when does a country print more currency and when does it loan from World Bank?

Question

What is the deciding factor? Why cant they just print?

Answer 1

If a government is benevolent, it will print money to avoid deflation, which is dangerous for economy as well as inflation. The growth of GDP must be accompanied with a suitable growth of the money aggregate M2. The criterion of the suitable growth is a reasonable level of inflation and stability of national currency. If these conditions are violated, and the government tries to finance budget deficit by seignorage - with the money emission, hyperinflation is possible. This phenomenon leads to exclusion of the national currency with foreign currencies. To avoid hyperinflation the government should borrow money from the World Bank as the lender of last resort if other ways of loan are impossible.

Answer 2

Countries cannot just print more money when they need it, because that just causes each unit of currency to lose value. That's called inflation, and when you need a wheelbarrowful of that country's money to buy a loaf of bread, you know there's a problem.



Large economies like the US or European countries don't print more money and don't take out loans from the World Bank. They sell treasury bonds or the equivalent. That is they get loans from people who believe that country will still be around to pay them, plus interest, when the bonds become due.



The World Bank (and you should look it up on the web) was created to lend money to smaller countries still developing, who cannot get people to buy their bonds, often because the government keeps changing and does not honor the prior government's debts. The rules for getting a loan from the World Bank are quite restrictive, usually requiring the country getting the loan to use the money for a specific project and to have controls in place to prevent or minimize corruption, and to move toward an open-market society.