What is The Cantillon Effect?
Let's find out The Cantillon Effect meaning, definition in crypto, what is The Cantillon Effect, and all other detailed facts.
The Cantillon Effect, which was developed by Richard Cantillon, happens when a shift in relative prices occurs due to the shift in the money supply. It defines the speed with which money moves through the economy, as well as the uneven impact it has on prices, wages, and inflation. While the effect concerns changes in the money supply, it is more focused on the impact of uneven access to that increased money supply.
In today's US economy, the Cantillon Effect is most obvious. During the pandemic, stimulus packages intended at promoting economic activity by raising the money supply (Quantitative Easing) handed firms enormous quantities of additional money. As a result, businesses that organized their finances were able to pay off previous debt, purchase inventory, and generally accomplish what Richard Cantillon said they would do with their money.
As an example of the Cantillon Effect on digital assets, we could take an instance when the price of Bitcoin (BTC) passed $60,000 for the first time in March 2020, just after the House provided the stimulus package. However, the perception of BTC as digital gold and an inflation-proof asset that cannot be quantitatively eased or fractionally banked also contributed to this.