Topic: how supply of currency decided (Read 387 times)
A good question with broad answers. It doesn't necessarily equate to a country's GDP alone. There are a lot of factora in play as well. Usually, the central bank adjusts the available money in a countey depending on how well a countey is doing economically. If a country is doing good, spending is promoted, money should be printed and vice-versa.
how does the currency supply of a country is decided, I searched got that it should be equal to GDP is this true or it's an ideal condition
No, it isn't true. Money that can be printed should be backed by gold. For countries which applying pseudo gold on the money printing system then the supply of currency is depend on the number of gold in that country. The number of gold and paper money that printed should be equal. If the number of paper money is more than the number of gold then it can make inflation rate increase. 
Today, cryptocurrencies are still not controlled by states, but due to the global onslaught of cryptocurrency in terms of both its legalization and control, governments will do everything to gain control of the cryptocurrency market and control the income of their citizens.
Crypto currencies can never be controlled when its decentralized so governments will fail even if they do that is why they are restricting the services where cryptos can be used like exchanges,gambling sites mostly and asking for the the KYC details which is actually against the decentralization so people won't use cryptos when we do such things.But this will work some extent but when all the people adopted to cryptos then it will be unstoppable. Today, cryptocurrencies are still not controlled by states, but due to the global onslaught of cryptocurrency in terms of both its legalization and control, governments will do everything to gain control of the cryptocurrency market and control the income of their citizens.
It seems to me that each government has its own views on the future of cryptocurrency in their country. If we take the United States of America, for example, the government of this country wants to stop using cryptocurrency for criminal purposes. That is why the United States of America pursues a policy of legalizing cryptocurrency. But if we take for example totalitarian countries, then they want to control the flow of funds of the cryptocurrency market in order to earn money on this and possibly even abuse the possibilities of the cryptocurrency. At the same time, its citizens are not allowed to operate on the cryptocurrency market.
Today, cryptocurrencies are still not controlled by states, but due to the global onslaught of cryptocurrency in terms of both its legalization and control, governments will do everything to gain control of the cryptocurrency market and control the income of their citizens.
Ideally, there should be formulas or parameters that a country or its central bank has to strictly adhere to when it comes to matters on the national currency especially on determining the number of them on print or circulation. However, realistically speaking, most countries are not following the standard all because the political leadership can easily print more paper money especially in times of distress or problems...and which can be producing more problems especially into the next generations. Therefore, this is not the question of HOW but by WHOM.
Ideally, there should be formulas or parameters that a country or its central bank has to strictly adhere to when it comes to matters on the national currency especially on determining the number of them on print or circulation. However, realistically speaking, most countries are not following the standard all because the political leadership can easily print more paper money especially in times of distress or problems...and which can be producing more problems especially into the next generations. Therefore, this is not the question of HOW but by WHOM.
Supply of currency is decided on various factors, when there is over demand it'll be attributed with different sources of banking institutions, payments and settlements, development in different sectors (can be of financial, infrastructure, etc). Above all the increase in the level of income and the opportunity cost for the purpose of holding the currency over a limited time period is calibrated for the required circulation of currency.
This circulation of currency always increases when there is increase in the foreign assets holding than the domestic assets.
This circulation of currency always increases when there is increase in the foreign assets holding than the domestic assets.
AFAIK the supply is not "decided" because mainstream macroeconomics is like tuning the guitar string (but in reverse). You don't measure the tension but measure the sound. I'm pretty sure the government can't accurately count precisely how much money in circulation. That's why you often hear about tight and loose monetary policy.
When the government hears that the economy is doing well, they will tighten the monetary policy. Conversely, when it's bad, they will loosen the monetary policy.
When the government hears that the economy is doing well, they will tighten the monetary policy. Conversely, when it's bad, they will loosen the monetary policy.
While some posters above gave good answers the truth is that the issue of the supply is decided by politicians, if they need hundreds of billions of dollars they will just create them regardless of the consequences this could bring to the economy, they may like to believe they can get away with it but eventually people wake up to the fraud they are committing and the value of the currency plummets just like what happened in Venezuela, this is why despite the great technological breakthrough that satoshi achieved with bitcoin probably one of his most important decisions was to put a limit in the number of bitcoins that will ever be created.
