What is the reason behind the government is not ending poverty by printing notes? The gold reserve of the US was touching the sky 80% of the gold was with the US.
On the other hand, other countries were in debt Why is the value of some countries more and some countries less?
Who decides this?
During this time, maximum gold reached the US But gradually all the countries tried their best of their capacity to improve their economy In 1947, one dollar was equal to the one rupee.
On today’s date, it is equal to 76 Rs So why did this happen? Countries are trading in US dollars in place of gold Why in US dollars and not in other currencies?
When demonetization was done, the government took its promise back from 500 and 1000 Rs notes. The government can print how much soever currency.
Then what is the reason behind the government not ending poverty by printing notes? One dollar is equal to 76 Rs. Who is deciding this? And if someone’s deciding then why are we agreeing to this? And what happened in history that all the countries agreed to make the US dollar a global currency
And the most important thing what situation arose that a piece of paper coming from the bark of a tree. People are working 8 to 9 hours for this in shops and offices.
The answer to all these questions lies only in one thing, what is money? And how did it evolve?
When you have to sell a second-hand thing Then how will you decide its price? Assume you have an old mobile And you will sell it for 100 Rs. And thousands of people will come to your doorstep to buy that mobile.
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Then what will you do in that case? You will set the price of that mobile as 500 Rs. After that also, if 100 people are ready to purchase it Then you will keep increasing the price.
You will increase it until one person is ready to purchase at the given price. In the same way all over the world prices of all the products are decided It is named demand and supply.
When you go to a fruit shop and see that the price of an apple is more and the rate of bananas is less. This doesn’t mean that its color is very nice. Its meaning is very simple that its demand is more than the supply.
You may hear that the price of 1kg onions has risen and continue rising from years. Its meaning is that the demand for onions has increased and the person who is setting the price is doing the same thing as we have done with the second-hand mobile.
A company has manufactured 100 cars and set the price as 1 lakh Rs. Those who have money will buy the car And those who don’t have money will work by bike or cycle.
One day suddenly the government prints a huge amount of money and distribute among all the people. People will also have money and the market will also have money.
As 100 people came to buy a car, this time it will be 1000 people More people will come to buy a car this time. The person who is manufacturing a car will do the same thing that we have done with the second-hand mobile.
He will increase the price until 100 people will be left to buy a car. Once Zimbabwe has also done the same thing in order to improve the economy of their county.
It started to distribute the currency among the people. Their economy worsens instead of improving. People used to go to buy a loaf of bread with loads of money Children used to go this way to buy chocolate. So only inflation will increase with the government printing notes.
It benefits only when resources and services increase. And when the government keeps printing notes and increasing suppply of money then only inflation will increase And it’s not like the prices of one thing increase and inflation will increase.
When the prices of overall goods increases, then the inflation increases If you see it then your kept money decreases when the inflation increases If the inflation is 5% then it means that the thing which you are getting at 100 Rs Maybe its price was 95 Rs earlier.
If you pick the historic data then you will get a clear picture of how inflation has emptied the pockets of people. And this is the reason why people invest in different places. Everything comes back to demand and supply in finance But it is very important to understand that what is money?
What Is Money
You will understand everything with just one concept If you see all over the world, why does anyone give you money Anyone will give you money only when you give them value or do their work.
You get salary in office only when you do their work or gives them value Shopkeepers also get money only when they give you products in exchange So in a way, money is equal to the value.
Money is represented by different things from time to time. In earlier times, people used to get their work done by giving food grains. Gradually people started to show the interest in things that don’t get damaged for a long time or whose value is more like gold.
But traveling with gold, adulteration with gold and maintaining its security is very inconvenient. The government has given an option where you don’t have to carry your gold Deposit the gold with the government.
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The government will take care of its security. You will get a receipt in exchange which is also called a promissory note. And you can trade based on that receipt.
You don’t have to roam around with gold The receipt was converted into paper money eventually. In reality, this paper money doesn’t have its own value This is just a piece of paper.
The value of this money increases when the government promises you that you will go anywhere in India with this and you will get the exact same amount that is written on it.
This is the difference between normal paper and currency. The governor of India promises you by signing that I am promising to give this much money to the bearer. And this promise has a value that everyone trusts this.
When demonetization happened, the government took back the promise from 500 and 1000 notes. And as soon as it took its promise back The notes of 500 and 1000 became paper.
People started to trade in paper currency with the promise of the government. But when we want to trade outside the country Then what will happen in this case? When US and India will trade Then on what thing, the trade will be done?
You are going to purchase something from the US And you will say that this is a red-colored note and we call it rupees And we are giving you a promise. Then why will they agree to that? And why will we take their dollar?
And assume in some situation that we took their currency Then what will we do with the currency? Money becomes money when there is its acceptance Every country faces the same problem that there were no currency that is trusted by every country.
Assume you brought the US dollar after trading with the US. Now you are required to trade with Russia. Now Russia is saying that it will not take US dollar In this case, what happened is that the US dollar is beneficial only in trading with the US.
Because there was no currency that was trusted by every country The medical store in your area is asking for another currency groceries store will ask for another currency.
You will have to earn in every currency in this manner But one thing was good at that time, every country trusted gold and silver But it was not that easy to carry this much gold and silver for trading.
How the Value Of Currency Decided
To solve this, Gold Standard was brought. In this, the currency of the country was attached to gold. What is the meaning of attached? It is a hypothetical situation Assume India has announced the value of 1 gram is 20 Rs.
