Why can’t a country print more of its currency to become rich?, It’s an interesting question to answer “why can’t a country print the currency as much as needed to become rich ?”. Check details for Why can’t a country print money and get rich?. People having no idea about this scenario may often think that instead of worrying about the falling rupee value and market conditions why the reserve Bank of India don’t think of printing the currency as needed to cater the needs of the country.
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Why can’t a country print more of its currency to become rich?
Printing the currency notes is always backed up the level of production happening in a country and its ability to assign some value to its currency. Some may wonder that why the government think of taking loans from international monetary bodies instead of printing their own currency. But this become ridiculous if the printed currency can’t be assigned some economic value which depends on so many factors.
Just take an example where in a country other are 100 oranges and 50 apples. Here the value of apples in terms of oranges is 1 apple = 2 oranges. If we produce 50 more apples without any change in the level of oranges then the value is 1 apple = 1 orange. To understand it better replace the apple with rupee. Assume that there are 100 rupees and 100 oranges in the economy and the price of oranges is 1 orange = 1 rupee , if the government prints additional currency of 100 rupees assuming that no change in the level of production of oranges, then this would lead to price the oranges at 1 orange = 2 rupees which was higher than earlier.
Currency can be said as an instrument of exchange where the issuing authority RBI in India promises to pay as much as it’s worth.
Inflation can be said as a major consequence if the authority goes on printing the currency as much as needed to distribute.This can be better understood by linking with demand and supply theory.
(1) Generally The relationship between demand and price of a product is inverse. For example if the price of a fruit increases the demand for that product may decrease than earlier. This is because people think of buying the things more when they are priced at lower than earlier.
(2) Like this there is another relationship to understand. Supply of products is positively related to its price. When the price of a product increases then the suppliers will be ready to supply more in order to gain the advantage of increase in price.
(3) Assume that there is no tremendous growth or considerable Change in the amount of production in a country , and the government has printed more currency notes and distributed it to the public. As a result of this the amount of currency with the people in the economy will go up. But there is no change in the amount of products or services which can be assigned to the currency in the economy. So the supply of money in the market goes up and the demand for more goods will increase subsequently. This increased demand has nothing to do with the level of commodities except forcing the prices up. Thus it may lead to hyper inflation.