A few days ago, a Spanish TV series called "La Casa de Papel" caused quite a stir. It shows a group of robbers breaking into a Federal Reserve Bank and taking some people hostage. However, the method of looting them is a little different. Instead of looting bank money, they are making billions of dollars using bank money printing machines.
After seeing this, has anyone come up with the question that if a government like theirs prints billions of rupees and hands them over to us, then all the financial problems will be solved! Or, if the government prints sacks of money and builds Padma Bridge, Meghna Bridge, Buriganga Bridge, then where is the problem?
Many problems Ray brother, many problems. If there was such a simple solution to such a big problem, there would be no more worries in the world. Where is the problem, I say.
Specifically, it is the responsibility of the central bank to print money. So, on what basis does he make money? Can he print as much money as he wants?
There are no rules for producing money. The government of any country has the freedom to print as much money as it wants. However, no country prints as much money as it wants, the money is printed in balance with the economic needs of the country. The amount of money produced is related to the income of the people of the country, economic needs, resources of the country etc. The problem starts when more is produced, the country's economy starts to lose balance.
Suppose there are ten mangoes in a country (the first thing that comes to mind when thinking about what can be caught is mango, probably seasonal effect). And that country prints 20 rupees a year. Excluding the cost of transportation, retail price, wholesale price, etc., we assume that the price of each mango is 2 rupees. Then the total wealth of the country and the total currency (Currency) is balanced. The following year, the country printed a total of 40 rupees, but the total assets remained at ten. Since there are no new resources in the country, the allocation for buying those 10 mangoes is 40 rupees, which means the price of each mango has doubled. In this way, if more money is produced than the total wealth of the country, the price of goods increases, the price of money or purchasing power decreases. This is called inflation.
What is the benefit of printing more money when the price of goods increases? Therefore, the central bank of a country has to determine the demand through systematic research and print money accordingly. Usually 2-3 per cent of a country's GDP is printed, but in developing countries this rate is a little higher.
This is why we cannot build the Padma Bridge overnight by making money at will. Then that extra money will enter the mainstream economy through the hands of workers, engineers, dealers, suppliers and many more, and play twelve of them.
Inflation not only causes excess money to be squandered, it also severely damages the balance of the country's economy. Let me tell you how.
The cost of savings will go down. Today I did not buy chips for 10 rupees but kept it in the bank. Now, two days later, if I see that the price of a chip is 20 rupees, then the matter of saving has died on its own feet!
Many of us have bought bonds or seen someone buy bonds. The government actually lends us money through these bonds. Today, after a year of selling bonds worth fifty rupees, the government is giving me back fifty rupees, that's how it is. Now, I bought a Rs 50 bond from the government. After recovering that money a year later, if I see that I can buy less rice at Rs 50 than before because of inflation, I will naturally lose interest in buying bonds. If the government fails to sell the bonds again, it will be deprived of the necessary funds.
Businesses will lose interest in investing due to uncertainty over the purchasing power of money. There will be instability in the business sector.
In a country where inflation occurs, the value of the country's currency will be lower than that of other countries. Suppose the inflation rate in Germany is 20% per day, and in India it is 0%. In other words, the price of a product of 100 rupees will be 120 rupees in Germany and 100 rupees in India. In that case, the value of one Indian rupee will be equal to 1.20 mark of Germany (German currency).
We know about the abnormal inflation in Zimbabwe. There is a saying that one has to go to the shop with a sack of money to buy a packet of bread. Not to be outdone, there are billions and trillions of Zimbabwean dollars.
This abnormality started in 2006. Zimbabwe's economy has been in a state of disarray since the 1960s. In the 21st century, it has reached its peak. The Mugabe government decided to print large sums of money to handle the economy. The decision reversed Zimbabwe's economy. As a lot of money is printed, the price of goods keeps on rising. Zimbabwe's current inflation rate is 96% per day, which means 100 rupees today, tomorrow it will be 198 rupees! Think! However, the highest rate of inflation is not. In this unpleasant record of Hungary, in 1947 the inflation rate in that country rose to 195% daily.
I was thinking while writing, what is the problem if the money is printed and the foreign loan is repaid with it? In that case the money is going abroad, it is not entering our country!
There was a funny mistake in my thinking. The country in which I repay the debt with the extra printed money, the country in which I spend it, will return to my own country. Because the people of my country have to accept the currency of my country till the end, in other countries I can't shop with this currency! So the extra money is flowing into my country's economy. Another important thing is this money but I can't use it to repay the foreign loan directly, because the loan agreement has an obligation to repay it in a certain currency.
Making more money to develop a country's economy is not the answer, the solution is to increase production. This will increase people's purchasing power. If you can do the opposite development, the development will be the opposite!