Will the government print more money just to solve the citizens’ money problem?
It won’t happen and will never happen unless the currency management committee who oversees the entire cash cycle will go insane.
Currency management committee is the responsible body to oversee the entire cash cycle that includes the currency demand forecast.
The mission is to ensure that currency issue is consistent with the Philippine’s monetary policy and can adequately meet the demand for money including the production and distribution.
What are the considerations in issuing (printing) new money (notes and coins)?
Consider money printing as a business that requires business projection or forecasting. Basically, production or issuance would depend on requirements of the Philippine economy to support growth, inflation rate, and of course historical data such as deposits or withdrawals, including currency retirement.
Moving forward, the composition or breakdown of money to be printed (either notes or coins) would include the following factors:
- data of bank withdrawals,
- result of survey for the bank’s preferred denominations
- provisions for buffer stock of currency notes and coins except 1 sentimo such as:
- 25% of annual requirements or 3 months
- 3 months contingency reserve for high value denominated currency notes
- Provisions for the regional offices requirements.
- Current existing inventory of notes and coins in the vaults of the BSP
- Balance of undelivered currency orders.
Aside from demand and supply, it is worth mentioning also that there is a limit to the amount of notes and coins that government can issue. Do you know how much?
As of 2014, the total asset of BSP is equivalent to P4.1 Trillion. The BSP, as the sole institution allowed to issue Philippine Currency, is allowed to print money not exceeding its asset equivalent to P4.1 Trillion and there are about P817 Billion in circulation.
Here’s my own understanding…
If the government will continue printing money up to P4.1 Trillion, the Philippine Peso will lose its value. Why? This will result to surplus money in circulation but the asset remains the same. The asset is equivalent to the economic growth.
In effect, without economic growth means no additional business or investment opportunities to the country which will translate to lower government project spending, higher unemployment rate, inflation, higher taxes, etc….
On a personal level, let’s say you have an asset of P5.00 and a liability of P2.00, this would mean that 40% of your asset is coming from creditors. Then, you increase your liability by P3 just for the sake of having excess money without economic benefit (gain) to you. In effect, your asset becomes worthless because everything is coming from your creditor, worst you still have to pay for the interest…
With this, it doesn’t make sense to print more money if there’s no economic growth.
Thus, the higher the asset, the more money can be printed because it dictates economic growth.
If the governments will just print money without economic growth the money becomes worthless.