A completely balanced budget would probably result in deflation. In the U.S., there are only two ways that I know of that money is created: 1) A bank making a loan and 2) the federal government spending money. Likewise, there are two ways that money is destroyed: loan repayments and taxes. But in the case of loan repayments, the total amount paid/destroyed is always greater than the initial loan due to interest. The extra money for the interest has to come from somewhere. And this is without even considering the effects of increases in GDP.
That's how currency notes enter and leave circulation.
Money is created whenever someone provides a good or service that someone else wants to consume. The money value of the currency is the total value of money created by the productive sector of the economy, divided by the number of currency units, with some variation resulting from imperfect knowledge of the market.
The central bank attempts to increase the number of units of the currency faster than money is created, so that the value of an individual unit of currency will remain stable or decrease. If the value of a currency unit were to start increasing, people might be tempted to stop spending it, which would destroy some of the money value of the economy by discouraging trades.
This also has the insidious benefit of allowing the central bank to take some money value from the economy without trading for it, just by creating new currency out of thin air. When they spend the new currency, or loan it to a government that spends it, a fraction of the money value produced by other people suddenly teleports to their own pockets, and they can pretend to be generous and benevolent.
The interest issue is a big problem. Depending on the size and number of outstanding loans, if they were to be paid off, currency would be removed from circulation and the money price of the remaining currency would increase, making it harder to pay off the remaining loans. In order to ease the crunch, the currency-issuing bank would have to actually spend back into the economy without making loans, buying goods and services outright instead of just renting out paper.
