who decides, how much currency to be printed?
why not the government print currencies and use for paying all debts and use for improving the economy?

Hey buddy! Welcome to the SDMB!

Sorry, I don’t know the answer to your question, but a mod will probably move this to GQ for you.

Governments do sometimes print more money to cover their debts. It’s not a really good idea, though, because that causes inflation, and can ruin the country’s economy.

The classic example being Germany 1920-1923. The government in Zimbabwe is currently embarking on a similar policy, but with a more reasonable inflation rate climbing towards 1000%

Currently in the U.S. it is the Federal Reserve that adjusts the money supply. The Fed is made up of 12 member banks for each of 12 regions. Each region has a “Govenor” who sits on the committee, one of whom is the chair of the committee. I can’t recall if it is the Federal Open Market Committee, or if that is a subset of another committee. Regardless, they make the decisions on changing the supply of money. They can do this by buying debt, generally U.S. gov’t. bonds. There are other tools: The interest rate at which they loan money to banks, and the proportion of deposits that banks must keep in their vaults and not loan.

Having the legislature or executive be in control of the money supply is dicey because members are subject to re-election pressures, etc., plus most politicians don’t seem to know what they’re talking about when it comes to economics. The Fed is deliberately insulated from political pressures by giving the Govenors (IIRC) 14-year terms. If this seems anti-democratic, good. I sure as hell wouldn’t want the supreme court or the Fed to be subject to the same whims as the House of Representatives!

Printing money to pay off debt, etc., does cause inflation through the increasing supply of money out there. If this happens in a neutral manner, one may think that it is no big deal; however, it adds to uncertaintity and can become self-reinforcing. I’ve read that during a period of hyperinflation in Germany, when one went to the bar, one would order all one’s drinks upon entering because the price change in beer over a few hours made buying beer later in the night prohibitively expensive. People would get paid at lunch and at the end of the day so that they could spend their money before it lost all its value.

Hope that helps.


That’s: Twelve member banks, one for each of twelve regions.

Econ major checking in…

Assume the national economy is stable. There’s just enough of everything to go around at the current price level.

Now double the money supply. This drives down the value of money, and cause the value of everything else to go up. So prices – the exchange rate between money and everything else – will double to reflect the change in money supply. This is known as price inflation.

(As I recall, that’s from a senior year college course. It builds on Econ 101, and is itself 400 level.)