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Can Printing More Money Make Poor Nations Richer?

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Printing More Money

It seldom works when an entire country attempts to get wealthy by creating more money. Everyone has more money, thus prices will rise. And individuals are finding that they need more and more money to buy the same number of products as they did in the previous years.

As a result of the recent printing of additional money in Zimbabwe and Venezuela in South America, both nations’ economies grew.

Due to increased printing, prices began to rise at an alarming rate and these nations began to experience “hyperinflation.” It’s at this point when costs skyrocket.

During Zimbabwe’s 2008 hyperinflation, prices increased by 231,000,000% in one year. Imagine that a candy that cost one Zimbabwe dollar before inflation now costs 231 million Zimbabwean dollars.

Considering the amount of paper used, it’s likely that the banknotes printed on it are worth more.

For a country to get wealthy, it must produce and sell more products and services. Printing additional money for people to buy those extra items is now secure.

A country’s prices will rise if it prints more money without producing more goods. Those old Star Wars toys from the 1970s, for example, can be quite valuable.

These models are no longer produced. As a result of this, the vendors will just raise their prices.

Only one country can become richer by printing more money at the present, and that’s the United States of America (a country that is already very wealthy).

Most precious commodities, such as gold and oil, are valued in US dollars. The main idea behind this is that the US dollar is a more stable currency than other country’s national currencies.

That’s because investors and those people who are involved in the Forex market are investing more money in USD.

In order to learn more about the dollar and the reasons why traders invest more money in the mentioned currency, you need to understand the meaning of bid price in Forex, which is one of the commonly used terms in Forex trading.

The bid price shows the dealer’s willingness to pay for the asset, whereas the dealer’s willingness to sell it is the asking price. As the dollar can be used, like gold, to hedge against inflation, many investors are ready to pay a certain amount of money. That amount of money is also known as, as already mentioned, bid price.

If the United States wishes to buy more items, it can simply create more dollars to do so.

Rather, consumers will trade items for other goods, or seek to be compensated in US dollars in lieu of foreign currency. In Zimbabwe and Venezuela, as well as in many other nations, hyperinflation took place.

For example, Venezuela enacted regulations to keep food and medical prices low to safeguard its people from hyperinflation. The stores and pharmacies just ran out of such items.

While a country cannot get wealthy by creating money, this is not true. Money shortages prevent firms from selling enough or paying all their employees. Even banks are unable to lend money because people do not have any.

When more money is printed, individuals can spend more, which allows firms to create more, resulting in more items to buy, and more money to buy them with.

During the global financial crisis of 2008, banks lost a lot of money and were unable to give it to their clients. To their advantage, most nations have central banks, which assist to manage the other banks, and they issue more money to get their economies back on track again.

Prices fall because there is not enough money, which is a terrible thing. But when there isn’t greater output, printing more money causes prices to rise, which may be just as terrible. “Dismal science” has been used to describe economics – the study of money, commerce, and business.

Problems Caused by Printing More Money

Poor countries could not get wealthy by printing additional currency. This is known as “Inflation”. If you believe that the issuing government will not fail, then your currency has value. In the past, the United States currency was a “gold standard”. A dollar was no longer merely a piece of paper; it could be exchanged for its equivalent value in gold. Having abandoned that standard, our currency is depreciating in value as they create more money.

Consequently, inflation will skyrocket and the value of money will plummet. It’s simple to suggest that we can create more money and grow affluent, but in reality, the country will become even poorer as a result of this strategy.

Everyone knows what occurred to Zimbabwe as a result of the election results. One loaf of bread or one egg costs a lot of money. Each egg cost them $1,000,000 Zimbabwean dollars. To borrow money from the World Bank is always preferable to creating money, which will lead to a huge economic catastrophe.

Lots of money doesn’t necessarily translate into a lot of wealth, and vice versa. Economics depends on human needs, which are inexhaustible; everyone has something they want. There are, however, limitations to desires due to limiting resources like labour.

The price of milk and sugar, for example, has skyrocketed, now costing thousands of dollars instead of its regular price, if everyone was a billionaire; therefore, millionaires would spend hundreds of thousands for someone to mow their lawns.

