Column : Dangers of letting govt print money
A surprising new IMF research paper entitled ‘The Chicago Plan Revisited’ by Jaromir Benes and Michael Kumhof is making waves in economic circles, especially with monetarists. The paper suggests that the world would be much better off if we adopted a system where the banks did not create our money. So, instead of a system where more money is only created when more debt is created through the money-multiplier effect, we would have a system of debt-free money that is created directly by the central government. There have been others that have suggested such a system before, but to have an IMF research paper actually recommend that such a system be adopted is a big deal.
One of the fundamental problems with our current financial system is that it is based on debt. Just take a look at the Indian monetary system. The way our system works today, the vast majority of all money is created either when we borrow money from a bank or the central government borrows money. Therefore, the creation of more money creates more debt. Under such a system, it should not be surprising that the total amount of debt of the Indian government has increased more than 3.5 times in the last decade.
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