If someone will bring 20 Rs then he will get 1 gram of gold in exchange for that. And if someone will bring 1 gram of gold then he will get 20 Rs in exchange for it.
In the same way, the US also announced that the value of 1 gram of gold will be 2 dollars. This means 2 dollars will be equal to 1 gram of gold. And 20 Rs will be equal to 1 gram of gold.
So 2 dollars automatically became equal to 20 Rs. If we want to calculate the value of 1 dollar Then it will be equal to 10 Rs. After that, when both the countries went for trading then they didn’t have any problem with each other’s currency Because both the countries knew that the currency coming after trading can be converted into gold anytime.
But it shouldn’t be like the currency that we are collecting after trading When we go to convert the currency into gold then that country does not have gold. So the rule was made that a country can print the same amount of notes as gold.
So that if a country wants to get the gold after giving the currency then that the country will be in the position to give the gold. And the company started trading by doing this.
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The trade was done with gold and the currency was medium. Now you’ll say that the gold standard system was right why was it removed? And if it was removed then why the dollar was made the base.
Why Dollar becomes Base in place of Gold
When world war I started then the countries had to buy the weapons in bulk to save their existence And the crisis was that big the countries started to buy weapons in exchange on the basis of gold currencies.
Gradually the gold started shifting to the US because the US was the main exporter of weapons. The madness of fighting a war ended the money and gold country by country.
When world war first ended the countries were suffering from an big economic crisis. And when the countries don’t have gold, the base of the trade then how will the countries trade and how will the currencies get printed.
During this time, the maximum gold reached the US. The countries were trying slowly to maintain their economy with their best capacity. Till then world war second started. This was the most expensive war in history.
The countries were in massive debt this time. The US exported a huge amount of weapons. The gold reserve of the US was touching the sky 80% of the world’s gold was with the US.
On the other hand, other countries were in debt. In these cases, trading done by attaching the gold with the currency was not possible because countries used to trade by printing notes on behalf of gold.
The Meeting of Bretton Wood Conference
So if they don’t have gold how will the trade be done? And when there is no trade, then how a country will earn? Countries did a meeting for this in 1944 which is called Bretton Wood Conference.
In this meeting, two organizations called IMF and IBRD are made to solve the problem. The work of IBRD was to help the countries which are destroyed in the war, Rebuild them and stabilize their economy It is known as the World Bank on today’s date.
The purpose of the IMF is to facilitate trade between countries. Even today if a country gets stuck economically then these two organizations support them. It was decided in this meeting that the countries don’t have gold then the countries can trade in US Dollars.
Why US dollars and not in other currencies? The US was the only nation that had this much gold it can circulate the gold of the US value all over the world. And on the same day, the US also announced Anyone can take the gold by bringing US dollars to us or can take the US dollar by bringing gold.
And the value of one ounce of gold was valued at 35 dollars. Every country is good at one or other resources then it can increase the reserves of dollars By trading with the US. And having the reserves of dollars is equal to having gold reserves. which can be converted by a country at any time.
It has become a way of trading And with that improving the economy. The US has become a reserve currency of every country. Every country has dollar reserves. And it started acting as a global currency.
Vietnam war started with the US and the US economy dipped The US printed more dollars in comparison to the dollar-gold reserve On the other hand, the economy of other countries also got better.
In 1965, Charles de Gaulle, president of France sent his navy And gave the dollar to the US and brought back the gold with the ship Slowly, the other countries also started to follow the same thing.
America printed more notes in comparison to gold value. which were roaming around the world and the gold reserve of the US was decreasing fastly and it’s the economy was also falling.
In 1971, US president, Richard Nixon removed the dollar-linked with gold. This means the gold cannot be converted into a dollar and dollar with gold. This is also called Nixon Shock. It was a very big shock for the world.
But the reserves of all the countries were in the dollar It became a compulsion for the country to trade in dollars. The dollar emerged as a global currency
The thing is,
why do some currency values be less and some more?
Who decides this? In 1947, one dollar($) was equal to the one rupee. On today’s date, it is equal to 76 rupees isn’t joke. So why did this happen?
This depends on demand and supply. Every country has its own currency If you want to take goods or services from any country. Then you have to buy it in the currency of that particular country.
When you visit that country then you change your currency from the exchange. After that, you will be able to purchase something. In Fact when you purchase the products of Europe or the US online then first you’ve to buy Euro and dollar.
Then you have to give the Indian rupee in return which is called an exchange. Then you can purchase anything. You don’t get to know these things because the bank does this on your behalf.
So the country which produces more valuable goods Whose services and resources are in demand in other countries. The value of the currency of that country is more. And the other countries due to their need to purchase that country’s currency by giving their currency.
This means that the demand of that particular country has increased. And when the demand increases then the rate of that currency increases. If a packet of bread in India is for Rs 10 And the same brand of bread packet is 20$ in the US And we want to calculate the exchange rate.
Then a very simple way is that we will do 10/20 These exchanges also have types. The example of bread that I’ve told you is called a floating exchange where the rate is changed on the basis of demand and supply.
The second is fixed exchange. Some countries fix the exchange rates among themselves Like the rate is fixed between Saudi and US. 1 dollar= 3.75 Saudi Riyal.
This doesn’t have anything to do with demand and supply
The third is managed exchange. There is a range in this. Assume you have set the range from 3 to 5 The rate will change on the basis of demand and supply but it will not go below 3 and above 5.
So here we discuss What is the Reason behind the Government is not Ending Poverty by Printing Notes ?