This question is revolving in my brain since a couple of months. When I looked up for information about this instead of sleeping in office I came to know any country prints CASH equivalent to gold deposits in that Country. WOW!!! I found the answer and left it there. Recently when I was watching a sting operation of ETV I was completely occupied by the illegal business model.
Sting Operation Facts: You can get New notes and Coins from RBI branch, but before that you need to stand in a line at RBI gate. (Just like a person standing for a movie ticket.) And if the security guard is nice he will allow you inside without a bribe. And RBI staff generally sell this new currency back door (Like 500 coins @ 10 RS commission. ) This agent sells it to merchants generally. Who will keep the change in their "dabbas" and sells candy of 1,2,3 Rs saying no Change..
Sting Operation Facts: You can get New notes and Coins from RBI branch, but before that you need to stand in a line at RBI gate. (Just like a person standing for a movie ticket.) And if the security guard is nice he will allow you inside without a bribe. And RBI staff generally sell this new currency back door (Like 500 coins @ 10 RS commission. ) This agent sells it to merchants generally. Who will keep the change in their "dabbas" and sells candy of 1,2,3 Rs saying no Change..
Back to the topic!!!
Okay, now on a serious note RBI does not link gold with Money. Before World War-2 central banks used to match currency with gold and then print equivalent currency. This system does not exist now.
Then ??
Let us see these questions with examples...
Finally, The answer is it increases prices. In layman terms: We produce 10kg of rice every year in a country of 5 People. Each person needs 1 kg. Country gives salary to 5 people as 10Rs that is 2rs each. Now, this 5 people purchase 2 kg each. In case if this Country starts printing 20Rs and gives 4Rs each....??? They still buy 2 kg each but instead of 2rs it becomes 4 Rs. How????
1st 2nd purchased 1-1 kg each. 3 people are there 7 Kgs of Rice is there. Each should have minimum of 1kg. Surplu=4kg. Person 5 wants to purchase extra 2kg and save it for future since he have 2rs more. But everyone has the same.... Fight.. Demand for rice increased since they have money.... but that country still produces 10kg only.
Final Answer to Initial Question : Solution is not to print more Cash. Solution is to increase production and increase services...(This increases GDP and Economy boosts.)

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