"Why can't we print more money?" This question must have popped up at least once. Especially during a recession, we feel that printing more money can alleviate all problems. While it sounds tempting, unrestrained money printing isn't a miraculous solution. Let's explore why we can't simply print more money. Picture you and your friends playing Monopoly with fake money. If you suddenly duplicate more fake money, the money becomes worthless and uninteresting, right? In the real world, printing more money means everyone can afford to pay more, which can lead to inflation, where prices soar and your buying power shrinks. So, printing money doesn't magically create more goods and services; it just makes the existing ones more expensive. Interesting, right? Now, let's learn more about how economies work!

Money: a tool used for trading value

Money is a medium of exchange that has different values for different people. The piece of paper, whether it bears the label of 1 dollar, 100 yuan, or 1,000 yen, may appear identical to a torn scrap of a newspaper or magazine. The symbol's value is greater than its material form, providing food, clothing, and essentials, while its counterpart is a mere tool for igniting flames. Paper money was used in China for the first time more than 1,000 years ago. Before that, people used a barter system to exchange goods and services, which caused the problem of double coincidences in wants. The barter system involves parties agreeing to trade goods or services based on the shared belief in their worth. Imagine bartering chickens for shoes? Money simplifies things! It's a stand-in for value, accepted by everyone for goods and services. This exchange is facilitated by a double coincidence of wants, fostering trust in valuable goods or services.

The Pitfalls of Money Printing

We know every action has consequences. Now, let us take a deep dive into a world where we print more money whenever we feel like it:

• Inflation, a.k.a Increase in prices: **Inflation is when the prices of everyday items you regularly buy go up, but the value of your money doesn't stretch as far. Imagine last month you spent ₹100 on a full cart of groceries, but this month it's ₹105 for the same items. Inflation squeezes your wallet, leaving you paying more for the same stuff.

Inflation can be measured in the Wholesale Price Index (WPI) and the Consumer Price Index (CPI). The CPI is a statistical tool for tracking rising living costs, enabling households to adjust budgets and prevent overspending on essential items over a given period, while the WPI focuses on large-scale goods costs. Several things can contribute to rising inflation, like demand and supply, cost-push, currency devaluation, etc.

• Loss of confidence: Printing too much money makes people lose trust in currency and decreases the country's global competitiveness. Excessive printing can also produce economic instability and cause people to take their money out of the country, which affects investment and growth. Inflation is termed hyperinflation when the inflation rate goes above 50%. This has previously wiped out people's savings and ruined economies. For example, it happened in Hungary from 1945 to 1946 when prices doubled every 15.3 hours, causing the economy to collapse. It also happened in Zimbabwe in 2007 and 2008 when prices doubled daily, and people had to start trading goods using a barter system or the US dollar. We can, however, maintain public trust in our currency and guarantee long-term economic stability by wisely controlling the money supply.

• Impact on interest rates: Inflation is when the financial world experiences an exciting domino effect caused by a rush of money production. As cash floods the economy, lenders will provide loans at increasing rates, promoting an economic disaster. In this situation, central banks lower interest rates and are prepared to adjust current rates to tame the uncontrollable rise in inflation. However, an individual's savings are reduced when interest rates drop, forcing investors to seek higher returns in riskier investments.

  In this gripping tale of economics, the central bank skilfully manages the money supply and interest rates to produce an exciting show that maintains price stability and sustained growth.

• Long-term economic consequences of short-term fixes: Printing more money creates rising inflation, lost trust in cash, resource misallocation, and unsustainable debt. Instead, to solve underlying economic issues and promote long-term stability and growth, authorities should prioritise sustainable long-term monetary and financial strategies. While currency production might help temporarily, there is a chance that it might eventually lead to the instability of the economy.

Now connect this to our daily lives: you walk into your favourite burger outlet ready to grab your tasty treat, and you fish your phone out to pay for the order and check your balance, but wait…why does it feel like it's running out more quickly than your burger? This is inflation, where the price tags make you play the game of "catch me if u can". Presuming the government decides to print more money to pay for its expenses seems safe, doesn't it? The worst part is that, as money becomes more plentiful, it loses value faster than you can say, "Print more money!".

It doesn't mess up only your purchases but also your savings! Are you saving money for college or a new iPhone 15? With money losing its worth minute by minute, good luck.

And if this is still not enough, get ready to buckle up. You'll hear interest rates rising as fast as your heartbeat when you see your dad angry all over the news. Suddenly, a loan for large purchases like a house or a business will become expensive.

