Posted on: 30-11-11 07:37:53
population Growth is very commonly misunderstood reason for growth of money supply. Fact is that increasing population neither brings additional money I fact in strict economic terms they consume it till they complete education and be productive to produce..
It's central banks + governments who grow money supply post 1971 since global money supply has been backed by nothing! It is growing at rate like never before and this system of ever increasing money supply is about to come to an end...
Quote:
Originally posted by chekram_04
It is very simple. More and more people need more units of currency resulted in continuous supply of currency.
So - are we trying to say that central banks print money in proportion to the population ?
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Fido.
Quote:
Originally posted by Fido
So - are we trying to say that central banks print money in proportion to the population ?
Generally or theoretically 'No'. If you kindly read the my post out side the your ' quoted lines' you will get better understanding.
Central bank controls or regulates the supply of money. It's goal is to control the prices, lower unemployment, generating flow of credit to the productive sectors of the economy and stabilized the national currency through tools like interest rates or generating liquidity.
In context of India, in order to target the variables like inflation, consumption, interest rate, GDP etc., RBI has to continuously increase money supply even though it has been claimed that rupee has been free flawing since 1991. IMO, the real culprit is a rapid growth in population(better to say non-productive population or underutilized population). This may not be true in case of other countries like China where the growth of population is effectively controlled or the population is more productive, so variables are managed better and hence the currency is valued more.
I find this interesting that the RBI can issue more curency to compensate for growing population and rising unemployment per your post .
Do you have any articles to back these opinions ..I d like to learn more ............. I knew that exchange prices , imort & exports , as well as inflation were variables that RBI would use to re evaluate the currency but for one it did it by increasing currency circulation and that too in response to rising populations is something new to me ..
Kindly provide citation ..I d like to know more on this ...
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Fido.
Hi ashedfc, Thanks for posting link from my site and triggering this Discussion. Really thanks.
chekram_04, Fido, I am planning to write next article on this topic not sure when may be in Feb 2012.
Let's look at this like this. Let's say there is a Small village with it's isolated economy which is self sufficient. No Import / No Export. Let's say village has money supply of 1 Million XYZ Currency. Now if they keep money supply same and village has same economic activity then prices will actually remain very stable for a while. Sure there will be supply / demand fluctuations but on overall basis it will remain stable.
Now twist comes when say some smart guy discovers telephone. Now that Money is same but "Economic Activity" has increased, to support newly increased activity, The prices actually fall. e.g. in 19th Century ~ till 1910 This thing happened in US. Prices where falling across board over the time they still had lots of new technologies and a very nice society in general.
On other hand in Central Banking system since money supply keep growing it creates massive bubbles in some or other sectors. e.g. way chekram_04 Mentioned, they provide credit to New sectors, which is true. However fact is if that sector really has growth money will anyways flow there. Increased Money supply leads to inflation.. in many cases hyperinflation and so on..
Basically all this boils down to definition of Money and Capital. Central banks when increase money supply they dilute saving of people who save and kind of undermine them.
Again It is interpreted by different people in different way. People who think "very Right" generally follow Sound Money. i.e. say Money of Gold or Money of Silver. etc.. on other hand Socialist thinking people trust more on Paper money as they get easy tool to bailout poor on on going basis without asking savers 
