Monetary Policy

Irresponsible monetary policy can undermine prosperity by promoting business cycles and otherwise preventing the price system from reflecting the true scarcity of various goods and services. Sound monetary policy limits such damaging distortions. In a fiat monetary system, it does so by assigning a central bank the overarching objective of maintaining a stable and predictable overall level of spending on goods and services, while insulating it from political pressure to pursue other, conflicting ends. But in a free society that attaches a high value to competition, consumer choice, and innovation, monetary authorities should also allow people the freedom to employ unofficial substitutes for official fiat currency: if the official monetary standard is to prevail, it should do so because it is well-managed and not because alternatives have been suppressed.