Inflation refers to the decrease in the purchasing power of a currency over time. For example, the purchasing power of US$100 in the 1950s is estimated to be equal to that of US$1,000 today. Therefore, if you had US$100 in the 1950s, you would have been better off spending that money rather than keeping it under the mattress for 70 years, given its gradual loss of purchasing power. Central banks manage interest rates with an eye to maintaining an optimal level of inflation: one that is neither too fast nor too slow. In periods of declining prices -- or deflation -- purchasing power increases over time. Bitcoin, which has a fixed supply of 21 million, is a good example of this; if you owned one bitcoin 10 years ago and stored the private key under your bed, it would be worth multiples of its original value today . This creates a natural incentive for vendors to accept deflationary currencies for goods and services.