Printing your own money to save a poor country

August 19, 2005 4:53 AM

With alot of poor countries around the world getting into more and more dept I was wonder why don't they just print more money as they own their country...

...

Lets say 'Ethiopia' was our expample, where people are dieing day in day out due to starvation.

If I owned that country I would print more money (as I would own it) to pay workers to make the country better. i.e. new roads, transport, etc. Paying your own people with your own countries printed money wouldn't be fraud. So poor people would eventually have a job that would make their country better, and in return they get money to feed their family.

I was talking to a few people about this and one of they said that they cant do it becuase of the world bank.

world bank??? who owns that, or are they guessing?

Plus who does actually own a country? George Bush doesnt own America. Would the countries representative have the power to print more money out if they needed to?

I know in England, the queen has rights at the Royal Mint, but what rights?

Before you lot say about trading with other countries, if a country wants more for a product, just print more. If the conversion on currency is poor, just print more money.

I could be wrong about the whole situation, its been on my mind for years as I can't understand why the poor countries are suffering.

Vinnie

posted by spooksie to work & money (23 comments total)

If you print more money, each individual piece of money is worth less.

Inflation (wikipedia).

Also see: Pre-WWII Germany.
posted by selfnoise at 5:02 AM on August 19, 2005

Two main problems: (1) simply printing more money leads to inflation. Prices rise, and you're roughly back where you starded.

(2) For Third World countries, the nation's debt isn't denominated in their own currencies, it's measured in dollars or Euros. So if you print more of your own currency, the exchange rate gets worse, and you can't pay off any more of the debt than you could before. (Note that when the United States borrows money, it borrows in dollars, so the rate of inflation in the US effectively reduces the interest that the US pays on its debt.)
posted by Zonker at 5:04 AM on August 19, 2005

The main problem with just printing more paper money is everybody knows it's no good, just pieces of paper, and they won't do work for it because they know they won't be able to buy anything with it, the folks selling food at the market won't take it in exchange for anything they might want to buy.
posted by jfuller at 5:04 AM on August 19, 2005

As jfuller indicates, the value of money is what it will buy, and that value is fairly constant. If I have to work one hour to buy a $5 six-pack of beer, I get paid $5 per hour of work.

If you double the amount of money in circulation, my wages don't increase to $10 per hour. The cost of a six-pack of beer, however, very quickly increases to $10. That's inflation. So doubling the money supply effectively cuts my wages in half. Next time I negotiate my pay with my boss, I can try to fix that, but for most people, inflation means they always fall behind.

That's why increasing the money supply is not always a good idea. Pre-WW2 Germany was a bad example of runaway inflation, and there have been more recent examples in South America and elsewhere. If you have to use a grocery bag full of money to buy a loaf of bread, it makes working for that money seem pretty pointless.
posted by Kirth Gerson at 5:40 AM on August 19, 2005

Plus who does actually own a country? George Bush doesnt own America.

As head of state, George Bush does in fact own America. Or, as it's a republic, the country has been temporarily leant to him by the people.

I think the real question you're asking is about sovereignty. A sovereign nation (which most countries are) can do whatever it likes within its borders, including printing money. However, most countries have (voluntarily) entered into agreements and treaties with other countries, which means they've promised to do or not do certain things. Being sovereign, the country can always break those promises, at the expense of pissing off the countries it made them to.
posted by cillit bang at 6:04 AM on August 19, 2005

As head of state, George Bush does in fact own America.

No, that's (thankfully) not true. It's a bit hazy, but the best answer I can think of is that the President is the CEO, Congress is the COO and CFO, and the Supreme Court is the Board. Remember- the president can only propose spending. The House controls the purse strings.
posted by mkultra at 6:25 AM on August 19, 2005

But if your country didnt trade with other countries, then the value of your currency would be worth something.

Think about it as a PC not on the internet
posted by spooksie at 6:28 AM on August 19, 2005

Spooksie - even in a closed system the continual increase of money supply will cause inflation.

Instead of thinking about money, maybe you should think about resources. People need resources to live and live well. Money is exchanged for resources. But the amount of money you have in your country does not in any way effect the amount of resources you have. If you have 5 sandwiches and 10 people, and those ten people go from having 10 dollars to having 20 dollars, there are still 5 people that are going to go without a sandwich.
posted by selfnoise at 6:45 AM on August 19, 2005

I was talking to a few people about this and one of they said that they cant do it becuase of the world bank.

world bank??? who owns that, or are they guessing?

