As a kid, we might have thought that if the country is poor, why don’t we simply print more currency and circulate within the poor people so that there is no problem in buying and selling of the products and services in the market.
However, it is not the case that the government can simply NOT do this, it could be done, for example in the year 2008, when the recession hit, the money was printed and this situation is known as quantitative easing or QI.
However, this measure is only taken in cutthroat extreme situations and is also not the right decision as it brings inflation in the economy of the country and if too much money is printed the situation could also be called – Hyperinflation, which is not good for the citizens as a whole.
What decides how much money would be printed in a country?
There is no fixed rule or authority, which determines the amount that has to be printed in a particular economy. It should simply be equal to the smooth flow of goods and services and at the same time restore the value of the currency.
The value of money depends on many aspects be its net exports, Current and fiscal deficit, the Interest rate in the economy and many other moving parameters. If we generally speak about the central bank of any economy, it prints almost 2 to 3 % money of the total GDP. However, it has to vary from one economy to another. Mature markets like that of USA prints not more than 2 to 3 % of their GDP but emerging economies like India have to print more than 2 to 3% money in circulation.