How do countries end up with worthless currency? Like countries who’s dollar bills lie on the ground or are burned for warmth because it has no purchase power anymore
In: 174
Governments spend money on various things to run themselves and the countries they are part of, from paying employees and maintaining public infrastructure to funding their military.
This all requires currency of course, now unlike a citizen a government can decide that if their revenue (from taxes usually, but there are other ways for them to gain money) isn’t enough they can print more.
The problem comes if they do this more than they should, as it’s a complex balancing act.
How we as a society value things is a combination of how useful they are and how rare or common they are, now the utility of money is only in your ability to spend it (dollar bills don’t taste good) so then it’s a matter of how rare they are. A government has some level of control over how much there is and they can reduce it by spending less than they take in as revenue (but that has other problems).
So how does it happen? Well, the government of some country finds that they need to spend more money one year than they brought in from taxes so they print more, usually saying that the additional currency will prompt additional activity in the economy by the citizens; hopefully that’s the end of it but once you start doing this it’s kind of hard to stop. Say there’s 1% more currency now, well unless there’s also a corresponding 1% growth in transactions (GDP) by the next year then your problems have gotten worse and yours citizens might also now expect you to spend money on whatever you spent on before.
After that you wind up in a snowball situation because you have to keep printing more in order to keep up what you’re doing to yourself.
TL;DR A government prints more money each year than it should and in order to keep up with what it’s doing it has to be exponential about the numbers.
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