Inflation and printing money: what’s the relationship?

You’ve probably wondered before if printing large amounts of money affects inflation in any way. Is there even a cause and effect between the two?

First let’s explain what inflation is:

Simply put inflation is the rate of increase of the price of goods and services over a given period of time. As inflation goes up the value of the currency goes down. For example, if a 100 EGP bill can purchase 5 items as inflation goes up the 100 EGP bill will lose its value and you won’t be able to buy the same 5 items.

Find out more about inflation here.

Printing more money without an increase in production will lead to inflation and an increase in prices

Printing more money: 

If a country keeps printing new bills without actually increasing the production of its goods and services, then the end result will be like making a liter of juice with water and just one piece of fruit; a tasteless watery drink.

Currency like any other commodity is affected by supply and demand. Printing more money without an increase in production will lead to inflation and an increase in prices. 

                Learn more about supply & demand here.

Let’s look back in history and see how currency and inflation are related:

In post WW1 Germany the country suffered from a big inflation crisis. Due to the huge amount of debt they were under the government started printing more and more of its currency until it led to the fall of the Deutsche Mark which was the country’s currency at the time. Not only that, in the end Germany even failed to pay off its debts in 1923 which led to France and Belgium resorting to occupying parts of German land as recompense for the debts. 

In conclusion printing more money will NOT fix an economic crisis, in most cases it will make it worse.