Why can't we just print more money?

-Aradhia Bhagat

In an ideal world, I would be able to afford the new Prada bag by just printing more money. Or more significantly, the government would be able to solve global issues such as poverty and hunger by just printing more money to increase funding.

However, this is impossible because of inflation-a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency.

Before discussing the reasons for inflation, it is integral to know that money has no intrinsic value.

Money is valuable only because people will give you goods and services in exchange for money. It derives its value from the goods and services. On a deserted island, money is nothing more than useless sheets of paper.

It only has value because we give it value.

This is known as the tinkerbell effect, an expression describing things that are thought to exist only because people believe in them. The effect is named after Tinker Bell, the fairy from Peter Pan, who is revived from near death by the belief of the audience.

Hence, if people began to believe that money is worthless-it would be.

Conversely, if people began to believe that wrapping paper is extremely valuable, it would be.

However, how have we attached value to money?

This is due to the concept of fiat money.

Fiat money is a government-issued currency that is not backed by a commodity such as gold. Fiat money gives central banks greater control over the economy because they can control how much money is printed. Most modern paper currencies, such as the U.S. dollar, are fiat currencies.

Back to the question, Why can we not print more money?

Basic economics tells us that an increase in supply leads to a fall in demand and hence, more money in the economy leads to a decrease in the value of each dollar. Hence, more countries can purchase more dollars in exchange for their currency.

More money in the economy causes a shift in the demand curve for goods and services, but since this is not matched by the economic output-prices must rise.

Printing more money will simply spread the value of the existing goods and services around a larger number of dollars. This is inflation. Ultimately, doubling the number of dollars doubles prices. If everyone has twice as much money but everything costs twice as much as before, people aren’t better off. Having the government print money will not increase wealth.

Hence, *hypothetically* if the government prints a million dollars and emails it to everyone in the country-and people want to use it to satisfy their wants such as buying the new Prada bag. However, the quantity supplied of the bag is finite, causing there to be excess demand or shortage of the good, which will logically lead to an increase in the price of the good.

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A real life example:

Zimbabwe in 2008- The government decided to print more money to cover government expenditure. Hyperinflation is extreme or excessive inflation where price increases

are rapid and out of control.

First world countries have an inflation rate of 0-5%. But, during periods of hyperinflation, a country experiences an inflation rate of 50% or more per month.

Zimbabwe’s hyperinflation at its peak was at: 6.5 sextillion %. Sextillion is a number with 22 digits. Yeah, I didn’t know that it was possible either.

Some statistics to blow your mind:

• Zimbabwe's highest monthly inflation rate: 7.96 x 1010%

• Equivalent daily inflation rate: 98%

• Time required for prices to double: 24.7 hours

• Value of bills being printed: 100 trillion dollars bills were being printed

However, long before Zimbabwe's hyperinflation period began in 2007, signs were already apparent that the country's economic system was in trouble. The nation's annual inflation rate hit 47% in 1998, and this trend continued almost unabated until hyperinflation began. With the exception of a small decrease in 2000, Zimbabwe's inflation rate continued to grow through to its hyperinflation period. By the end of its hyperinflation period, the value of the Zimbabwean dollar had eroded to the point that it was replaced by various foreign currencies. hyperinflation is generally considered to be the result of government ineptitude and fiscal irresponsibility.

In 2009, the Zimbabwean dollar was banned and they still do not have a national currency, exchanging goods and services for the US Dollar, Euro, etc.

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Yup, so this is why the government cannot just print more money, it does not end well. Hold off on that Prada bag for a while...