Question

Economists speak about printing, issuing, and supplying paper money. Are these different functions? Where is each function performed?

Short answer

Printing, issuing, and supplying paper money are different functions. Printing refers to the production of physical currency, a process typically carried out by a government bureau. Issuing is the introduction of this money into the economy, a function of the central bank. Finally, supplying refers to the wider task of managing the total flow of currency in an economy, including the addition of new money and the withdrawal of old bills; this function, too, is performed by the central bank.

Step-by-step solution

Define Printing Money

Printing money specifically refers to the actual production of the paper currency. This process involves manufacturing physical coins or paper bills. In most countries, this function is performed by a government-controlled department, such as the Bureau of Engraving and Printing in the United States.

Define Issuing Money

Issuing money refers to the process of releasing the newly printed currency into circulation within the economy. Only a country's central bank has the authority to issue money. For example, in the United States, the Federal Reserve issues money.

Define Supplying Money

Supplying money is the broader process of managing the flow of money in an economy. This involves not just the printing and issuing of new money, but also the withdrawal of old or damaged bills from circulation. The central bank is also in charge of this process. They must maintain a healthy balance to avoid causing inflation or deflation.

Key concepts

Printing Money

Printing money is an operation that refers to the physical creation of currency. This is the process of manufacturing coins and banknotes that you and I use in our daily lives. The responsibility of printing falls on a specialized government department. Take the United States, for example. It has the Bureau of Engraving and Printing.

This facility doesn't just decide how much money to print at random. The number of notes and coins produced needs careful consideration based on economic needs. Printing more money than necessary can lead to inflation. This means prices for goods and services rise because there is more money in circulation than there are items to buy.

• Produced by government departments.
• Need to be carefully managed to avoid economic problems.
• Entails meticulous design and security features to prevent counterfeiting.

Issuing Money

Issuing money is the next step after printing. It means putting the newly printed currency into a country's economy. However, not just anyone can issue money. This task is left to the central bank.

For instance, the Federal Reserve in the United States handles this function. When the Federal Reserve issues money, it ensures that enough currency is circulating to meet economic demands without leading to inflation. This can be quite a balancing act! On one hand, not enough money can stifle economic growth and limit spending. On the other hand, too much money chasing too few goods and services can drive up prices.

• Done by the central bank, like the Federal Reserve.
• Aims to meet economic needs efficiently.
• Involves setting interest rates that affect the economy's liquidity.

Supplying Money

Supplying money involves more than just printing and issuing currency. It's the comprehensive management of a country's money supply. The central bank oversees this task, ensuring that the economy functions smoothly. This means they have to take old or damaged money out of circulation and decide on policies to stabilize the economy.

Consider it as keeping a garden in good shape. You have to water it just the right amount, prune old leaves, and make sure everything grows at a healthy rate. Such is the role of the central bank in managing the money supply. They look at the broader picture to combat issues like inflation and deflation.

• Involves both adding and removing currency from circulation.
• Helps keep economic stability.
• Managed by the central bank to prevent inflation or deflation.