Not that easy. Politicians might have an influence but an unsubstantial amount of printed money will cause significant inflation like you said, Venezuela as well as Zimbabwe. Corrupted country may be doing this but it's not possible to print a huge amount unless the country's economy is significant strong. 
From what I know that amount money printed is determined by country's income, the intention is that state will print money according to demand and supply needed in market. Why not print as much as possible? amount money in circulation causes inflation or increases in price goods and a decrease in value currency. Therefore, each government will adjust the money circulated to needs its people every year, well it can be determined through GDP.
Lol. No, the state can never print money according to demand and supply. This will cause a total chaos in the economy. Look at those countries that has suffered terrible inflation due to printing money because of demand.The more the money you print, the lower the value of the currency turns out to be. Again, like you said, it is also true the price of goods will also increase. Just letting you know, the money circulation is not done through printing money or burning it. This is done through open market operations were the government buys or sells securities.
At one point you have to remember USA printed 800 billion dollars out of thin air just to supplement the banks debts. We are not talking about GDP here, we are not talking about outgoing debts of the nation, we are not talking about any formulas, they printed 800 billion dollars out of thin air, an amount that many companies who are leaders of their sector will never see in their CEO's life time. When someone steals couple million dollars its a news, dudes got away with 800 billion dollars.
So, how printing is decided and how supply is decided is kind of also depends on the question who bribed the politicians more. If you bribe them well enough or you scare them big enough then you can get more money in circulation. Of course thats not common but only once a decade is more than enough anyway.
While some posters above gave good answers the truth is that the issue of the supply is decided by politicians, if they need hundreds of billions of dollars they will just create them regardless of the consequences this could bring to the economy, they may like to believe they can get away with it but eventually people wake up to the fraud they are committing and the value of the currency plummets just like what happened in Venezuela, this is why despite the great technological breakthrough that satoshi achieved with bitcoin probably one of his most important decisions was to put a limit in the number of bitcoins that will ever be created. So, how printing is decided and how supply is decided is kind of also depends on the question who bribed the politicians more. If you bribe them well enough or you scare them big enough then you can get more money in circulation. Of course thats not common but only once a decade is more than enough anyway.
At one point you have to remember USA printed 800 billion dollars out of thin air just to supplement the banks debts. We are not talking about GDP here, we are not talking about outgoing debts of the nation, we are not talking about any formulas, they printed 800 billion dollars out of thin air, an amount that many companies who are leaders of their sector will never see in their CEO's life time. When someone steals couple million dollars its a news, dudes got away with 800 billion dollars.
So, how printing is decided and how supply is decided is kind of also depends on the question who bribed the politicians more. If you bribe them well enough or you scare them big enough then you can get more money in circulation. Of course thats not common but only once a decade is more than enough anyway.
So, how printing is decided and how supply is decided is kind of also depends on the question who bribed the politicians more. If you bribe them well enough or you scare them big enough then you can get more money in circulation. Of course thats not common but only once a decade is more than enough anyway.
how does the currency supply of a country is decided, I searched got that it should be equal to GDP is this true or it's an ideal condition
I remember, the government should only print money in accordance with the goods circulated domestically and prepare for export.but it is certainly not calculated on GDP, GDP is calculated in a very general and detailed manner.
how does the currency supply of a country is decided, I searched got that it should be equal to GDP is this true or it's an ideal condition
I don't know if they will decide about the supply by equal to GDP because I can't here about the supply of currency in our country. But I can say that GDP can influence the value of our currency because if the economy of our country was developed more, the worth of our currency will increase by converting in other countries currency. 
From what I know that amount money printed is determined by country's income, the intention is that state will print money according to demand and supply needed in market. Why not print as much as possible? amount money in circulation causes inflation or increases in price goods and a decrease in value currency. Therefore, each government will adjust the money circulated to needs its people every year, well it can be determined through GDP.
how does the currency supply of a country is decided, I searched got that it should be equal to GDP is this true or it's an ideal condition
In theory it should be decided according to various economic goals, including target interest rate, inflation, expected growth, GDP, foreign trade, FX, foreign reserves and others.