The World Bank is a part of the UN and is 'owned' by member countries.

The World Bank provides loans, grants and assistance to developing ('poor') countries, but very often with strings attached. These strings are defined in a Poverty Reduction Strategy, and can contain inflation-fighting measures such as an agreement not to keep printing currency.
posted by darsh at 6:46 AM on August 19, 2005

There's an even simpler answer in terms of improving infrastructure, used by Stalin with great success during WWII, which is simply to force everyone to work extremely hard, and shoot anyone who doesn't work hard enough. No money required.

It doesn't improve people's lives, of course, but it does make the country militarily stronger, and arguably richer in the long term. (though the irreparable psychological and cultural damage may arguably offset the material benefits).

Even that doesn't help in terms of paying off foreign debt, particularly when the debt is in US dollars, whose value is constantly rising in comparison to the local currency of a heavily-indebted country like Ethiopia.

The only sensible way to deal with such impossible debts is to refuse to pay them back, and many countries have indeed done so.

As to who "owns" a country, legally, it depends on the country's constitution.

In communist countries (e.g., China up until 1992), all land is owned by the government, whose job is to manage it on behalf of all the people.

In capitalist countries, land is owned by private individuals, who use it for their own advantage. Most people do not own any land, and are therefore forced to work as "hired labor" (wage-slaves) for those who do. In the most extreme form of capitalism, an absolute monarchy, all land belongs to the richest person, who also controls the government, and has a title such as King, Emperor, or Chief Executive Officer.

Most modern countries, including America, use a combination of the two forms of ownership. The government owns some land, and private individuals own the rest. Those who do not own land may be granted some share of food or other benefits ("welfare"), particularly if they are close to starvation, or if they can provide some incentive to persuade the wealthy to share a percentage of their profits (through "income tax"). The landowners almost always control the government, though there have been occasional, temporary, exceptions in some countries (never in the USA).

Usually the only way to persuade landowners to allow adequate food and shelter to non-landowners is by organizing trade unions, and threatening to cease working ("going on strike").
posted by cleardawn at 7:14 AM on August 19, 2005

Currency doesn't have value because it has numbers printed on it; it has value because it represents something of worth, like American currency did when we still held to the gold standard.

A country like Ethiopia isn't poor because it doesn't have money; it's poor because it lacks resources of intrinsic value (or it lacks control over its resources, or it lacks good management of resources, etc).

Imagine that Bill Gates writes you an IOU for $100,000. That IOU has worth because you know Bill Gates has money, land, resources to back it up. It's currency. Now imagine a bum on the street hands you an IOU for $100,000: it's worthless, because you know he doesn't have anything worth $100,000 to back it up.

Ethiopia can't get richer by printing more money for the same reason a homeless guy can't get rich writing IOU's. Just being a country doesn't give you the ability to create value and worth.
posted by junkbox at 7:17 AM on August 19, 2005

The only sensible way to deal with such impossible debts is to refuse to pay them back, and many countries have indeed done so.

So say if Ethiopia refused to pay back their loans, it would make them richer (for a short time) But what would be the consequence ? war/refusual of trade...

Who funds the World bank? and how does it get its money? Does America control the World Bank being the richest country in the world?
posted by spooksie at 7:23 AM on August 19, 2005

A Case of Inflation (German hyperinflation between the wars.)

Here's some macroeconomics stuff online.

World Bank wiki here.

From that article:

Technically the World Bank is part of the United Nations system, but its governance structure is different: each institution in the World Bank Group is owned by its member governments, which subscribe to its basic share capital, with votes proportional to shareholding. Membership gives certain voting rights that are the same for all countries but there are also additional votes which depend on financial contributions to the organisation.

As a result, the World Bank is controlled primarily by developed countries, while clients have almost exclusively been developing countries. Some critics argue that a different governance structure would take greater account of developing countries' needs. As of November 1, 2004 the United States held 16.4% of total votes, Japan 7.9%, Germany 4.5% and UK and France each held 4.3%. As major decisions require an 85% super-majority, the US can block any change. . .

