Question

Why must money be relatively stable in value?

Answer 1

Money must maintain a stable value. It must be able to hold its value over a period of time. Money is used as a medium of exchange. If it loses value over a period, it will not be able to buy the same things that it used to buy earlier. Hence it loses it's purchasing power. Suppose a person can buy 2 apples for $10 in 2010. In 2020, he can only buy 1 apple for $10 in 2020 if money loses its value. So it is important for money to hold its value and be stable in value if it must serve its primary function.

Money will also not be able to act as a store of value if it is not stable. A person who saves $10,000 in the bank for 10 years will not be able to use that money in the same manner as intended if its value changes. If it depreciates too much with inflation, the person will regret saving the money and its function of acting as a store of value will fail.