Why govt not print more money to make everyone rich - Assamese InfoTainment

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26 March 2018

Why govt not print more money to make everyone rich

There are no restrictions on printing money on any government. Then why don't governments print as much currency notes as they like? The answer is Inflation. 




The currency notes that we use do not have any intrinsic value. They only have exchange value. That means a 1 rupee note does not actually mean its value is 1 rupee  but it means you can exchange it for goods/services worth 1 rupee. That's why its called a legal tender (means you are authorized by law to use it for exchange). 

How does the currency system work? 

Consider a hypothetical country with no foreign transactions for the time being. Assume there are just 5 people in it and each have 1 rupee each. There are various goods that are produced in this country by these people. But whatever be the value of resources/costs incurred by them, these goods can be exchanged for just the five in 1 rupee notes present in the currency system. That means the sum of value all the goods and services produced in an economy is equal to the five 1 rupee notes. Therefore, sum of value all goods and services produced and exchanged = sum of all the currency present; Now, the central bank is unhappy that the people just have 5 rupee worth of money and decided to give each person an additional 1 rupee. That means there are ten 1 rupee notes in the system. But the goods and services that are produced do not change. Alas, the additional 5 rupee that was supplied could not buy any more goods than the ones already present. So the exchange value of each good/service increases. Thus, applying the above formula, the goods and services produced in the second scenario will now be exchanged for ten 1 rupee notes reducing the buying power of each 1 rupee note. This my friend is called inflation and no country likes it. Almost every country knows it.  

Countries like Zimbabwe which printed a whole lot of notes thinking that people will have more money. What in turn happened was even a single egg ended up costing thousands of Zimbabwean dollars.

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