Money, and how much should be created, how does it Work?

Question

ofcourse we cant just make money out of nowhere and give everyone in your nation 1 million for every family.

so who controls this? or guards whats going on, is it the united nations or something, thats making sure all goes well.

and how do they determine how much money should be made or distributed to a certain country, because this isnt about just one country anymore, its about currency around the whole world. so i was thinking one organization controls this whole process.

Answer 1

One Organization does control the creation and destruction of currency. In the United States, that organization is the Federal Reserve. In other countries, it is whatever the name of their Central Bank is called.

Any country which uses a fiat currency dictates the amount of money that should exist in its economy. And many factors determine how much is enough. Because too much money creates inflation. Too little money creates deflation. So somewhere in the middle is the right mix...

Now adding or subtracting from the money supply is a heavy hand approach to controlling the economy. A gentle nudge to the economy is when the Fed adjusts interest rates. And interest rates are really a price tag on money. Rates of 0.00% would mean money is free. Borrow as much as possible and only repay what you borrowed. Imagine, a $500,000 30yr loan with payments of $1400 vs. $3000 at the current interest rate.

In any case, paper money's supply is dictated by the central bank of the country in question. Those countries which peg their currency to annother (ie: Bahamas Dollar Peg to US Dollar) means their central bank is technically handing over monetary policy control to that country. If the US Dollar declines in value, so will the Bahamian Dollar. Think of the Bahamas as the 51st state in terms of currency.

Now if Gold or Silver was a nation's currency, than the central bank has zero power over the money supply. Actually, the earth becomes your central bank. Find new Gold, the money supply increases. Rob a bank and bury the gold, the money supply decreases. Gold as money is a good idea because it has nearly zero inflation unless you dig more gold out of the ground. The problem with gold as money, is the central bank has no power over nudging the economy in any direction in case of economic collapse.

Hopefully that answered your question...

PS:  The US Govt only prints the money based on orders received from the Federal Reserve. If the Govt wants cash to fund some program, they must either dip into their Government savings account (ie: The US Treasury), which currently has cobwebs in it, or issue IOUs (ie: Treasury Notes) and borrow the money from the public with a promise to repay it years later with interest. But the Congress has zero power to just create money and spend it...