In conclusion, increasing the money supply through printing is not feasible as it would severely damage our economy. Nonetheless, don't worry, my fellow wallet mates; gaining insight into how printing more money affects your daily life is your superpower in the world of finance now. With this information in mind, you can now answer your friends when they say, "If a country is poor, it should just print more money". You can now choose to spend more wisely, handle inflation's curves more sensibly and take excellent care of your hard-earned money. You are the financial explorer and superhero of your financial journey regarding money!

Let us now take a deep dive into what happened when Venezuela started printing money whenever they needed it.

The Story of Venezuela

Since the early 2000s, Venezuela's economic collapse has been directly directed towards the government's persistent money-generation disaster. This reckless financial practice has increased poverty and civil disorder, as well as put the country's currency into a massive dive. As essentials became luxuries and dissatisfaction rose in the streets, the crisis was a significant reminder of the importance of responsible economic supervision and careful administration. Venezuela's currency turmoil is like an endless rollercoaster ride, and believe me, it's one crazy trip you wouldn't want a ticket for! This is represented by the following figures, which narrate the impact on Venezuela's economy:

Hyperinflation: Prices in Venezuela went through the roof! Imagine a candy bar costing a million times more than it did before. For example, estimates from the International Monetary Fund (IMF) indicate that in 2018, the annual inflation rate reached more than 1,000,000%.

Bolívar Devaluation: The term "bolívar fuerte" translates to "strong bolívar" in English. It was the name given to the Venezuelan currency after being revalued at a ratio of 1,000:1 on 1 January 2008. As a result of hyperinflation, the value of the Venezuelan bolívar fell rashly. When the bolívar reached its highest point, it was almost entirely worthless, which caused people to lose faith in the country's money.

Economic contraction: During the crisis, the economy experienced considerable contraction, which led to a shortage of essential goods and fuel. According to World Bank figures, from 2013 to 2019, Venezuela's GDP decreased by over 47%.

Poverty and Unemployment: Widespread unemployment and poverty were caused by economic disturbance. 94% of Venezuelans were thought to be living in poverty in 2019; the country's jobless rate had skyrocketed to more than 35%.

The Central Bank of Venezuela (BCV) decided to improve its inflation calculation methods back in 2014. In an attempt to work some magic to solve their financial problems, they abandoned the outdated Laspeyres approach for the Fisher index. But not everything went exactly as anticipated. In 2008, an attempt was made to modernise the currency by renaming it the "strong bolívar," or bolívar fuerte. Nice name, huh? In reality, though, it wasn't so powerful because inflation was still out of control. In 2016, they said, "Let's try bigger banknotes."

Then, in 2017, President Maduro introduced "the Petro". It was anticipated that The Petro would be this hip new cryptocurrency supported by gold, diamonds, and oil, but the public was not interested in it, literally and figuratively. Then, believing that the Bolívar Soberano would be the needed hero, they unveiled it in 2018. But, as luck would have it, there was merely more mayhem. Hyperinflation was not a passing phenomenon. And in 2019, they released even larger bills, as if that wasn't enough. As time passed, the exchange rate kept going out of control; it was like trying to fill a bucket with a hole in it.

Meanwhile, Venezuelans are caught in this crazy rollercoaster ride of economic turmoil. Shortages of food, medicine, and basic stuff have become the norm, and people are struggling to make ends meet. It's a real-life drama that's left many Venezuelans hoping for a miracle.

Conclusion

In conclusion, printing more money as a quick fix for economic woes is alluring but fundamentally flawed. As we've explored, unrestrained money printing can lead to inflation, eroding the purchasing power of money and triggering a cascade of negative effects, such as loss of confidence in the currency, economic instability, and soaring interest rates. Historical examples, like Venezuela's financial collapse, underscore the devastating consequences of irresponsible monetary policies.

Understanding these dynamics is crucial for navigating personal and national financial landscapes. As informed individuals, we can make better financial decisions, recognise the importance of sustainable economic strategies, and appreciate the complex interplay between money supply, inflation, and economic health. Remember, while printing more money might seem like an easy solution, it ultimately leads to more significant problems, undermining the very fabric of financial stability.

So, next time you hear someone suggest that a country print more money to solve its problems, you'll know exactly why that's not the answer. Instead, fostering economic growth through sound policies and prudent financial management is the path to long-term prosperity. With this knowledge, you are better equipped to navigate the financial world and make wise decisions safeguarding your hard-earned money.