Why doesn’t the government simply print more currency notes when a country is short of money?

One evening, the family sat in front of the TV, and a news report flashed on-screen, “Coronavirus pandemic downs the economy worldwide.” John, a 5-year-old kid, asks, “Why can’t the countries print more and more money so there will be no problem in buying goods and helping all the sick people?” How we all wish things would be that easy.

The quick answer to this question from a kid is that printing more money makes people demand more goods since they have enough money to buy. But if companies still have the same amount of products, they will respond by putting up prices.

Of course, counties can only print their currency, and if they print a lot more than their need, the costs of goods will go up too fast, and people will stop using that money. So, printing more money only increases the amount of cash circulating in the economy, and does not increase economic output but will cause inflation. (click here for more details)

The U.S. Federal Reserve controls the money supply in the United States. It doesn’t print currency bills itself but does determine how many bills are to be printed by the Treasury Department each year. (click here for more details)

So who prints the money that we get from the banks or withdraws from the ATMs? The job is done by the Treasury Department’s Bureau of Engraving and Printing (BEP), which designs and manufactures all paper money in the U.S. However, the amount of currency to be printed is determined by the Fed. It will then submit an order to the BEP. The Fed then distributes that currency via armored carrier to its 28 cash offices, which then further distributes it to 8,400 banks, savings and loans and credit unions across the country. The Fed’s Board of Governors ordered 5.2 billion Federal Reserve notes for the 2020 fiscal year. The official name of U.S. currency bills from the BEP, valued at $146.4 billion.

The Fed gets to decide how much money, both credit and paper currency is to be produced. Paper currency is called Federal Reserve Notes, and as of May 2020, there was $1.87 trillion of these notes in circulation. The Fed spends almost $700 million a year to manage the currency, which includes paying for printing, transportation, and destruction of the mutilated currency. The Federal Reserve Board estimates how much demand there is for the paper currency, mostly going to replace mutilated or outdated bills. (click here for more details)

Meanwhile, in the United Kingdom, De La Rue, a private company prints the nation’s banknotes and passports. It has printed banknotes for the Bank of England since 1860. Based on the investment research company Edison Group, it is the largest commercial printer in the world. It prints currency for 140 countries, produces passports for 40 countries, and has designed 36 percent of all banknote denominations in circulation. (click here for more details)

It’s true that not having enough money will cause businesses not to sell enough as they don’t have enough capital to operate or start the business. People cannot have a loan from the banks because they don’t have enough either. Therefore printing enough money can also make a country richer but not in a way you have thought of it.

Printing enough money or too much money lets people spend more. It will result in companies producing more goods to sell, so there are more things to buy and more money to buy.

This crisis happened in Venezuela when the government headed by Nicolás Maduro, who has presided over since 2013, declared a state of emergency in 2016. There was inflation that hit at 800% rate—things have gone from bad to worse. Although Venezuela had passed laws to keep a low price on the essential things, like food and medicines, it failed to protect its people from hyperinflation as the shops and pharmacies ran out of those things. By 2018, the hyperinflation was estimated at 80,000%, and about 3 million Venezuelans left the country. It is by far the most massive human displacement in Latin American history, driven by shortages of everything, including food and the Maduro regime’s oppressive treatment of dissent. (click here for more details)

Ironically, the world’s largest printer of money is running out of money. This was a headline from BBC news stating that De La Rue, issued a warning that there was a “significant doubt” about its future. Despite having major contracts, the company suffered two significant setbacks that have thrown the company’s future at stake. In 2018, it lost the contract to print the United Kingdom’s new blue passports after Brexit is completed. That contract went to Gemalto, a German company. De La Rue also wrote off £18 million in 2018 after Venezuela’s central bank failed to pay the company for its services.