By convention, the Bank president has always been a US citizen, while the Managing Director of the IMF has been a European.

posted by Vidiot at 7:29 AM on August 19, 2005

On reflection, Vinnie is right (in spite of his spelling and grammar).

The solution he's proposing is a perfectly acceptable government policy based on Keynesian economics, and, indeed, it produced the highest ever economic growth rates in much of the world when it was applied in the pre-neoliberal period (roughly 1960-1980).

And, as he rightly mentions, the World Bank and IMF routinely try to prevent poor countries from using this policy, due to their blinkered neoliberal bias.

So, to finally answer his question, "Why don't they...?" - it's basically because the rich don't like it. Printing more money to fund government development projects, while it is an excellent way to stimulate economic activity, tends to devalue the cash hoards of the rich, and they don't like that one little bit.
posted by cleardawn at 7:46 AM on August 19, 2005

This is all rather hardline, no? In some cases printing money is exactly the right thing to do. Examples would be to stimulate demand and generate economic activity during a recession. The trick is to do it carefully and slowly so that the increase in the supply of money (which is always going on, certainly in western economies) is judged just right and doesn't spill over into high inflation. In the end the value of a banknote is in the eye of the beholder, if there's confidence in your currency then printing more of it allows the creation of wealth. If you print too much then confidence collapses and you're in trouble.

On preview, cleardawn has it, although I would phrase the conclusion slightly differently, the rich don't trust the poor to judge the increase correctly and fear the chaos that inflationary episodes create - which is fair enough.
posted by grahamwell at 7:53 AM on August 19, 2005

On reflection, Vinnie is right (in spite of his spelling and grammar).

LOL, I take you can tell I didnt do well at English at school. Thanks for your supportive answer.
posted by spooksie at 8:05 AM on August 19, 2005

Here's an article about what happens when countries default on international debt (i.e., refuse to pay). In general, they do better than similar countries that continue trying to pay.

I take your point, grahamwell - inflationary spending has to be kept in moderation, or you end up taking wheelbarrows of banknotes to the store...
posted by cleardawn at 8:13 AM on August 19, 2005

Printing more money is like me writing as couple of extra zeros on my bank statement and claiming I'm rich. Everybody would look at me funny and I'd walk away mumbling under my breath about how "the man" is keeping me down.
posted by blue_beetle at 9:18 AM on August 19, 2005

The government owns some land, and private individuals own the rest.

Try not paying your land taxes and see who really owns the land.
posted by IndigoJones at 9:26 AM on August 19, 2005

Pre-WW2 Germany was a bad example of runaway inflation

For the record, I am guessing Kerth Gerson meant to say that Pre-WW2 Germany was a good example of bad runaway inflation. I may be wrong.
posted by nthdegx at 12:37 PM on August 19, 2005

The main problem with just printing more paper money is everybody knows it's no good, just pieces of paper

You'd think that's the reason, but it isn't. Inflation even affected the Roman Empire, which used gold and silver as currencies; and they had no concept of inflation or the money supply.

Ethiopia ... where people are dieing day in day out due to starvation.

They're not dying because they're too poor to buy food. They're dying because there's no food to be had at any price.

one said that they cant do it becuase of the world bank. who owns that, or are they guessing?

The World Bank is an international financial institution "owned" by its member nations. The US, however, and to a lesser extent Europe and other G8 countries pretty much control it. The WB doesn't like its loan recipients to do certain irresponsible things -- think of a credit card company looking over your shoulder as you balance your checkbook. Some of it's sensible, some of it probably goes overboard.

I can't understand why the poor countries are suffering.

Simplest: Too many people. Not enough resources.

Less simple: many of them want to industrialize, but they don't have the infrastructure. They need to borrow money to build roads, factories, and schools (for an educated workforce, which is worth its weight in bimetallic currency). They try to keep in the black by becoming agricultural exporters, but then they compete directly with the rich countries (and the more of something you make -- again -- the less it's worth). They can just end up deeper in debt. There are few immediate solutions, although some see debt relief as a means to permit greater reinvestment towards a sustainable future.
posted by dhartung at 1:09 AM on August 20, 2005

For the record, nthdegx is correct about what I meant to say. nthdegx is not wrong.
posted by Kirth Gerson at 5:49 AM on August 20, 2005

Apologies for spelling your name incorrectly, though.
posted by nthdegx at 4:24 AM on September 4, 2005