Why Can't Government Print an Unlimited Amount of Money? How Money Works, Exchange Rates, and the Global Dominance of the US Dollar

Hi! Everyone. Have you ever wondered what is the reason that the Government is not ending poverty by printing money? Why is the value of some countries more and some countries less? Who decide this? In 1947, 1 dollar was equal to 1 rupee. Today, 1 dollar is equal to 83 rupees. So, why this happen? Countries are trading in US dollars in place of gold. Why in US dollars and not in other currencies. Let's break down these questions in simplest way: 

Why Doesn't the Government Print More Money to End Poverty?

Imagine if the government could print extra money and give it to people. You might think this could help to end poverty, but there is a problem. Money represents the value of things which we can buy, like toys, food, and houses. If we print too much money without making more of these things, the value of money drops, and prices go up. In a simple way let's understand with an example. If you want to sell your second hand mobile phone. Suppose, you keep the selling price of 1 thousand rupees. If the demand of you mobile phone is high and price is low, a lot of people would like to buy your mobile phone. And if you increase the price to 5 thousand rupees, very few people would be interested to buy it. If you increase your price to 10 thousand, only one person would buy it, who has the money. Similarly, if the government would give money to all people; all people in the country would have a lot of money. Because of this the prices of goods and services will increase automatically because the supply of goods and services are low, but the demand is high. So, even if you have more money, you still can't afford the things you need. This is called inflation. Basically, it's all based on the concept of Supply and Demand. If you want a detailed blog about Supply and Demand, you can let me know! 

Why Does Money Have Different Values in Different Countries?

Have you ever noticed that a dollar can buy a lot in one country but not much in another? This happens because the value of money is like popularity. If a country makes valuable things or offers great services, its money becomes popular and worth more. But if a country doesn't have much to offer, its money isn't as popular, so it's worth less.

How Did the US Dollar Become So Important?

The US dollar is like the coolest currency in the world. A long time ago, during the world war, the US was sselling lots of weapons to other countries. To buy those weapons, other countries needed US dollars. This made the dollar famous. The US also had a lot of gold, which made people trust the dollar even more because, before 1971, all the currencies were linked to gold. This is called Gold Standard.

In 1971, Nixon Richard, the president of US, stopped linking the dollar to gold. This is also called Nixon Schock. It was already a big deal. Most countries still use the dollar for trading because they've got a bunch of dollars saved up. That's why it's a top choice for global trade.

Different Ways Money Exchange Happens

When people from one country want to buy things from another country, they need to swap their money for the foreign money. There are three main ways to do this:

1. Floating Exchange: Money's value goes up or down based on how much people want it. If lots of people want it, its value goes up. If not, it goes down. In Floating Exchange, the price of currency is based on Supply and Demand.

2. Fixed Exchange: Some countries decide on a fixed rate for their money compared to another money. For example, 1 US dollar is always worth 3.75 Riyal. In this type of Exchange, it has no connection with Supply and Demand.

3. Managed Exchange: In this Exchange, countries set the highest limit and the lowest limit of their currency. They set a defined boundary of the price of their currency. 

In simple words, money's value is like popularity, and the US dollar is the superstar. When we want to buy things from other countries, we exchange our money from another money.

*Written by Ahtisham Asif Tantray*