Why don't countries print more money and solve the problem of poverty?
Perhaps it is one of the questions that has crossed the minds of many of us at some point. Why don't central banks print more money, pay off their governments' debts, help the poor, exempt people from taxes,
and make everyone better off?
If there is a direct and short answer to this question, it is that any government's taking this step threatens to slide its country into the quagmire of hyperinflation that could literally destroy the economy. Printing more money does not make citizens richer, and the real effect of that policy is to raise prices.
The difference between money and wealth
Wealth is not created by printing money, because money is only a representative of the wealth that exists. Thus printing more money without increasing the wealth it represents will cause each unit of that money to represent a smaller slice of the wealth that is further divided.
How is the value of a currency determined and on what basis is it printed?
Economically, the injection of cash into the market by the state must be proportional to the size of the economy and the volume of domestic production. This means that every printed monetary unit must be matched by a balance of foreign exchange reserves or a gold balance, or real goods and services that are produced in society, so that the money circulating in the market has a real value and not just printed papers.
If cash currencies are pumped greater than the size of the economy (goods, services and foreign exchange reserves...), the purchasing value of the currency decreases, prices rise and inflation rises with it, and countries reach a state of instability that drags them to economic collapse and with which the social structure and the rest of the sectors collapse.
The printing of money by the Central Bank is an economically complex technical process, and in the event that money is printed without a cover, this will lead to one basic result: the rise in prices, as the money supply increases without being matched by a parallel increase in goods and services. As a result, people lose confidence in the local currency, and a wave of pessimism occurs that leads to people getting rid of what they have of this currency and buying foreign currencies or in-kind assets such as real estate and gold, which leads to a further decline in its value, which eventually leads to the collapse of its value and from Then the economic collapse.
unscientific explanation
If the state printed a lot of money and everyone owned a lot of it! Of course, if everyone becomes wealthy, there will be no one left to grow vegetables, no one to transport them, or no one to sell them to you. You will not find anyone to fix your car or shave your hair... because everyone has simply become a billionaire and does not need work that generates money... thus life is disrupted.
the scientific explanation
Money, like any other commodity, is subject to the basic laws of economics and the rules of demand and supply, meaning that the prices of goods and services are determined by the mechanism of supply and demand. Individuals (there is more surplus than needed), which prompts producers to reduce the prices of their products as a marketing strategy and a way to motivate individuals to buy larger quantities. And the opposite is also true. The less the supply of a particular commodity, the higher its price will be because the quantity supplied is small and does not meet the needs of individuals. Therefore, individuals who desire this commodity must pay more than the previous price to obtain the goods before the quantity runs out.
The same concept applies to money, if the amount of printed money (supply) is greater and faster than the natural economic growth achieved by the state, this will lead to the availability of more liquidity (money) than usual within the reach of individuals, and this liquidity will push consumers to buy larger quantities of goods and services, Consequently, the total demand for the goods will rise, which encourages producers to raise the prices of their goods to match the rate of increase in demand.
For example: Just to simplify the subject, we will assume that the economy contains only one commodity, which is “apples”, and the quantity supplied is 100 apples, and the money available in the market (with individuals or society) is 100 local currencies, if the state prints additional money worth 100 currencies , the final outcome of the money will be 200 coins in front of only 100 apples, meaning in the past, one apple was worth 1 local currency, but after the increase it became 2 currencies, meaning prices doubled!!
This simple example shows that printing money without actual growth in the economy will cause price inflation (Hyper Inflation) like what happened in Germany in 1920, because the amount of money will be greater than domestic production (goods and services), which will push producers to raise their prices to match With strong demand and availability of liquidity. In the end, this financial abundance will turn into a curse on individuals, because the purchasing power of the currency will decrease, so that 100 local currencies meet 100 apples, but after printing money, 100 currencies buy 50 apples only (because the price of an apple became 2 currencies).
This scenario actually happened horribly for the country of Zimbabwe in 2008, as one US cent equaled 500 billion Zimbabwean dollars, which made the government in that country stop dealing with the local currency and replace it with the US dollar or the South African rand.
It is also similar to what happened with the Egyptian pound during the last five years, as it was equivalent to five dollars before the revolution, and because of financing the public budget deficit by borrowing and after the debts worsened, the government further printed the Egyptian pound without cover, until the dollar became worth more than 15 pounds. And the matter will deteriorate and collapse in the value of the Egyptian pound if government policies continue in this way.
To understand the dangerous
repercussions of printing money without it being commensurate with the actual local economy, we have to invoke the Venezuelan economy, whose economy is currently experiencing the worst crisis in its history, and is almost causing the country to collapse, due to inflation caused by the Venezuelan government’s excessive and uncalculated printing of the national currency, which The Venezuelan currency lost 99% of its value, people began to consume and the market ran out of supply, so that the shelves of stores and drug stores were empty in Venezuela.
After this simplified analysis, if you think that printing money will solve the problem, you are wrong, because this will deepen the crisis and lead to the collapse of the economy, because the ill-considered printing of the currency and pumping it without controls will lose its market value, turning the majority of the people into millionaires and even billionaires, but they are unable to buy anything For astronomical prices for products, services and goods.
