Have you ever wondered about this big economic phenomenon that why can’t a country print money and get rich, or can a country print as much money as it wants?
If you are then don’t worry we’ll provide you with every possible information we can so stay till the end to become a little extra enthusiastic about economics.
The main reason that any country can’t print as much money as they want is because of inflation or maybe hyperinflation. They know the volume of money in circulation is only for the available products within the marketplace.
Otherwise, they will be in trouble just like it was in Zimbabwe in 2008 which we will talk about later in this blog.
And if you are wondering about Hyperinflation?
Then It is an extremely rapid growth of the inflation rate, usually caused by an increase in the money supply, which happens mostly by printing a lot of money than the country needs.
The main issue with printing out more money than usual is an increase in the inflation rate.
Let’s take it this way: We know everybody may have paper money, but the supply of vegetables has not increased.
The main problem is by printing more money is that the price of the available vegetables goes up, as the seller will want to sell to the person who wants to give the most money.
When the seller wants to go to the bank to deposit the cash, he may find that transport has also gone up, since the number of taxis has not increased.
When a taxi driver then goes to buy fuel, he may find that fuel has also gone up, since there has not been an increase in fuel supply.
Fuel seller goes back to the market to find that vegetables have gone up again this week and more in the next week.
As this cycle goes up and up, Then you’ll end up facing a similar situation just like in Zimbabwe.
Another issue of why not a country print money and get rich is because that we cannot fool the world into loaning us money if we’re not making ourselves more productive or making things valuable.
This is the privilege of some countries which has the world’s trading currency, but arguably that position has been earned over the past century.
Now, if you’re in that country, and you feel like pumping your contracting economy (saving the world’s of the economy from collapsing) by increasing the money supply rate.
You’ll find that there are people who will buy your promise for a small fee (interest), based on your previous history of paying/honoring your promise over time.
Let’s dive a litter deeper into this topic because I thought that you are becoming more curious.
Now let’s cover what is actually Inflation means?
All right, we don’t care about the definition if that is your case check out this article: money and inflation relationship
We will directly jump into the real-world case scenario, which we have faced in our childhood.
Do you still remember our grandfather use to say that “In our time, we use to buy many things with a very little amount of money” I think most of you remembered, right? even though you are also going to say the same thing to your child. 😂😂
Now think with your own mind what might be the reason that your grandfather’s time goods and services cost way more now as compared to that time? The reason is Inflation.
Let’s do some workout about inflation don’t worry you don’t have to do a bench press or any kind of sit-ups. 😋 just sit comfortably I will tell you everything about inflation in an easy way of understanding.
Can a country print as much money as they want?
Simple example :
Assume you have created and manufactured a smartphone and you want to sell it for $100, and no one is having it in the first place.
And when you get the customer who is crazy about buying your smartphone the first [X] customer has $100 and the second [Y] customer has $150 and the last one [Z] customer has $200. The good thing is all the customers want to buy that smartphone, then whom are you’ll gonna sell it?
Now you have two options either you have to increase the production or else increase the price.
In general, as the demand for your product is high you’ll raise the price to $150 (suppose).
[X] customer will lose the offer right away, now only [Y] customer & [Z] customer have a chance to buy, but now those two customers are demanding again you’ll raise the price from $150 to $200. Now only the [Z] customer will be able to buy it right?
The important thing about this example is you can notice that the smartphone has to be sold for $100 but end up selling it for $200. That’s an Inflation.
If you want to know the short and easy definition of inflation then It is a constant increase in the price of goods and services than the day before.
Ok, you already get the basic view on inflation, now the point is what is the relation between inflation and printing a currency?
The main cause of inflation is the increasing amount of cash flow in the country and that happens if you print a lot of money.
When you print more money then people will have a lot of money to spend what they want to buy for themselves for example if you are using old car right now and when you get a lot of money then you probably not gonna use that old car anymore you might gonna buy a new one.
That causes high demand for goods and services because people have a lot of money to spend and the price will go higher and higher, cause of demand on products and essentially effects on the economy because of the inflation sometimes more called hyperinflation.
Have you noticed when a country’s inflation rate goes too high, the banking systems of that country like the Federal Reserve in the U.S. or any other bank s in that country raises its interest rate much higher to decrease the money flow in the nation.
These results protect buying more goods and services because there is not much cash flow in the nation and stops from Inflation.
If you didn’t raise your interest rate then everyone wants to rent money from the banks and use that money on buying a lot of goods & services and demand goes up, prices go up and happens Inflation.
This is the main reason why can’t a country print money and get rich anyway.
