Okay, so I may need some background on this cleared up before an answer is given to my question. I assume the US Treasury makes specific calculations every year as to how much money should be printed. Printing too much money or not enough historically has changed the sdynamic of an economy, correct?
So, here’s my question: How has the pervasive use of debit cards, credit cards, paypal, and all these electronic transactions effected the printing of US money?
And just for a little more fun, how about the large amounts of US currency in other countries? How does that effect the printing of currency back here?
Printing too much money doesn’t have much of an effect on the economy, because notes and coins are only a very small part of the money circulating. Most of the existing money exist only “virtually”, in written or electronic form. For instance, it’s the money you have on your bank account. You sign a check, pay with a credit card and money is transfered from you to someone else without any actual bills or coins changing hands. I guess that only a very little part of the money you own is in the form of bank notes hidden under your mattress.
The central banks certainly do control the overall monetary mass (in order to avoid strong disturbances in the economy, say a high inflation rate), but by other means than printing more or less bills. By changing the base interest rates or regulating the banks mandatory reserves, for instance (Sorry if it doesn’t make much sense, but I must admit I’m not really familiar with english vocabulary related to economics).
Con cerning the dollars which are circulating in other countries, it’s advantageous for the US, because these notes are…how to say that…sort of sold by the US for the value of one dollar while they cost close to nothing to print. As long as the overall amount of US money circulating in other countries is relatively stable, it’s not an issue. It could only become a problem if this amount suddenly changed significantly (for instance if many people in foreign countries didn’t want any more to be paid in dollars for whatever kind of international trade they’re engaged in, or if central banks limited the part of the US dollar in their currency reserves, etc…).
The fact the dollar is commonly used in international trade gives the US another advantage. It protects it from the exchange rates fluctuations. For instance, if Japan pays its oil in dollars, and the value of the yen changes relatively to the dollar, so does the cost of imported oil.
When the Bureau of Engraving and Printing prints money, it’s really just making inventory.
The currency doesn’t really have any effective value until it’s shipped out to the Federal Reserve Banks and then distributed to “regular” banks as needed, primarily to replace worn-out notes.
95% of the BEP’s production is used purely for replacing worn-out notes, and 45% of their overall production is the most-circulated and most-abused denomination - ones.
And… Don’t look now, but the 20 is being redesigned again. The new one will be released on May 13.
A decision to print more money is more a consequence than a cause of an inflationary monetary policy. If the Federal Reserve wants to increase the money supply, it doesn’t just order the Bureau of Engraving and Printing to print more bills. Rather, it will order the Federal Open Market Committee to buy securities on the open market–probably paying with check or wire transfer–or lower the Fed “discount rate”, or loosen bank reserve requirements. As a consequence of these actions, individuals will eventually withdraw more cash from banks, banks will hit up the Fed for more bills, and the Fed will order the BEP to print more.
Monetary policy does indeed have a profound effect on the economy, but again, the physical act of printing currency is more a consequence of this than a cause.
I imagine that these devices make people willing to hold more money in the form of bank deposits and less in the form of currency. However, I’ve never seen any statistics on this.
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It requires us to print a little more of it. The Fed does take this into account in managing monetary policy.