Not money, but wealth, is what needs to be increased. A country’s economy can flourish by increasing the number of finite resources it possesses, such as labour. For example, China’s economy flourished as wealth was produced.

Global governments have spent billions in response to the COVID-19 epidemic this year — billions that many politicians argued nations didn’t have or couldn’t afford before the pandemic hit.

To pay for their policies, why can’t governments merely print money?

Inflation is the quick answer.

It’s been proven time and time again that when governments create money, prices rise because there are too many resources competing for too few commodities. Many people find that they can no longer purchase basic necessities since their salaries are rapidly devalued.

According to some estimates, monthly inflation in Zimbabwe throughout the 2000s surpassed 80 billion %. In the end, the native currency was replaced with the US dollar.

For example, in Germany during the 1920s, people were seen wheelbarrowing cash to stores to pay for basic necessities. Although the spiralling costs at the time had more to do with the punitive reparations payments than with money printing, it nevertheless shows the issue well.

In addition to this, governments cannot simply create additional money to pay off debt and fund spending since they are not in command of the money printing process.

Central banks, such as the US Federal Reserve, the Bank of England, and the European Central Bank, are in charge of regulating the money supply in most industrialized countries. However, central banks are autonomous of the government, even if they occasionally work together.

A decade ago, central banks printed billions through quantitative easing, which was intended to stimulate the economy.

Because they’re purchasing debt, central banks are freeing up capital that may be used for other purposes, such as investing in businesses or innovative technologies.

Central bankers, on the other hand, are solely concerned with the health of the economy and not with larger government issues like defence, education, and healthcare.

The central bank’s direct financing of the government might also cause international investors to lose faith in a country’s economy. To measure the size of an economy, money supply and exchange rates are used. Isn’t it almost like a snake devouring its own tail if central banks are just pumping out more money to pay off debt? As a result, a country’s currency value would plummet, making everyone in the country worse off.

Is Inflation Bad?

Depending on who you ask, inflation may be a sign of a failing economy or one of prosperity.  It’s basically simply a new way of describing what inflation is. Due to a rise in prices, inflation reduces the buying power of cash. In the early years, a cup of coffee was priced at several cents. In today’s market, the price is closer to $3.

An increase in coffee’s popularity, price pooling by coffee growers, or years of catastrophic drought, flooding, or violence in a key growing region might all have contributed to a price increase. Prices of coffee goods would go up in these situations, while the rest of the economy would remain relatively the same. However, in this case, only the most caffeine-addled customers would see a considerable decrease in purchasing power.

There is a well-known pattern of people buying more now rather than later when their purchasing power declines. For this reason, it is best to get your shopping done early and stock up on items that are unlikely to depreciate in value.

Consumers must fill up their petrol tanks, stock their freezers, buy shoes for their children in the next size up, and so on and so forth. As a result, firms must make capital investments that, under other conditions, could have been put off until a later time. However, the short-term volatility of these assets might negate the benefits of being protected against price increases.

A surplus of cash is created as consumers and companies spend faster in an effort to decrease the amount of time they retain their depreciating money. So, as the supply of money increases, so too does the demand for it, and the price of money—the buying power of currency—declines at an ever-increasing rate.”

Hoarding takes over when things become truly bad, and grocery store shelves are left bare as a result. In a state of desperation to get rid of their cash, people spend their paychecks on everything they can get their hands on – as long as it’s not dwindling in value.

Using monetary policy, the U.S. government has managed inflation for the last century. The Federal Reserve (the U.S. central bank) relies on the connection between inflation and interest rates in order to accomplish its job. For example, corporations and individuals can borrow inexpensively to establish a business, get an education, recruit new employees or buy a beautiful new boat. In other words, low interest rates stimulate consumers to spend and invest, which in turn tends to fuel inflation.

It is possible for central banks to dampen these animal spirits by boosting interest rates. That boat’s or that company’s monthly payments look a bit excessive now, don’t they? In general, central banks do not want money to grow more valuable, as they dread deflation almost as much as they fear hyperinflation, despite the fact that scarcity enhances its worth. If inflation is to be kept at a target level, they will pull the interest rates in either way (generally 2 per cent in developed economies and 3 per cent to 4 per cent in emerging ones).

