CFA CFA General Printing of currency

Printing of currency

  • This topic has 4 replies, 4 voices, and was last updated Apr-17 by Zee Tan.
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      I was going through some topics in Economics when i came across a particular sentence which said that printing of currency would ultimately lead to higher inflation. I’ve come across this before and didn’t pay much attention to it, but now I’m curious as to how it actually happens.

      If anyone could please explain this to me, that’d be great 🙂

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      To put it simply: imagine if a govt prints tons of local currency (effectively lowering interest rate). The money will end up in the local economy system, and encourages spending. A lot of money chasing a finite number of goods will lead to inflation (high demand, low supply of goods).

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      printing more money = increases money supply (curve, if you want to think in terms of graphs)

      more money in people’s pockets = more buying
      but its not worthwhile for sellers right? so they boost prices up since there’s more money available for them to receive (this is not a technical explanation, just a scenario to help lol)
      as a result, prices shoot up = inflation!!!

      otherwise, I agree with @sophie

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      Ah, okay. That makes sense. Thanks @Sophie and @lulu123! 🙂

    • Zee Tan
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      printing more money = increases money supply (curve, if you want to think in terms of graphs)

      more money in people’s pockets = more buying
      but its not worthwhile for sellers right? so they boost prices up since there’s more money available for them to receive (this is not a technical explanation, just a scenario to help lol)
      as a result, prices shoot up = inflation!!!

      otherwise, I agree with @sophie

      That’s how I remember it too @lulu123 🙂

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