MINTING AND PRINTING CURRENCY
 AS A SOVEREIGN FISCAL MEASURE:
IN NEED AND IN CRISIS

 

The People many times come with large exclamation marks when they hear the Nations are coming out with huge stimulus packages during a Crisis. The obvious question is where will the money come from? How will the Sovereign Government manage such huge sums of money to be spent? Are they going to borrow from World Bank (WB), International Monetary Fund (IMF) or from all such big world level Funding Bodies or from other friendly and wealthy nations? Are there going to be more taxes imposed on the people? At the same time when there are also tax exemptions announced simultaneously the exclamation mark becomes further larger.

Ultimately there is a famous saying; “WHERE THERE IS A WILL THERE IS A WAY”.

During the Global Crisis that has arisen due to Covid-19 Pandemic, that has in fact, shattered the World Economy and National Economies, from Strongest to the Weakest ones, without sparing anyone; this exclamation mark as to where will the funds come from has become stronger. Every Nation’s businesses have crashed, every Nation’s tax revenue has dwindled and every Nation’s economy has shrunk, small or big that is relative in dimension considering that National situations. Still the stimulus packages equivalent of Billions and Trillions of USD have been announced globally. There are speculations and postulations of “V” shaped recovery, faster recovery, early recovery, back to tracks and recovery by all means, as can be said. However, no one has said that their economy has not shrunk or not have been affected and it has not derailed.

We keep reading reports about all sorts of patchy and periodic recovery and growth in different sectors of economy. Sometimes it is said in a quarter the Automobile sales have recovered and grown significantly, in another quarter real estate have shown sales growth and may be in another, some Banks have shown growth or some Corporate Giants have done symbiotic investments to show a very rosy picture to drive the Market Capitalization in the Stock Market unreasonably upwards. However, in most of such cases, the comparisons are made with a highly low base and obviously the Statistical growth will be significant and rosy. This kind of sporadic as well as patchy and rosy pictures do not show that the world economy has healed. The World economy goes through continuous pains and the National Economies have shrunk and will take time to recover, there is no dispute about it.

I have written once before here, however, writing once more with clarity. Presently no nation is looking for the World Bank or International Monetary Fund or other Multilateral Funding Bodies or Strong Friendly Nations of the World to finance and fund the Nations to meet their internal needs for survival and growth fully as in its totality; and it is not possible through the World Funding bodies in the present situation as every one is looking forward to it . It can not be said that it will not happen to some extent through the World Bodies, it will happen in some scale, however it will not happen as enough, to meet the requirements of the World whole sale. Therefore, the Nations are striving to Self-Manage the scenario through their internal mechanisms without choice. There is Crisis everywhere in the world, it had had happened in the past, post-World War-I and post-World War-II and the present crisis is bigger than those of the past, because the world has bigger need of today with a bigger population that has grown in size with bigger problems, while the Geography of the World has not increased in size (it will always remain the same world by geography).

Then the question comes, how will the Nations manage through their internal mechanisms? Let us look at the internal mechanisms of a Nation. The internal mechanism comprises of the Production System, the Consumption System, the Governance System (the Government and its machinations) and the Central Bank (the Monetary holding) and the inventory of resources (human, material, non-material, monetary and non-monetary) available under the the Government Command and in the hands of the people (including informal and formal corporate sector). Managing through Internal mechanism which the Nations are trying and aiming to do today, is the other name called as the “Atma Nirbhar”, the sovereign slogan presently in India, the meaning of which in English is “Self Reliant“.  Thus managing with internal mechanism would mean realigning the Production System and Consumption System as per National need, keeping it interlinked globally as much as possible and at the same time managing the “Monetary System” of the nation by close co-ordination between the Government (in case of India it is the Central Government interlinked with the State Governments, primarily the Central Government ) and the Central Bank (in case of India it is the Reserve Bank of India, in short the RBI).

