How do they decide when to create more currency? They can create money until it is more common then sand.?

Question

How do they decide how much and when it is enough. How do they know how much currency is out there including foreign countries and if it is lost? Also what insures a dollar bill, gold, oil how do they figure the paper is what it says its worth?

Answer 1

I will answer part of this question because i'm studying for a Macroeconomics exam...



Its a very complex answer but in short, for every dollar created, a dollar is destroyed. printing excess currency would create inflation, and lower the value of a dollar, which hurts the economy, target inflation rate, and the whole shibang.



In terms of value, each is a floating currency, meaning market prices determine the value. This is where the answer gets even longer, so in short, theres a money market, which determins how much demand there is for currency. This can't be controlled, only influenced by the central bank or federal reserve using the overnight interest rate, or treasury bills. This helps control the supply of money. The feds destroy old bills that the banks give them because they are torn or crumpled, etc. and want new notes created that are stronger.



Gold is one of the more stable commodities, so the price rarely fluccuates, as opposed to the dollar. In fact when there are times of trouble, people buy less "money" and more gold, which increases it's price. You understand supply and demand in its basic premise right?



The paper amount is guarenteed in a country due to the legality of it. It has to be accepted as currency in your country (only when it says "this note is legal tender").



Enjoy!

Answer 2

The decision to make more currency, as opposed to replacing worn out currency, comes from in depth research done by the federal reserve. They look at such things as the inflation rate, the GDP, the debt load of the country, the GNP and other factors and then decide what interest rates and how much currency will be out there. Too little currency and the economy stagnates, withers and dies, too much and inflation gets out of control and your money is worth nothing. Just a basic answer.

Answer 3

They have estimates as to how much currency is in circulation. Also, banks typically go through their money and send the old, worn-out bills to the treasury to get them replaced. So, the amount of money in circulation only increases a little bit at a time, which is necessary because the population keeps growing.



The worth of the money is based upon where the country sits in the world economy. A dollar is always worth a dollar in the United States. How much it will be worth outside the U.S. depends on the economy of the country you spend it in.

Answer 4

The amount of money is as worth as much as are whole economy is worth. If more money is printed, and the economy doesn't grow, we have inflation and money is worse less, making everything else cost more american dollars to buy. If the economy grows, and no more money is printed, you have deflation, and it costs less american money to buy anything else. The FED is what tries to keep down inflation down by deciding when to print money, issue american bonds, when to give people credit, etc. This, however, usually stagnates the economy, so both are fighting eachother, looking for an acceptable middle ground. All money printed is tracked so they know how much is out there, that's why counterfitting is such a big deal because and can totally throw the economy into decline.

Answer 5

Currency printing is based on the assets of the Government (Currency Reserve Ratio - CRR ). If you print more than the asset value, the prices of commodities will increase, unrealistically. If you print short, your economy will not develop.

Secondly, every, Country's reserve bank, will know, exactly, how much money has been printed and how much is in circulation. Printing of currency is in the hand of the State Reserve Bank.

The assets of the Govt. includes Gold, Oil, etc..

Answer 6

The US mint prints a constant stream of currency.



There is a set amount in circulation throughout the public; however, millions & billions of dollars in bills and coins are destroyed everyday because they are either damaged, or are outdated.



When you deposit cash into the bank, appon the advisement of the government, certain series and damaged bills are packaged and set to be destroyed. The new printed currency are then sent to the bank.



That is why when you go to the bank and withdrawl, most of the time, you get brand new crisp bills.

Answer 7

The English currency, the money says, if the bearer takes this money to the Bank of England they can get gold to the value of that amount. This is only tied to theory, of course if you go to the B of E, you will not get gold, but it means that the sterling is tied to gold. Now when it comes to the US, there is no such 'tying' so money is simply printed anytime, anywhere, one reason US gets away with it is because they are currently the 'super power' but when that is no longer the case, US will be like a poor African/South American state. It's already happening....

Answer 8

they (fed res board) votes on how much t5o create,

they used to publish how much paper money was floating around the world but no longer do...(we are screwed btw)

and the only thing backing our paper money is our belief in it and our ability to pay of the national debt, which is what we have borrowed to create such a fiat currency

Answer 9

They can only create money to match the equivalent of how much gold there is to back it up...

Answer 10

They just keep on printing every single day. Then Ol' greenspan tells the government when to make more or less.

Answer 11

This is the only information I have found regarding currency.

I haven't back-checked any of it tho...

http://www.justiceplus.org/bankers.htm

Answer 12

They keep making more, but they also destroy a whole lot.

Answer 13

I think it depends on how much is destroyed...

Answer 14

i think they need to print a bunch and make all of us rich!!!