The money supply is another method to look at central banks’ involvement in managing inflation. Inflation occurs when the amount of money grows faster than economic growth. To pay for its World War I reparations, Weimar Germany revved up the printing presses, much as Habsburg Spain did in the 16th century with Aztec and Inca gold.

It’s not uncommon for central banks to boost interest rates by selling government bonds and removing the revenues from the money supply.

With no central bank or central bankers who are accountable to elected governments, borrowing rates will often be lowered by inflation

Let’s say you borrow $1,000 at a 5% yearly interest rate. A 10 per cent increase in inflation means that your debt’s real worth decreases faster than the interest and principal you’re paying off combined. A high amount of household debt encourages politicians to print money, fueling inflation and discharging voters’ debts. Because of this, politicians are considerably more motivated to create money and use it to pay off debt if the government is highly indebted.

Even though the Federal Reserve is mandated by law to promote maximum employment and stable prices, it does not need legislative or presidential approval to set interest rates. That does not mean, however, that the Fed has always had a free hand when it comes to policymaking. According to Narayana Kocherlakota, the former Minneapolis Fed president, the Fed’s independence is “a post-1979 phenomenon that relies primarily on the president’s discretion.”

Unemployment can be reduced by inflation, as evidenced by a few studies. It is common for wages to be “sticky,” meaning that they do not respond quickly to economic developments. According to John Maynard Keynes, the Great Depression was a result of wage stagnation. Because workers rejected salary cutbacks and were dismissed instead, unemployment soared (the ultimate pay cut).

If inflation reaches a particular level, businesses’ real payroll expenses decline, allowing them to recruit additional workers.

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan. Mr Olowookere can be reached via dipo.olowookere@businesspost.ng

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Economy

Airtel Africa, 17 Others Lift Stock Exchange by 0.46%

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Local Stock Exchange

By Dipo Olowookere

Nigeria’s stock exchange closed positive on Friday by 0.46 per cent following a renewed bargain hunting in Airtel Africa, Guinness Nigeria, Sterling Bank, Ardova and 14 others.

This pushed the All-Share Index (ASI) of the Nigerian Exchange (NGX) Limited by 199.52 points to 43,308.29 points from the previous day’s 43,108.77 points and jerked the market capitalisation higher by N104billion to N22.598 trillion from N22.494 trillion.

Royal Exchange and ABC Transport grew by 10.00 per cent each at the trading session to finish at 55 kobo and 33 kobo respectively.

AIICO Insurance gained 9.38 per cent to close at 70 kobo, University Press appreciated by 8.89 per cent to N2.94, while Regency Assurance jumped 7.69 per cent to 42 kobo.

On the other hand, UPDC REIT topped the losers’ table of 24 members with a price depreciation of 9.82 per cent to settle for the day at N5.05.

Champion Breweries retreated by 5.90 per cent to N2.55, UPDC moderated by 5.07 per cent to N1.31, FTN Cocoa eased by 4.76 per cent to 40 kobo, while Veritas Kapital contracted by 4.55 per cent to 21 kobo.

Unlike the preceding day, the level of activity was mixed yesterday with the trading value declining by 15.15 per cent to N3.6 billion from N4.2 billion, while the trading volume rose by 14.73 per cent to 305.3 million units from 266.1 million, with the number of deals rising by 13.96 per cent 4,450 deals from 3,905 deals.

FCMB finished the day as the most active stock with 81.1 million units worth N247.9 million, trailed by GTCO with 29.5 million units valued at N738.3 million.

Further, Access Bank transacted 28.1 million units valued at N253.9 million, Honeywell Flour sold 16.8 million units worth N70.2 million, while Zenith Bank exchanged 13.2 million units for N320.2 million.

At the market on Friday, the insurance sector gained 1.98 per cent, while the quartet of the consumer goods, banking, energy and industrial goods counter lost 0.89 per cent, 0.33 per cent, 0.03 per cent and 0.01 per cent respectively.