While managing with the Internal Mechanism as far as the Monetary System goes, “MINTING AND PRINTING CURRENCY AS A SOVEREIGN FISCAL MEASURE” can not be ruled out and should also be relied upon without closing eyes to it in case of a time of Crisis and a Critical Need of the nation. Ultimately a well greased (or well lubricated) monetary system can run without frictions (or pains). It is the Federal Government (in case of India it is the Central Government) and the Central Bank (in case of India it is the Reserve Bank of India) work together on this measure. There are various ways this tool is used. There are various ways to use this tool with formal mechanisms of safe guards as adopted by different Nations differently. For example, the Government borrows certain quantum of funds from the Central Bank to run the economy or bail out the economy from a crisis or a trap, by providing various undertakings and agreements. This is not just minting bags of metallic currency or paper currency and dumping it in the economy or through the economy, it is not as simple as it may sound like or as easy to say. A quantum of currency to be used by the Government as the monetary resource to be deployed and allocated to various sectors of economy is decided and the Central Bank is taken into confidence to provide the money. Where from the Central Bank can get such huge money could be the corollary question? It can mint and print the currency to meet the critical need or in a crisis, under various routes of Government Undertakings and Agreements, that is the way. It is not a matter to be discussed or disclosed in public and never done. The people come to know what is the resources the Government is going to deploy in the economy for what purpose and in what sector and that is what is made to be known through various declarations or budgeting mechanisms.

Then the question comes, if the money is minted and printed superfluously and just put in the economy, what happens to inflation and wouldn’t it lead to deteriorating inflation? As I said above and explained, the Minting and Printing of Currency is used as a Fiscal Measure during a Crisis or Critical need. When there is a Crisis, the people, generally and by far, would be very cautious and conservative in spending; thus they will hold on to their monetary ( or monetizable ) resources being risk averse and would freeze it in their hands. The People would feel, if something goes wrong, they would need it and better they conserve and freeze it in their hands. On the other hand some population would be devoid of such resources and would not have in their hands or would not have access to it. On the other side, the Institutions (including the financial institutions and lenders) and that would also include the Corporates; who would like to be extra cautious, risk averse and they would freeze lot of resources without putting to use or would be shy of coming forward to deploy it. This freezing of resources and risk aversiveness along with devoid of resources and combined with the Crisis and Fear factor ( the real life situation of Covid-19 Pandemic Crisis and its Fear Factor) lead to shrinking of the economy. This is what exactly does happen and in fact has happened at the present times. In such a case, the extra  Minting and Printing of Currency and deploying as stimulus to revive the shrinking economy comes into help. In this case, it is the Government along with the Central Bank who come forward to take the risk burden and try to redress the Crisis and Fear factor from the Economy. For example, if the Indian Economy shrinks by 1% ( or -1% growth) in terms of its GDP, there will be a shrink of Rs. 2 Lakh Crores (equivalent of approx. 28.6 Billion US Dollars). Therefore, in simple terms, to neutralize every 1% shrinkage in Indian Economy, the Government and the Central Bank can go for Minting and Printing of Rs. 2Lakh Crores (equivalent of 28.6 Billion USD) Indian Currency to deploy in Indian Economy as resources of Revival or Stimulus as it may be called, without it causing inflationary pressure. That means if Indian Economy contracts by 5% of its GDP, there would be scope for Minting and Printing of Rs. 10 Lakh Crores (equivalent of 143 Billion USD) to be deployed in Indian Economy without expecting it to contribute (significantly) to Inflationary pressure building up, as it would amount to neutralizing the contraction of the economy. Of course the resource deployment has to be aligned over a time horizon, considering both the affected/weaker sectors and growth oriented sectors so that, while the pain is alleviated in the weaker sectors, at the same time more growth is contributed by the potentially growing sectors, and as a result there would be a net gain. Over a period of time; while the National Economies get expanded by normally expected growth and expansion; the additional deployment of monetary resources thus deployed by Minting and Printing that takes place, gets duly absorbed within the internal mechanism of the economy without creating abnormal effects. This is a calibrated measure undertaken with proper care and safe guards; can work wonders in revival efforts of the sovereign economy. 

As I said, this is a tool available during Crisis and Critical Need of the Nation (also under normal circumstances as much can be duly absorbed) and it is used with appropriate calculations to get its benefit without creating abnormal and fearful conditions in the economy.

About the Author : Dr. Nimain Charan  Biswal is a B.Sc.(Agri. Science and Technology), M.B.A. and Ph.D.( Management Area ) by qualifications and he has 35 years of work experience in both  industrial and development sectors in diversified fields of social importance. He has been educated at Orissa University of Agriculture and Technology (OUAT)-Bhubaneswar, Institute of Rural Management Anand (IRMA) and Gujarat University (with Resource Support of IIM-Ahmedabad). Dr.Biswal is further educated at IIM-Calcutta, XLRI-Jamshedpur, Apple Computer Industries and Spar Inc., USA. He has worked for reputed National and International Organisations in Senior/Top Management Capacities. He is a management  expert covering extensive areas from management in agriculture, industrial management, development management to management of public systems. He is a prominent professional of India and known Internationally as well. He lives at Mumbai in India.