Question

The widespread use of technology has revolutionized the banking industry, making it much easier for customers to access and manage their assets. Does this mean that the shoe-leather costs of inflation are higher or lower than they used to be?

Answer 1

Technological advancements in the banking industry have lowered the shoe-leather costs of inflation by reducing the need to carry physical cash and allowing for easier management of assets through digital means.

Step-by-step explanation:

The widespread use of technology in the banking industry influences the shoe-leather costs of inflation. Shoe-leather costs refer to the resources wasted when people try to avoid holding money during high inflation periods, often involving frequent trips to the bank. In the past, the inconvenience and safety risks of carrying and transacting with large amounts of physical cash were substantial.

However, with the advent of digital banking, online transactions, and instant access to financial information, the need for these trips has diminished significantly. Therefore, technology has lowered the shoe-leather costs associated with inflation. Customers can manage assets easily through secure platforms, thus reducing the time and effort spent on safeguarding their purchasing power against inflation.

Digital banking also offers a buffer against the drawbacks of inflation in pricing and economic signaling, as seen during the Great Recession and extreme cases like Israel's inflation scenario in 1985. While technology cannot fully safeguard assets against inflation, it simplifies the management and protection of those assets, thus contributing to some degree of economic stability by facilitating better financial decisions and reactions to market signals.