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Economy

Naira Closes Week Flat as Cryptocurrencies Suffer Heavy Loss

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Cryptocurrencies

By Adedapo Adesanya

The local currency closed flat against the US Dollar at both the Investors and Exporters (I&E) and the interbank segments of the foreign exchange (forex) market on Friday, November 26.

At the I&E segment of the market, the domestic currency retained the preceding session’s rate of N415.07/$1 amid an upshoot in the turnover for the trading session, according to data from the FMDQ Securities Exchange.

At the market window, the turnover achieved at the final session for the week was $215.47 million, 119.7 per cent or $117.4 million higher than the $98.07 million recorded the day before.

At the interbank window, the Naira halted its depreciation against the American currency as it remained unchanged at N411.64/$1 at the close of transactions yesterday.

In the same trend, the local currency was flat against the Pound Sterling to sell for N548.55/£1, while the Nigerian currency stuck to N462.07/€1 as it was sold at the preceding session.

Bears Rampage Cryptocurrencies

Meanwhile, cryptocurrencies witnessed a bearish outcome on Friday as all the 10 cryptos monitored by Business Post weakened and analysts attributed the dip to the rout that gripped global investments following the discovery of a new coronavirus variant.

The World Health Organisation (WHO) said the new variant known as B.1.1.529 may contain more than 30 mutations. The United Kingdom and other nations have temporarily suspended flights from six African countries in response.

At the market, Bitcoin (BTC) recorded a 6.7 per cent depreciation to sell at N30,862,885.94, Ethereum (ETH) fell by 1.7 per cent to trade at N2,388,999.00, while Ripple (XRP) witnessed a 6.3 per cent fall to N543.44.

Furthermore, (DASH) dropped 5.9 per cent to trade at N109,054.38, Litecoin (LTC) slumped by 7.2 per cent to N111,931.77, Tron (TRX) made a 7.6 per cent loss to close at N52.66, Cardano (ADA) retreated by 5.0 per cent to N918.72, Binance Coin (BNB) witnessed a 4.2 per cent loss to sell at N242,540.63, Dogecoin (DOGE) also followed with a 4.2 per cent slide as it traded at N123.87, while the US Dollar Tether (USDT) moved down by 0.7 per cent to sell for N569.90.

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Economy

Unlisted Stocks Trade Flat Friday Amid Low Investor Appetite

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unlisted stocks

By Adedapo Adesanya

The NASD Over-the-Counter (OTC) Securities Exchange closed in the flat territory on Friday as the interest of investors in unlisted stocks waned during the session.

According to data from the exchange, the level of activity declined as there was a 99.9 per cent fall in the volume of securities transacted by market participants as only 288 units exchanged hands compared with the 371,600 units traded at the previous day.

In the same vein, there was a decrease in the total value of shares transacted by traders on Friday and this depleted by 99.0 per cent as securities valued at N65,088 transacted in contrast to the N6.5 million exchanged on Thursday.

Business Post reports that the number of deals executed during the last trading session of the week waned by 50.00 per cent as only two deals were recorded as against the four deals carried out at the preceding trading day.

At the close of transactions, the major performance indicators of the exchange remained unchanged, with the NASD Unlisted Security Index (NSI) flat at 744.90 points as the market capitalisation remained intact at N615.42 billion.

The unlisted securities market was without a price gainer or a price loser as the equity price of all the stocks on the exchange remained unchanged.

Also, the most traded stock by volume on a year-to-date basis remained Food Concepts Plc as it has transacted a total of 11.4 billion units of its shares worth N14.4 billion. Lighthouse Financial Services Plc has traded 1.1 billion units worth N546.32 million to occupy the second spot, while Geo Fluids Plc, which claimed the third place, has traded 1.0 billion units worth N700.1 million.

By value, on a year-to-date basis, Food Concepts Plc was also on top of the chart with the sale of 11.4 billion units worth N14.4 billion, followed by Nigerian Exchange (NGX) Group Plc with 456.5 million units valued at N9.2 billion, and VFD Group Plc with 10.4 million units valued at N3.5 billion.

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