Thread by @Abhishe27960014

"Unlimited Money Printing: Understanding the Limits of Money Printing"💰

Have you ever wondered how much money a country can print?🤔💡

Let's dive into this interesting topic and understand it in detail!🧵👇

#inflation #MONEY #RBI

1) In theory, a country can print an unlimited amount of money. 🚀

But in practice, there are several constraints 🔇that limit this ability without negative consequences.🔻

2) What are the problems of unlimited printing?⚠️

🔶Inflation💹

When a country prints more money than its production, it creates more demand for goods & services than there are available, resulting in inflation.

Let's understand with one example.👇

A shop has 10 kg of apples every day & 10 people come to buy 1 kg each at Rs. 10.🍎

Now if the government prints more money into circulation, then suddenly everyone has Rs. 100 to spend, they can buy all 10 kgs at once.

Since the supply stays the same, the shopkeeper will end up increasing the price of 1 kg of apples to Rs. 100 to meet the demand of others.

🔶Currency Devaluation💵📉

If a country prints more money than its economy can handle, it can lead to a decrease in the value of its currency.🖨️

This is because an increase in the money supply can lead to higher inflation, which erodes the purchasing power of the currency.

🔶Expensive Imports📈

A devalued currency can make imports more expensive, as it takes more of the local currency to purchase goods denominated in foreign currency.

This can lead to inflation, as the higher cost of imports can lead to higher prices for domestic consumers.

3) There are examples where countries have printed large amounts of money and faced severe consequences.

❎The government of Zimbabwe began printing large amounts of money in the early 2000s to finance government spending and prop up the failing economy

It led to an inflation rate of 89 sextillion percent! (89 followed by 21 zeros)🚀

This meant that prices of goods and services were doubling every few hours.📶

For context, India's annual inflation rate is just 6.67% in 2022.

❎Venezuela printed a lot of money in the 2010s to finance government spending and social programs.

It led to hyperinflation, with prices doubling every few weeks, and the Venezuelan currency becoming essentially worthless.

4) In conclusion:

Printing too much money can have severe consequences.

Countries must be mindful of their monetary policy to maintain economic stability.

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