The cost of inflation that is easiest to identify arises from the fact that,
since the nominal return on high-powered money is fixed at zero, higher
inflation causes people to exert more effort to reduce their holdings of highpowered
money. For example, they make smaller and more frequent conversions
of interest-bearing assets into currency. Since high-powered money is
essentially costless to produce, these efforts have no social benefit, and so
they represent a cost of inflation.