Why can’t RBI print more money and speed up the economy?
More money, more growth, and hence more happiness. Isn’t it? Even the USA does the same. Does that imply that RBI is against the nation’s growth when it can help it? Lets check it out
Most of us from our childhood have been fascinated about RBI having the powers to print currency notes. At the same time, we have always questioned its power that why can’t they keep on printing notes to solve all our problems? More money, more growth, and hence more happiness. Isn’t it? Even the USA does the same. Does that imply that RBI is against the nation’s growth when it can help it? No, that’s not the case and we’ll try to defend our beloved RBI in this case of not printing money at will.
Let us take a scenario where RBI goes for printing more money. So what will it do with that money? Ofcourse since you and me cannot directly take that money from RBI, so it would be lent to the banks which in turn will lend to the businesses or corporates. With more money now available, businesses would ramp up their production. This ramping up would require more raw materials giving boon to our producers and along with it more labour which in turn would increase employment. So overall, it would be a great spiraling positive impact on our economy which would help it grow at a phenomenal pace. But wait a minute, there’s a catch!
With more people getting employment, there would be more money in the hands of people to spend. This in turn would increase their purchasing power and hence more people would be asking for goods and services. The production is increasing but at the same time consumption is increasing too rapidly. So, a threshold would be reached by the producers and factories where the increase in production won’t be feasible. Now the situation reverses – there’s money, but limited resources or in short Demand > Supply. Naturally, the price of the resources would start to increase and which was available at 10 rupees, might start to cost now at 12, 15 or 20 rupees. This is what exactly termed as inflation.
Ultimately, lesser people would be able to buy goods leading to downward trend of demand and hence, factories curbing down their production. Lesser production, so lesser manpower required and what would have been a booming economy starts to stare at looming threat of rising unemployment. Therefore, people would start indulging in unethical activities like gambling, theft etc. and this could be a disaster for any economy. The crux of this disaster – uncontrolled printing of money by the Reserve Bank of India. Hence, RBI only focuses on sustained growth and not on momentous growth achieved by printing of more money.
A live example of this disaster can be seen currently in Venezuela during COVID days. Average income of a Venezuelan in 2021 stood at $8 USD a month whereas a hotdog in the nation costed $2 USD. So you need almost 1/3rd of your monthly salary to purchase a single hotdog. A case of hyperinflation wreaking havoc in the economy causing widespread poverty and malnutrition.
With great power of printing money, comes the greater responsibility to ensure that your citizens can purchase things. And RBI seems to be doing that brilliantly so far!
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By: Isha Garg