumers in country A will save less and spend more, leading to a temporary increase in imports from country B.


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### Answer by username_3 on 2020-08-09. Score: 0

The relative increase in inflation of goods in economy tends to be higher than the depreciation of its currency , this increases imports , however if this situation continue for long periods , the currency depreciates due to trade deficit


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