Answers to Everyday Questions : How does printing money work? As in, who regulates how much money a particular country can print for themself?

How does printing money work? As in, who regulates how much money a particular country can print for themself?

3 Responses to “How does printing money work? As in, who regulates how much money a particular country can print for themself?”

1. Spock (rhp) said :
   August 17th, 2010 at 10:53 am

   the country’s laws regulate the amount.

   No, there is nothing to prevent Senor Chavez, for example, from printing as much Venezulan currency as he likes. He can even lie about how much is in circulation if he wishes.

   [In the US, the Federal Reserve prints the amounts needed and decides how much to permit.]

   Of course, money is only worth what it will buy. If real goods are scarce, as they are now in Venezula, prices will rise [or goods will disappear from shelves and transactions will take place in the alleys instead of the stores].

   And the local currency will fetch increasingly fewer units of foreign currency, even from the black market guys in those alleys. As is currently happening in Venezula, in fact.

   The process can go on and on for many years — and it’ll eventually cause either the economy to implode or a change in government. Might be years though — Weimar Germany ran hyperinflation for about a decade before the reforms of the 1930s.

   Germany’s new government in 1933 turned out to not be so good for the country though — or its neighbors.

   Food for thought.
2. rlloydevans said :
   August 17th, 2010 at 10:53 am

   The individual country issuing the money polices itself. That is why some currencies are considered better than others, because they have a strong monetary policy so that people who do business in that money are confident in it. Countries like The US, UK, the European Union, etc have strong Central Banks that monitor how much money needs to be in circulation. Money is not flooded into the market to devalue everybody’s wages and savings.

   Other countries have poor financial control of their money making policy, and as a result have horrible problems with their money supply. A typical example is Ecuador. They are famous for having populist Presidents and corrupt politicians who when they would need money to spend on what they want so they simply ordered more money printed. Inflation in 1999 reached 2000% and economically destroyed the country. They desperately switched their currency from the home made Sucre to USA Dollars, which is the legal currency now.

   Since then, their economy is stable, but politicians complain about only being able to spend what revenures they have. Other countries who recently have had financial crisis due to spending and monetary mismanagment include Brazil and Argentina.
3. khalilkyd said :
   August 17th, 2010 at 11:45 am

   Hi,

   Only the treasurer and his department can decide how
   much currency the country should print .No one can stop
   them except if they print too much, the value of the currency
   can come down. Hence, the term “Fiat Money”.

   rgds…………….