For once, many of us might have got this common doubt that ‘why can’t RBI print more currency during a crisis time to help the country and the people.
During this coronavirus adverse effect on the economy, this might seem a solution to many but why can’t this be considered a solution.
The main reason is Inflation. If the rotation of money increases then the money will lose its value.
By printing more currency notes the rotation of currency notes in the public’s hand will increase and the people of the country would be capable of buying more goods. Since the money in hands of the public are increased they would want to lead a luxurious life and perhaps would want to consume more goods. But the availability of more goods arises is not increased since the production of goods are not increased.
Due to the limited availability of various resources, the production of goods cannot be increased. Hence the production remains the same.
This creates a situation where people have more money but the production is less. This phenomenon is called “hyper inflation”.
When people have more money there would be a rise in the demand for goods since the number of capable buyers increases which will eventually raise the prices of the goods.
Countries like Zimbabwe, Venezuela has tried and failed. It is said that during Hyperinflation in Zimbabwe, a piece of whole bread price was around 15,000/- Indian rupee in 2008.
The government and the RBI needs to maintain the balance between the production and currency rotation in the hands of the public to avoid such situations.
Printing money can’t be the solution to raise the economy. In order to increase the economy, production must be improved.
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