The above title is an economic conviction and proverb which is all about one of the most used commodities in the whole global economy; perhaps the most used one - money. It is an unavoidable asset (meaning one gotta to own or have it) in the monetary economy, basically, which every person has the lust to have or hold or use it for many reasons embodying economic ones, too. The truth is not all economic players would love to hold this asset which is also called as the most liquid asset. Well, why? There certainly are economic reasons behind that. Like every other asset in the world, the money has its own value which can be only measured when it is compared or related with commodities’ or services’ prices. And the value of it is unstable; one of the reasons for that is - over supply of money. Technically, when the money available in a country/economy exceeds existing total value of commercial products and services, the value of the money is bound to wane.
Getting back to the title of this article, I would say that central banks are not to be blamed in case of excessive printing of paper money, completely. A big question emerges: how can be the proverb understood?
Here’s how:
A central bank can go on printing more and more money but the only vital thing needed to be done with such fresh money is the best or economic employment has to take place. I also agree to the fact that even after its best utilization, inflation still can emerge or rise.
Economic (= profitable) use of the fresh money I mean – generation of at least adequate number of assets/commodities must occur in the economy and also their final prices must be either close to or equal to the value of freshly printed money which is realistic but it is a daunting task for all concerned economic players involved in the status quo.
For insistence, say $100 worth of paper money is printed by the Fed or any other central bank and it is used in the production of goods or services or both. And the final worth of all the produced stuff is equal or close to equal the amount of money printed, i.e. $100, then that is called technically as growth. If that is not the case, it means trouble for the economy.
Here, the produced stuff may be as under:
1. Agricultural goods;
2. industrial goods;
3. Services.
If agricultural goods are produced, inflation rate prevailing would not be affected to a great extent provided that at least sufficient number of goods must be produced and factors such as natural calamities, change in exchange rates, etc should remain the same or constant. But this article also agrees to the fact that inflation can still emerge even after producing products economically, palatably, and scientifically indeed due to many inter-linked monetary reasons.
The bottom line is printing more and more money is not always a con. Any central bank can print paper money to any extent in the absence of concerned laws and restrictions but some of the key things that determine good economic results from such printing are – how the money is to be used, when the money is to be employed & what for the money is to be utilized. Please note that economic production is the keyword and not consumption during such situations. Hence proved!