In practice, as a government body / central bank you can do whatever you like (with corresponding consequences of course)
I think the ratio between money supply and GDP is so screwed up, because most people buy goods and services with debt these days and actual money are used in rare circumstances. Governments are just using money supply to manipulate the perception that their economy are flourishing and that their exports gets a lot more foreign currency for whatever is sold and that they get more goods for their currency when they import something.
The third world countries tries to solve their economic problems by printing more money, but this just leads to hyperinflation. 
The third world countries tries to solve their economic problems by printing more money, but this just leads to hyperinflation.
Saw this question asked before and I do have actually one very basic case, at least as told to me by a friend who works in a country's central monetary authority (the equivalent of a central bank).
You basically base it almost entirely on the amount the country needs (local cash demand). And for this particular country, it's been a steady 2% or so of its GDP (that itself very slow to grow). The idea here, if your economy's growing, you need more money. People need to pay stuff, businesses the same. And population also grows. So you need to put out more cash so everyone has cash in hand to pay for things. That's actually all there is to it.
So for the past 30 years plus, it's had a small population, small economy (one major contributor). None are super transparent but easily trackable, which makes the theory easy in practice. Prices and value of basic goods in general have kept up with the currency's value.
You basically base it almost entirely on the amount the country needs (local cash demand). And for this particular country, it's been a steady 2% or so of its GDP (that itself very slow to grow). The idea here, if your economy's growing, you need more money. People need to pay stuff, businesses the same. And population also grows. So you need to put out more cash so everyone has cash in hand to pay for things. That's actually all there is to it.
So for the past 30 years plus, it's had a small population, small economy (one major contributor). None are super transparent but easily trackable, which makes the theory easy in practice. Prices and value of basic goods in general have kept up with the currency's value.
how does the currency supply of a country is decided, I searched got that it should be equal to GDP is this true or it's an ideal condition
Actually countries were printing more fiat money as much as they want so there is no real formulae behind how these money were printed by the government.But when the fiat money was introduced the supply decided by their gold reserves now a days it changed to null. 
how does the currency supply of a country is decided, I searched got that it should be equal to GDP is this true or it's an ideal condition
ideally , according to the pseudo science economics , it is determined by formulas and the supply of a currency is determined by the domestic demand for imports from abroadin reality , it is decided by the Central banks and the combination of the military power and the influence of a particular country
the US , for example , can print trillions of dollars and "sell" them around the world for resources
i.e. basically , you give , say Russia money for their oil and then they have to buy your treasuries for a fixed percentage of what they received , increasing the US debt
the countries that refuse to do so or are trying to oust dollars from their systems end up like Lybia , Iraq , Venezuela and other countries ( usually rich in oil or any other resource and suffering from an acute lack of democracy , according to the civilized world )
how does the currency supply of a country is decided, I searched got that it should be equal to GDP is this true or it's an ideal condition
As far as I know, you can print out paper money in the state in the amount of gross income growth for the year, as well as the amount of increase in national gold and foreign exchange reserves. In addition, paper money is additionally printed on the amount of worn out and replaced banknotes. Also, in practice, they are allowed to print another five percent of inflation, which is considered the norm. 
how does the currency supply of a country is decided, I searched got that it should be equal to GDP is this true or it's an ideal condition
The scope of your question is much bigger and can't be suitably replied here. Rather, I would request you to watch the below video from Youtube.
https://www.youtube.com/watch?v=FVXoijm6eZ8
This video will at least give you an idea even though money printing and circulation requires a combination of many factors. Hope this helps at least to understand the basiscs!
The growth domestic product of any country determines the value of it currency on the stock exchange and also the market value inflation rate and so on.
how does the currency supply of a country is decided, I searched got that it should be equal to GDP is this true or it's an ideal condition
No,the currency supply shouldn't be equal to the GDP.There was a simple formula about that topic,but I have to search through my Macro-economy and finance books.
As far as I remember,the classic equation was M.V=P.Y or M=1/V.(P.Y)
Irving Fisher was the author of the classic quantity theory of money.You will have to read more about him.
how does the currency supply of a country is decided, I searched got that it should be equal to GDP is this true or it's an ideal condition
Jump to: