Role of inflation in currency depriciation

Some excerpts from a financial post.... (good to understand the impact of inflation on currency valuation)

inflation -- increasing prices over time -- is currency depreciation, although it is possible for a particular denomination to decrease in value in relation to other world currencies while still maintaining its purchasing power at home.

For example, one Singapore dollar may be exchanged for 0.0277 INR today and only 0.025 INR next week but still purchase, say, one chocolate dips you see in the machines at the mart. Or it could purchase (as of this writing) one liter of liquid fuel.

Inflation, per se, is not necessarily a bad thing, as long as the rate of inflation stays below the rate at which wages increase. (In fact, price deflation is generally a more serious problem.) One Singapore dollar may not purchase as much as it would have 50 years ago, but people have a lot more of them than they did 50 years ago, so the cost of living is generally much lower than it was in 1958.

In a country like India or US, the central bank can sell or purchase investment instruments, such as bonds, to either decrease or increase the money supply. If the money supply goes up, prices generally increase, inasmuch as there is more money chasing after the same amount of goods and services.

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