Poor country print currency and get rich, could this system be applied

This question is mostly asked by many people Today we are explaning this system of printing money and Why can't the country become rich by printing enough currencies and distributing equally to all? Here is a quick explanation by Akshay Iyer, Engineer, MBA, Consultant, Student.

This question is mostly asked by many people Today we are explaining this system of printing money and Why can't the country become rich by printing enough currencies and distributing equally to all? Here is a quick explanation.

## Here is the short explanation.

Let's suppose you have 100 kgs of gold and there are 10 people in your family. You now decide to distribute the gold between all the family members. However, instead of giving everyone 10 kg of physical gold, you give everyone a coupon that one could get 10 kg of gold in exchange for.

So 1 coupon = 10 kg of gold; 10 coupons = 10 x 10 kgs of gold. = 100 kgs of gold.
Now, each of those 10 members marry and bring a spouse into the family. Now, there are 20 members. However, the gold is still 100 kgs. In order to divide the gold equally among all members, you print 10 more coupons and hand them over to the new members of the family, while informing everyone that a coupon now can only be exchanged for 5 kgs of gold.

Therefore, after spouses come in: 1 coupon = 5 kg of gold; 20 coupons = 20 x 5 kgs of gold = 100 kgs of gold.

It should be obvious now that printing more coupons does not increase the value of the individual coupons because the 'wealth' of the family has not increased: it is still worth only 100 kgs of gold.

However, if by some great fortune, you were to now acquire additional 100 kgs of gold, each coupon now automatically becomes worth 10 kgs of gold.

1 coupon = 10 kgs of gold; 20 coupons = 20 x 10 kgs of gold = 200 kgs of gold.

 Money printing
A country too functions in much the same way where the currency note functions as a coupon that has an inherent value. Printing more currency notes (coupons) will only reduce their inherent value in direct proportion to the number of additional currency notes printed.

The value of currency notes increases only when the 'wealth' of the country increases. This wealth is typically measured in GDP, GNP etc. The more wealth a country creates and accumulates, the more valuable its currency notes become. Merely printing more currency notes will not make a country wealthy.

As far as the question of 'how much money can a country print', the answer is 'as much as it wants', if it has the resources to print them. The inherent value of each currency note will diminish accordingly (i.e., one rupee/dollar will be worth less than before), and consequently, more currency notes will be required to purchase the same goods (say, 1 kg of gold). This is also known as 'inflation'.

On Indian notes Ever noticed something like "I promise to pay the bearer a sum of" printed on the notes? as shown below.

 Rs 500 note
That means the RBI is backing the currency note(and it's value) you(the bearer) are holding. The note, by virtue of the pledge of the RBI that it carries, holds the worth printed on it. But backing with what? Yep, it's reserves. Can it back for  ₹1000 with reserves worth  ₹500 only?

## The RBI says,

The Reserve Bank based on the demand requirement indicates  the volume  and value of banknotes to be printed each year to the Government of   India which get finalized after mutual consultation. The quantum of  banknotes  to be printed, broadly depends on the requirement for meeting  the demand for  banknotes, GDP growth, replacement of soiled banknotes, etc.

 RBI
See, there is this reason why we simply can't print notes and get rid of our negative BOP, because our reserves or 'worth' hasn't changed. But what if we print more than what we can back for?
Let's say we only have bullions (no foreign exchange, etc) as our reserves for simplicity and it's value is 100 rupees but we printed 10 rupees more (to pay off say, our trade deficit), or in all, there are a 110 rupees in circulation in the economy. What will happen?
The value of rupee will depreciate. Americans(the one whom we owe) would know that even when they(the RBI) can back only for 100 rupees, they have circulated 110. So earlier, if:
₹100 = \$2 => \$1 =  ₹50
now,
₹110 = \$2 => \$1 =  ₹55 (Because our 'worth(i.e. reserves worth 100 rupees' didn't change, right!!)

You might be wondering who is going to tell them? Answer is International Monetary Fund(IMF). This organisation  keeps a tab on all countries, their reserves, their economy, GDP, net  worth, BOP, growth rate, inflation rate, etc.

## Story from History

Printing more money (Notes) doesn't work. Many countries have tried this in history, including ancient Rome, but in vain.  After WW-I German republic was forced to pay reparation charges by France. Unable to pay war penalties and public expenses, Germany frantically started printing paper currency.
Printing money doesn't work because Money doesn't have any intrinsic value of its own. Money is but a proxy to the available resources in a country.

Beginning in the late 1990s, Zimbabwe underwent a radical money printing period. The value of their currency completely tanked, resulting in the need to produce notes like this:

 Zimbabwe Notes
At a certain point, people simply will not accept your currency any longer. It is completely worthless. Many countries have tried and failed to print their way out of financial woes,

If India has X units of resources available for public and there are 100 Rs in circulation, a unit of resource would cost 100/X rupees. If government printed additional 100 Rs, resources don't increase. Now, as there are 200 Rs available to buy X resources, Supply and demand rule would ensure that a unit of resource would cost 200/X rupees. Effectively, having twice the money, without any increment in available resources, just doubles their price.
 Map shows the location of RBI offices
There is no alternative to infrastructure development and optimum utilization of resources if we want to develop. Roads and hospitals bring development, paper currency doesn't.

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MindxMaster: Poor country print currency and get rich, could this system be applied
Poor country print currency and get rich, could this system be applied
This question is mostly asked by many people Today we are explaning this system of printing money and Why can't the country become rich by printing enough currencies and distributing equally to all? Here is a quick explanation by Akshay Iyer, Engineer, MBA, Consultant, Student.
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