•  Similarly, inflation also puts further pressure on the government budget by raising current expenditure due to increases in the prices of inputs and the salaries of employees. It also causes the revenue to fall behind the increases in the national income. Therefore, the use of inflation as a measure for funding government budgets is not an advisable strategy for any government. This was very cogently expressed by Dr. Goh Keng Swee, economic pundit behind Singapore’s economic miracle, in his reminiscences of why Singapore chose to retain the currency board system, as follows:  BIS Review 64/2007  3  “Financing budget deficits through Central Bank credit creation appeared to us as an invitation to disaster. There was no effective way of exchange control in an open trading economy like ours to deal with inevitable balance of payments troubles. ……The way to better life was through hard work, first in schools, then in universities or polytechnics and then on the job in the work place. Diligence, education and skills will create wealth, not Central Bank credit.” There is no better explanation of the evils of inflation tax than the above statement of wisdom. Countries which did not have this wisdom fell through the line and were gripped by uncontrollable hyper-inflation in their economies. The most recent example is Zimbabwe where inflation presently runs at mo re than 3700% p.a.
Its Central Bank Governor, Mr. Gideon Gono, recently lamented by equating his country’s hyper-inflation to an economic HIV, an epidemic that would kill people on a mass scale. Hence, using inflation to fund budgets is just like getting a demon to work for you. 4  BIS Review 64/2007