Why printing money is ‘bad idea’ for countries to get out of debt trap?

Printing more money does not improve economic production; instead, it increases the amount of currency circulating in the economy. If more money is created, prospects can demand more things; yet, if businesses continue to produce the same number of items, they will raise prices. In a simplistic scenario, issuing money will only generate inflation.

Imagine that a certain economy generates $10 million worth of items, such as one million reading materials priced at $10 apiece. The money supply will amount to $10 million at this point.

We would still have one million reading materials if the government increased the amount of money in circulation, but people would have more money. Books would become more in demand, and businesses would raise prices in response.

One may argue that the growth in GDP is a mirage of money. You may have more money, but it doesn’t mean you’re any better off if everything is more costly.

In this basic argument, increasing the money supply has raised the price of products without affecting their quantity.

Increased product inflation and depreciation:

Inflation is one of the severe and direct effects of creating an excessive amount of money. Prices will start to increase quickly in an economy when the supply of money exceeds the demand for goods and services, and this is problematic.

This damages people’s purchasing power and jeopardizes the stability of the economy. The country’s currency depreciates in value when inflation rises, which lowers the country’s exchange rate relative to all other countries.

Decline in investor confidence and trust:

Unrestrained money creation causes people to lose faith in the currency, which is another reason why many countries choose not to issue money. To safeguard their capital, investors—both international and domestic—always look for a stable and trustworthy currency.

Consider a country that is generating money at an unmanageable rate. This indicates a lack of budgetary restraint and makes investors question the soundness of the country’s currency. This may lead to a large number of investors shifting their holdings and making investments in sufficiently stable currencies, further destabilizing the economy.

Increase in country’s debt:

While creating money could give the country short-term respite, it doesn’t deal with the underlying reasons of the economic problems.

This method is frequently used by countries—even affluent ones—to cover budget deficits or settle outstanding debts.

This strategy, meanwhile, may create a vicious cycle whereby inflation is fueled by an expanding money supply, which forces the government to print more money to keep up with growing costs. As a result, the national debt load increases, making long-term financial problems worse.

While printing money seems like a good way to increase wealth and solve every issue, it is a flawed solution that has a lot of disadvantages.