Relationship between Money Supply and Interest Rates

Hi, I'm Joey Park. How are you today? Yesterday, I talked about Traditional Finance and DeFi(Decentralized Finance). One of the main subjects was inflation that is related to the money supply.

Sources of some illustrations are from flaticon 1, 2

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Yes, most of us know money supply affects inflation. However, isn't there anything else?

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Image source: MinnowBooster

I've been using Minnow Booster that provides STEEM POWER delegation service around 1.6 years ago. At the beginning of using it, the delegation rate(lending interest rate) was about 22.5%.

Image source: @arcange

Even though the number of STEEM users has been increasing by approximately 1 million to 1.4 million, the delegation rate has decreased, now 12.5%. It doesn't seem affecting the delegation rate a lot. So, isn't there another factor?

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Image source: @socky

I think another factor is STEEM supply. Around 70 million STEEM has been issued during the last 1.6 years. Of course, some of them could be transferred to exchanges. As well as, there might be other factors such as STEEM POWER down. However, I guess the majority of factor is STEEM supply. Because I figured out the hint is USD supply of FED(Federal Reserve System).

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Image source: goldmoney

Imagine that if you have 10 billion dollars and want to lend your money to people, however, there are a few of demand, the lending interest rate will be decreased.

Above this chart, you can know the money supply follows the exponential curve. It means that many central banks should keep the base interest rate low.

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I seem to figure out the secret of finance behind governments 😏