You are here:

Economics/Question about money supply...


QUESTION: I have 1 billion barrels of oil ( per barrel : 1000$ , I want to print 1 trillion dollars and back it with oil .  In another words, I want to buy my products with money I print and back it with my products. Can that happen ? ( without making inflation)

ANSWER: Yes, you could.  You can continue to print more money without increasing inflationary pressures as long as you have resources available to back it up.  Gold used to be the preferred reserve resource from which a currency's value was derived, but that didn't work well.  Now, currencies are typically either fiat currencies, whose value is derived primarily from their production potential, while many other currencies are pegged to a fiat currency.  So, with oil, if you can print more currency just so long as the value of your oil on the international market grows at a rate faster than the currency you're printing.  This is all, of course, assumed to be under conditions of ceteris paribus (all other things held constant).

---------- FOLLOW-UP ----------

QUESTION: Thank you so much, last question : can I back money up with economic growth ( example : country GDP:10 trillions , country prints 1trillion and back it with 20 % economic growth rate )

Fiat currencies (e.g.: USD, EUR, JPY, GBP, etc.) derive their value from economic growth, so the answer is yes.  All currency derives its value from the faith that people have that they will be able to exchange that currency for something else; consumer goods, investments, gold, other currencies... anything they want.  Money is really just a form of capital investment.  If the value of a currency plummets, then people will be able to buy less than they had to sell to get the money in the first place, which means a negative return on investment for the people who gave their time and resources to get that money.  If the value of a currency goes up, they can afford more than they spent to get that money, generating positive return on investment.  Money itself is worthless, it's the things you buy with the money that are important and give it value.  So, when a nation's total production increases, then there are more goods per unit of currency outstanding, increasing the total value of the currency as a function of the measure of total national production potential.  That's why when a nation starts printing way too much money without associated economic growth, it causes inflation (a decrease in the value of a currency).


All Answers

Answers by Expert:

Ask Experts


Michael Taillard


Accepts most economic questions


Consulting with major corporations, government agencies, political organizations, small businesses, non-profits, start-ups, and even individual people. Teaching at universities around the world, and developing original coursework. Performing original research and analysis. Writing books and scientific studies.

American Economics Association

Publications You can also check Proquest for a small selection of my research.

PhD (Financial Economics; honors) -- MBA (International Business Finance; honors) -- Grad School Certificate (International Business Management; honors) -- BS (International Business Economics; honors) -- AA (Business Administration; honors) -- Certificate (Chinese Language and Culture) -- Trade School (Transportation Logistics; honors)

©2017 All rights reserved.