What Happens When a Country Prints Too Much Money?
Why Don't Poor Countries Just Print Money? What Happens When a Country Prints Too Much Money?
Every country aims to keep its economy at its best, performing well and having great liquidity. Most rich countries are able to achieve their goals of a sound economy thereby pushing their currency valuations to the roof.
However there are many poor countries which fail to do so. Poor countries usually struggle to achieve their economic goals as the purchasing and investing power by citizens in such countries is very low.
In such a scenario what should such a country engage in to facilitate a higher rank in terms of wealth? Will printing more currency by the country actually prove to be beneficial and make it rich?
We in this blog go through vital facts and present a real life example of a country which actually engaged in this practise of printing huge amounts of money.
In recent years, the Central Banks of some developing countries have been printing money as a way to stimulate their economies.
In countries such as India and Turkey, this has led to high inflation.In the 1990s, the US Federal Reserve printed money to counteract a recession.This led to a recession in 2000 and 2001.
A similar thing is happening now in developing countries with high inflation rates. But, they are not printing enough money to offset their current economic problems because they don't want their currencies to devalue too much and cause hyperinflation.
In a scenario where a poor country decides to print a lot more currency than required, the production will go up but at the same time, prices will surge thereby discouraging people from using that currency and shifting to another one. In addition, since everyone starts getting access to more currency, the price for goods and services shoot up rendering the move rather useless.
In simpler terms, the more money a country prints, the more it’s currency gets devalued leading to inflation. Money is just a piece of paper that the government assigns numerical values to.
Take this scenario:
The government prints huge tons of paper money and it reaches all the masses including the poor. Now that everyone has access to large sums of money, everyone's purchasing power increases.
In this case goods and services will face a surge in demand leading to a stock out. Eventually, the prices of these goods and services will increase drastically as everyone is now capable of paying huge sums.
For instance, Zimbabwe decided to print huge amounts of paper money which led to a big fiasco. They thought that printing more money would lend a big boost to the economy.
However, as the printing speed increased tremendously, the prices shot up, leading to a situation of hyperinflation in the country. In 2008, the country was hit by hyperinflation with the price rising up to 231,000,0000%.
For instance, A sweet that would cost one Zimbabwe dollar earlier, started costing 231million Zimbabwe dollars later on after the hyperinflation. As mentioned earlier, in order for a country to get richer, they need demand to exceed supply.
However Zimbabwe failed to address this. People as a result got involved in exchanging goods for goods, like a barter transaction or even started purchasing goods and services using US currency.
As a result, by 2009, Zimbabwe stopped printing legal tender and decided to start using US currency by the end of 2015. The Reserve bank of Zimbabwe decided that it would go ahead with demonetising its notes and the notes could be exchanged for US currency during that period.
The problem is that a poor country cannot increase their economic output by just printing huge tons of money.
Hence we can conclude by saying that the best way for poor countries to eliminate poverty is by creating facilities and opportunities in such a way that all citizens of the country get productive and earn money, which will increase their purchasing power and eventually give the economy a boost too!