Why can’t we print more currency to beat the economic crisis?
We frequently think about the question, why the Reserve Bank of India doesn’t print additional currency to overcome economic and financial crisis especially during such period of a pandemic. For understanding such problems, we need you to consider an example. In a country ABC, we have a hundred citizens with a salary of ten thousand per annum. The country has a production of an essential product X of price fifty and production of a thousand units per year. Now the country decides to print more currency and double the salary of citizens i.e. twenty thousand per annum. Now having more salary citizens have more capacity to buy product X, but it is not possible to increase the production of product X due to some natural reasons. The outcome of this situation will result in an increased cost of product X to one hundred. This phenomenon takes place due to the fixed production of any country over its capacity to increase the currency and it is known as ‘HYPERINFLATION’.
In economic terms, Inflation is a price rise of goods and services. While Hyperinflation is one step above inflation, it is a situation of extensive price rise of basic goods and services. Since the rate of price rise is unusual and quite high, some writers have indicated that the price may be rising as high as a rate of 50% in a month.
Such experiments were conducted by countries like Zimbabwe and Venezuela to improve their economy they printed additional currency notes. In the year 2007, Zimbabwe printed the currency notes of an amount such as a hundred billion or a trillion dollars notes. Such practice increased the flow of money in their citizen and start to live a luxurious life. The outcome was so terrifying in Zimbabwe, that simple wheat bread costs around twenty thousand Indian currency. This phenomenon explained the causes of Hyperinflation to the whole world.
Countries that are under hyperinflation are:
- Zimbabwe (since March 2007)
- South Sudan (since Nov 2011)
- Venezuela (since Nov 2016)
The data shows us how difficult it is to overcome Hyperinflation, since 10 to 15 years of Hyperinflation countries are still under economic crisis, however, the steps taken by printing additional currency notes was to improve economic and financial conditions.
The potential solution to overcome hyperinflation is only by abandoning failing currency and adopting a stable foreign currency known as Dollarization. A notable success story of dollarization is Montenegro, where the considerably weak Yugoslavic dinar was replaced with the euro, a more stable currency used widespread across the European Union. Before total dollarization, the inflation in Montenegro peaked at 26.5percentage in 2001. After adopting the euro, the country’s inflation is under one percentage, as of 2019. Overall, for the other three countries adopting Dollarization is a key to end the crisis.
Every time again anyone thing about printing additional currency notes just provide them with this information and always make efforts to improve the Economic and Financial conditions of your country and grow together. Provide your thoughts and questions related to Hyperinflation or National finance. Applause and comment if you like.
Written by: Meet Shah(Instagram: @meet8600)
Vociferous Writers (Instagram: @vociferouswriters)
