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Why Can't The Government Just Print More Money Into The System?

Oftentimes, our minds ask the question "why can't the government print more notes?" Yes, it's understandable as this is a logical question, and one can't help but seek answers. Although it's not the work of the Federal government to print more money, it's the work of the Federal Reserve (Central Bank of Nigeria); however, they sometimes receive directives from the Federal government to print more notes. The major effect of this act is inflation, and below, the inflation has been broken down for readers to see reasons why the government/reserve cannot just print more money into the system.

1. Prices of goods and services will increase: With more money in the system, people will tend to buy more goods and seek for more services as they feel they can easily afford it/them. With constant purchases or increase in purchasing power, scarcity of goods set in as people double or increase their usage of goods, and with scarcity comes and increase in the price level of goods and services because people wouldn't mind paying a tremendous amount of money just to get what they want provided they have the money.

2. Devaluation of goods and money: Here one might be tempted to ask a question about devaluation of goods when I clearly stated about the increase in the price of goods in the first point. Yes, goods tend to devalue because their prices are higher, and people can easily afford them. Take for example, if a man earning 50 thousand naira buys a bag of rice for 20 thousand naira gets an increase in monetary power due to inflation caused by printing excess money and earns 500 thousand naira, if the price of a bag of rice is doubled and it becomes 40 thousand naira, he'll be able to buy 3 or 4 bags irregardless of the price rise, because he has the purchasing power, hence, the devaluation of the good (bag of rice). Also, money in the exchange market will lose value as the economic bodies will try to regulate it by devaluing the money.

3. Lack of investment and savings: With an increase in the amount of money in the system, people wouldn't care much about investment and savings because they'll always have a satisfied feeling because they have enough/surplus money to turn to when their needs arise. Also, the effect of the lack of investment could have a bad effect because with investments comes development in a system, if the reverse was the case, then the reverse effect would take place, which is underdevelopment.

In conclusion, unless there's an increase in economic activity which will align with the amount of money that is being produced, money should not be printed casually in the system.

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Picture Credit: @economichub

Content created and supplied by: Dzerique (via Opera News )

Central Bank of Federal Federal Reserve


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