How does currency / wealth of a country really work ?

Question

What im getting at is when money is printed as such. Whats to stop a poorer country printing X amount of money to use to purchase items from other countries.

There obviously must be something must be something in place.

I just dont get it ?


thank's for your replies in advance

I appreciate your first two answers and they have helped alot.

What im also getting at is say the goverment of a poor third world country printing money for themselves to purchase
expensive medical equipment,food & other supplies from other countries.

It makes sense to me to do so.surely everyone in that country will then not be in ill health and starving.

After all there is more than enough food in the world for people not to be starving.

ok im maybe going a little off track.

It's always something i can never get my head around.

Answer 1

What everyone else said was correct. There is an easier way to explain it I think.

There is a market for the money. The market will price how many yen is equal to one dollar, or how many dollars are equal to one euro. If you just keep printing money, you'll increase the supply and the market will naturally lower the price in order to offset the printing increases. Think of it in terms of something like the PS3. If you kept producing them over and over, the price for the PS3 will continue to decline until it was priced correctly, which would be much lower.

Or here's another example. Say you were running an economy called Astratwin Nation, and the economy had 1 Astrat bill and the market determined that 1 Astrat bill was equal to 1 US dollar. If you printed out another Astrat bill, then you now have 2 astratbills. However, the market will simply lower the value of the Astrat in terms of US dollars. Now, the Astrat is equal to 50 US cents, and you are no richer than you were before (2 Astrat bills valued at 50 cents equals 1 dollar still).

You might wonder how any country gets richer at all now. Like someone else said, it is tied to productivity of your nation. If you produce more goods, then you can print more money without losing its value. Essentially, you can't print more money unless you have the productivity to match it because of the market. The market prices your currency correctly, and if you just keep printing out money, you are just spreading out the value of your economy over lots of bills (so that 1 dollar is being spread out among all the bills you print).

Answer 2

Although currency is no longer tied to the gold standard, it is tied to the PRODUCTION of the nation. A nation's wealth is not its possessions--as in gold or natural resources--but the productivity of its citizens and its assets. If a nation were to simply print money, above and beyond the quantity called for by the nation's growth in productivity, that nation will soon begin to experience inflation, because there is more money available to purchase the same amount of products and services. A little bit of inflation is OK, but once it gets out of control, the money becomes less and less valuable to any person or entity selling goods or services. It will take more and more of that currency to buy the same item, until finally the people of that country completely lose faith in the currency and begin to use barter systems or some other nation's currency. A good example is Zimbabwe, whose currency is nearly worthless now, whereas only several years ago it was quite solid. A small purchase requires millions of Zimbabwean Dollars. So, printing money in very short order becomes a recipe for disaster.

Answer 3

The problem with your example of a 3rd world country printing money in order to buy imports of medical supplies, is that the developed nation's exporters will NOT accept that 3rd world country's currency. They would insist on payment in Dollars, Euros, etc. So the 3rd world nation would need to legitimately acquire the "Hard Currencies" first, and it can only do that by exporting some real products (or accepting limited foreign aid). So just "printing money" in its own currency will do no good in this respect.

For example I myself export a product, and my company only accepts Dollars, Euros, or Pounds, period. I simply won't make the sale if all you can offer me are Pesos or Pesetas or Vietnamese Dong.

Also, Sargon makes excellent points about the need for money creation to be tied to production.

Answer 4

you don't choose a huge empire once you have have been given corporation links international extensive and the main important economic marketplace interior the international is on your capital city. yet one little concern to point, and it particularly is not your fault for buying it incorrect as Brits at here continuously strengthen it. England isn't comparable to massive Britain or the united kingdom. that's a constituent element of the two. Now, i'm Scottish, and that i do no longer incredibly like being suggested as British, yet while i've got have been given to positioned up with it i'm rattling particular i'm no longer likely to be quiet while English human beings confer with the entire u . s . as England. England in no way had an empire. Britain had an empire.

Answer 5

Previous answers are good but I thought I might need to explain to you that a banknote is just a fancy IOU. Read a UK note, it says "I promise to pay the bearer upon demand" or something similar. Currency as we know it was invented so people didn't have to carry gold (other valuables) around with them. That's where banks started.

Answer 6

Its all to do with supply and demand. I'm not an economist or anything.....but the more there is of something......the easier it is to get hold of it.....the less rare it is.....the more common it is....the less desirable it is.....thus it doesn't have as much value/bargaining power/leverage whatever u wanna call it. Because its "Buying power" is diminished but you have more of it....it basically doesn't make much difference. You have more of it....but each one is worth less. So if you print loads more Pounds or Dollars or whatever it is.....then people get more of them, and £100 suddenly dosent mean as much as it used to. because theres more £ out there. So as people get more ££ and they are more common/less desirable each £ has less value and buys less. So you have more £ but each one buys you less! Hope this makes sense!