of resources, which is the basis of any sustained economic development. in addition to this main benefit, maintaining price stability also minimises other negative effects that accompany inflation. to show this, let me briefly elaborate on the costs of inflation, which will clearly explain why price stability should be monetary policy ’ s primary objective. first, inflation distorts the price mechanism. in a market - driven economy, freely moving market prices are the key signals that indicate scarcity of goods and services. by indicating scarcity, relative market prices help to allocate economic resources to the most productive utilisation. inflation, however, distorts this mechanism since the rapid increase of the general price level blurs the signal function of the movement in relative prices. as a result, resource allocation becomes suboptimal, with negative repercussions for growth and development. second, inflation induces unintentional effects on the distribution of income and wealth. experience has shown that the holders of financial assets are particularly severely hit by the erosion of the value of money. their inflation losses are accompanied by matching undeserved and purely arbitrary gains accruing to debtors. there are many indications that a considerable number of “ small savers ”, in particular, are not fully in a position to protect themselves against inflation - induced financial losses. hence, price stability fulfils a crucial social function : it protects the “ man on the street ”, in particular, from being gradually dispossessed by creeping inflation. finally, inflation acts as an additional tax. in most countries, tax systems are based on nominal values – in other words, these systems are not adjusted to a rise in the price level. in such systems, inflation has the effect of an additional tax on investment and labour income and produces considerable wealth losses. the main reason for this is that, in addition to “ normal taxation ”, inflation drives a further wedge between the real yield before tax and after tax. inflation therefore causes the effective tax burden to increase, a process referred to as “ cold progression ”. thus, inflation has significant adverse repercussions not only for growth, but also for income distribution in a society. in this context, another important consensus has emerged over the past decades. in the long run, there is no trade - off between low inflation and high employment – as a naive interpretation of the phillips curve might suggest. a society cannot simply choose to have lower long - term unemployment at the cost

johannes beermann : maintaining a safe and efficient cash cycle in times of change speech by dr johannes beermann, member of the executive board of the deutsche bundesbank, at the south african reserve bank, pretoria, 4 december 2019. * * * 1 introduction dear johann, ladies and gentlemen, when trying to make sense of the many and varied individual transactions and decisions being made in an economy, economists like to think in terms of the circular flow model. in its most basic form, companies pay wages to consumers, who in turn purchase goods from companies. economists are very familiar with the basic principle : goods flows are matched by monetary flows of identical value – just in the reverse direction of flow. this way of thinking can be traced all the way back to a medical doctor. when, back in the 18th century, francois quesnay observed the various economic activities taking place around him, he is said to have been reminded of the flow of blood in the human body. as complex a system as the human circulatory system can be reduced to a few basic observations : at the centre lies the heart, which pumps fresh blood through a dense network of arteries to the various organs. this keeps the system up and running. the deoxygenated blood then makes its way back to the heart. we central bankers are arguably more comfortable talking about cash flows. but the parallels to the flow of blood in the human body are plain to see. and in the world of cash, too, it is essential for the system as a whole that every single organ involved works properly and in a coordinated manner. cash usage in both south africa and germany remains high. the south african reserve bank and the bundesbank are pumping an increasing amount of cash into circulation. demand for cash is on the rise. but times are changing. contactless payment methods are becoming more popular in germany and beyond. commercial banks, important elements of the cash cycle, are struggling with their existing business models. looking ahead, central banks need to ensure that their cash systems are fit for purpose. it is therefore a great pleasure to be here today to exchange views and learn from each other about potential future challenges. 2 internal cost efficiency in the cash cycle cash remains the most frequently used method of payment in germany for everyday transactions. three out of four purchases at the point of sale are paid in cash. german households value cash. this means that we need to maintain an adequate cash infrastructure. it is, after all, the bundes