CAN RBI PRINT MONEY TO END POVERTY?

 CAN RBI PRINT MONEY TO END POVERTY?

Novel Coronavirus has forced several countries across the world to resort lockdown. This is done to “flatten the curve” of the deadly infection. These lockdown means confining millions of people inside their home, shutting down of business which directly ceases almost all economicnomic activity. As a result of the pandemic, the global economy is projected to contract sharply by –3 percent in 2020, much worse than during the 2008–09 financial crisis .  Global growth is projected at –4.9 percent in 2020, 1.9 percentage points below the April 2020 World Economic Outlook (WEO) forecast.

India, a developing economy, it is stated as an economy passing through demand depression and high unemployment, with series of  lockdown announced by Prime Minister Narendra Modi in , 2020, it  slowed down the supply-side, accelerating the slowdown further and jeopardising the economic wellbeing of millions. According to a article in Economic times, the labour sector under the MGNREGA, 2005 are worst impacted as they are not provided jobs due to lockdown, most of the labours are associated with the construction companies and daily wage earners. Restricted  travelling and quarantine is affecting hundreds of millions of people have left Indian factories short of labour and parts, just-in-time supply chains and triggering sales warnings across technology, automotive, pharmaceutical, consumer goods,  and other industries. 

There is a dominant  view emerging from economist to print more money for government to spend. Some experts believe that the RBI will have to partly monetise the government’s fiscal deficit. Monetising deficit means RBI printing more money to finance government debt. State until 1997 fiscal deficit was automatically monetise by printing extra currency to the issue of special security is called adhoc Treasury bills.  It was discontinued after that the government had to finance act, 2017, enabled the RBI to print extra currency to partly monetise the center's fiscal deficit under certain conditions. A popular textbook theory is also fast gaining traction helicopter drop off money helicopter drop a metaphorical descriptor first coined by Nobel Laureate Milton friedman is an unconventional policy toward weather countries Central bank print large sums of currency note. These are printed specifically to allow the government to meet some special expenses such as he projects for distributed among citizens. It basically means non-repayable money transfer from the central bank to the government. Quantitative easing also involve Central banks printing extra currency to buy a compound unlike helicopter drop in quantitative easing, the government has to pay back for the aids that the central bank by such an approach can bring into question.  

So, The question which arises are :-

• Why can’t the Reserve Bank of India(RBI) print unlimited number of notes and distribute it among the poor to eradicate poverty?

• Can RBI print unlimited currency? Why can’t government ask it’s regulator bank to print as many currency as possible and eradicate the problem instantly? Why can’t it produce enough money?

To answer these questions, Firstly let’s us understand What is “direct” monetisation of the deficit? Imagine, a scenario where the government deals with the RBI directly bypassing the financial system and asks it to print new currency in return for new bonds that the government gives to the RBI. Now , the government would have the cash to spend and alleviate the stress in the economy via DBT to the poor or starting social and capital expenditure etc. In lieu of printing this cash, which is a liability for the RBI (recall that every currency note has the RBI Governor promising to pay the bearer the designated sum of rupees), it gets government bonds. Such bonds are an asset for the RBI since such bonds carry the government’s promise to pay back the designated sum at a specified date. And since the government is not expected to default, the RBI is sorted on its balance sheet even as the government can carry on rebooting the economy.

The main problem arises from direct monetisation of the deficit is Ideally, this tool provides an opportunity for the government to boost overall demand at the time when private demand has fallen — like it has today. But if government do not exit soon enough, this tool also sows the seeds for another crisis.

How it will create problems? 

Government spend this new money to boosts incomes and raises private demand in the economy. Thus, it fuels inflation . A little increase in inflation is considered to be healthy as it encourages business activity. But if the government doesn’t stop in time, more and more money will flow in the market and creates high inflation. And since inflation is revealed with a lag, it is often too late before governments realise they have over-borrowed. Higher inflation and higher government debt provide grounds for macroeconomic instability. So, there must be a balance. 

Another explanation of the question “Why can’t the Reserve Bank of India print many notes and distribute it  poor to eradicate poverty?” can be given with the example of another Countries. During one such economic crisis, Zimbabwe, Venezuela in order to improve its economy has printed more currency notes. Thus, there was more rotation of currency in their hand. If people have money, they want to buy things and have a luxurious life. But, there should be more productive, for more production, there should be raw materials and machinery so that people can buy the goods. Such situations leads to inflation. Salaried persons earn more and unemployed turn thieves. This leads to an increase in the crime rate, an increase in the goods price. And thus, the economy of the country can never be grown. It is said that during Hyperinflation (In Zimbabwe), a piece of whole bread price was around 15000/- Indian rupee.

Conclusion 

In order to increase the economy, the country should increase production. Export their goods to other countries, increase the sells of goods produced in country and raise the economy. In India, the government and RBI should work in maintaining the balance between production and currency rotation in the hands of people. So, printing money is not a long term and effective solution to raise the economy. When people have more money and less things to buy, then the money will lose its importance. The currency note will then become a waste paper.