Why Don’t We Just Print More Money

People are navigating through different difficulties, money is needed to solve these problems, the Central Bank can print as much money as it wants. Why can’t it just print enough money to solve all these problems?

It might not seem so yet but this is probably one of the most ridiculous question to ask. A few analogies will prove this.

Imagine you’re at an auction with some other art lovers and you are all bidding for a certain artwork you all desperately need. The price of that artwork would depend almost invariably on the amount of money you all have. So let’s say you all have $10,000. Nobody would bid for more than $10,000. The maximum price the artwork can sell for then would be $10,000. But what if someone gives each one you another $10,000 each so you all now have $20,000, obviously someone will yell $15,000 and another $20,000 and the auctioneer will simply drum the hammer “sold!”. The price of the artwork just doubled because the money in circulation doubled.

The more money there is, the more money everyone has, the more they bid, prices increase.

The reason we think like this however is because we naturally assume money has value. Money actually has no intrinsic value. Money is just a proof of value just like a receipt is a proof of goods.

Another analogy. A customer walks into an Apple Store that has just two iPhones. The customer gives the manager $1000, in return the manager gives him a receipt. The customer didn’t leave with the iPhone but he has a proof of it, the receipt. With that he can always claim the product at a later date. Another customer does this same thing and when a third customer came, the manager refused to give him a receipt. An assistant watching the whole process from a distance was totally puzzled at this. How can he — the manager — turn down that money when all he has to do is write a receipt. The assistant goes on to write a hundred more receipt behind the manager and exchanged them for cash from more customers. Imagine what will happen if all the customers come back asking for their iPhones. It will be mayhem. You cannot print more receipts than you have products.

Money should reflect the amount of products and goods in an economy and when it exceeds the level of production. Terrible things can happen. It’s basic demand and supply mathematics. The more of a thing there is, the less value it will have. If you’re a fruit seller selling all your fruits for $10 a piece, what do you think would happen if a forest of apple trees with an unlimited supply of apples was discovered in the community you sell? The price of your apples will plummet dramatically.

The idea of printing money must sound ridiculous to you now and you might wonder why you ever thought about that in the first place, you’re not alone, hundreds of millions of people are asking on Google and not just mere people. Even prominent people and heads of states either didn’t get or still don’t get this. Zimbabwean former president Robert Mugabe printed so much money to pay the government in 2008 when the economy took a downturn. For context, healthy inflation ranges from about 0% to 5%, 50% is considered a hyperinflation. In president Mugabe’s time, the inflation level went up to about 6.5 sextillion percent, that is 6,500,000,000,000,000,000,000%. Succinctly put, if you were just a millionaire in Zimbabwe at that point, you will be classified extremely poor by the standards of the global poverty line. Many other countries have also faced this dilemma, Hungary, Germany, etc.

The job of Central Banks, then, is not to print money. The central bank merely balances monetary policy wheels so that the inflation rate is healthy enough to drive the economy.

It’s like the job of a bartender (mixologist), if you run out of lemonades, you don’t just squeeze in lemon, you have to find more sugar to balance the lemon with. And you have to do it well enough that it’s neither too sour nor too sweet.

The cliché is still true, if money grew on trees it would be as valuable as leaves.

There is only one country however permitted to print as much money as they want to without worrying about hyperinflation. Ask me which in the comment section and I might do another article on it.