What determines the amount of money a country can print?

Answer 1

Dear Anu
You are asking a very big question, which the economists the world over are debating and researching and writing papers and hat not.
AND
Money need not necessarily mean currency note. The shop keeper accepts cheque or credit card or even cash vouchers, etc. Similarly, bank and post office deposits are also other forms of money.
There are technical differences between the “required money supply” and the “currency required to be printed”
I presume you are asking about the money that is required for the country and not the currency notes to be printed.

Let me try to explain in the simplest way, as a layman would understand.

1. A nation produces a certain amount of good and services within a particular year [it is called national production or Gross Domestic Product (GDP).. ]
2. Now, the people will require money to buy it. Isn’t it? How much they will require is the Trillion Dollar Question (TDQ)
3. Suppose you have 1000 rupees. This money, you will spend for buying things I want. The shop keeper will take the 1000 and spend for his needs (say buying goods). The 1000 will go the supplier from the shopkeeper. Then from the supplier to the Manufacturer of the goods.
4. If you observe, the money 1000, reaches from you (consumer) to the Manufacturer (Producer). The entire process is called one cycle.
5. The Producer thus will produce his goods 2 or 3 times a year, and get his money back twice or thrice. The 1000 rupees money you had multiplied it self thrice in a year. This is called money multiplier.
6. The money multiplier will differ from one product to another product, just as in agriculture, some crops are grown twice a year and some are grown even four times a year, depending on the days needed from seedling to harvesting.

7. The monetary authority takes into account the value of GDP and the money multiplier and arrives at the quantum of money required.

8. Let us say, 30,000 crores is the value of goods produced last year. Next year, it is estimated that 33,000 crores worth goods will be produced, then the money required will be 33,000 crores by 3 = 11,000 crores. This is only the example in a simple way. but thee are lot of technical things involved in determinign the money supply

9. The money supply for India is estimated taking into account GDP, balance of payments, fiscal deficit, inflation, etc. which is much more complicated process than the one I have explained.

10. Well, having come this far, I also will give calriication to the other subject also.
The currency to be printed in a particular year is calculated by taking into account increase in money supply, old notes that will require to be replaced and the increase in the fiscal deficit, etc.


11. If you are interested, read the following literature.

Generally, the money stock consists of currency held by the public; transaction, savings, and time deposits held by the public at depository institutions; the assets of money market mutual funds; and certain other depository institution liabilities. The Federal Reserve affects the money stock chiefly by its influence over interest rates. When the Federal Open Market Committee lowers the target federal funds rate, the rate at which depository institutions purchase and sell overnight funds to one another in the market falls, and so do other short-term interest rates. Lower short-term market interest rates increase the attractiveness of the rates paid on deposits at commercial banks and other depository institutions because changes in these rates tend to lag changes in market rates. Consequently, the public tends to purchase the assets included in the money stock, and money growth increases. Conversely, when the FOMC raises the target federal funds rate, the federal funds rate increases, as do other short-term interest rates. The rates paid on assets included in the money stock become less attractive, and money growth slows.

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Answer 2

technically a country can print as much as it wants as long as it has paper and ink, but the more money is printed, the less the value of it becomes. german marks during the world wars were printed in plenty, but it's value eventually dropped to the point that it was cheaper to burn marks than buy fuel for the cooking fire.
as a result, the only practical limit is common sense.

Answer 3

You can't just print endless amounts of money to get rich. If you print more money than necessary, it will become less valuable (i.e. deflation). The decision of how much money to release is usually handled by a government treasury department.

Answer 4

It depend upon the Gold and Foreign exchange reserve with the Country. ( that the law say) But II be live that there is no determination done by any country for it.

Answer 5

Common Sense.

If the United States of America printed $100 Trillion of Dollars then the USD would be worthless.

Currently if you go to Mexico and you want to buy MXN you only need $1.00 USD and you get $11.00 MXN.

With unlimited amounts of USD you would go to Mexico and you want to buy MXN you only need $1,000.00 USD and you get $1.00 MXN.

I hope you understand.