Curious Kids is a series for children of all ages, where The Conversation asks experts to answer questions from kids. All questions are welcome: find out how to enter at the bottom of this article.
Why don’t poorer countries just print more money? – Clementine, age 12, London, UK
Thank you for the question, Clementine. When a whole country tries to become richer past printing more money, it rarely works. Because if everyone has more money, prices go up instead. And people detect they demand more than and more money to buy the aforementioned amount of goods.
This happened recently in Zimbabwe, in Africa, and in Venezuela, in South America, when these countries printed more money to try to brand their economies abound.
As the printing presses sped upward, prices rose faster, until these countries started to endure from something called “hyperinflation”. That’s when prices ascent by an astonishing corporeality in a year.
When Zimbabwe was striking by hyperinflation, in 2008, prices rose equally much equally 231,000,000% in a single year. Imagine, a sweet which price one Zimbabwe dollar before the aggrandizement would have cost 231m Zimbabwean dollars a yr later.
This amount of paper would probably be worth more the banknotes printed on it.
To become richer, a country has to make and sell more than things – whether goods or services. This makes it safe to impress more than money, and so that people tin can buy those extra things.
If a country prints more money without making more than things, and so prices just go upwardly. For example, call up of those special vintage Star Wars toys from the 1970s, which tin can be worth a lot of money.
No i is making whatever more of these models. So fifty-fifty if everyone gets more than money to spend, information technology won’t hateful that more people tin beget to buy them. The sellers will just put the price up.
At the moment, in that location is i country that can get richer by printing more than money, and that’s the Usa (a country that is already very wealthy).
This is because well-nigh of the valuable things that countries around the globe purchase and sell to 1 another, including golden and oil, are priced in US dollars.
So, if the US wants to buy more things, it really can just impress more than dollars. Though if it printed too many, the price of those things in dollars would nonetheless go up.
Too much, too fast
Of course, poorer counties can only print their own currency, non United states of america dollars. And if they print a lot more than, their prices will get up too fast, and people will end using that coin.
Instead, people will swap goods for other goods, or inquire to be paid in United states of america dollars instead. That’s what happened in Republic of zimbabwe and Venezuela, and many other countries that were hit by hyperinflation.
Venezuela tried to protect its people from hyperinflation by passing laws to keep a low price on things people demand most, similar nutrient and medicines. But that simply meant that the shops and pharmacies ran out of those things.
The dismal science
But it’due south non true that a country tin
get richer by printing coin. This can happen, if it doesn’t take enough money to offset with. If in that location’s a shortage of money, businesses can’t sell enough, or pay all their workers. People can’t even infringe money from banks, because they don’t have enough either.
In this case, printing more money lets people spend more, which lets companies produce more, then there are more than things to buy as well as more money to purchase them with.
In 2008, there was the Global financial crisis, when banks lost a lot of money, and couldn’t let their customers have it. Luckily, almost countries have central banks, which assistance to run the other banks, and they printed actress money to get their economies moving again.
Too little money makes prices fall, which is bad. But press more money, when in that location isn’t more product, makes prices ascent, which can be just as bad. No wonder economics - the study of coin, trade and business - is often called the “dismal scientific discipline”.
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