Why can't poor countries just print more money?
Printing money doesn't mean that their wealth increases. It just devalues the money they already have. So it will just take more money to buy goods from another country. Printing money will also lead to over inflation which has its own set of problems such as:
When the market isn't allowed to favor one currency (provider) over another, there must be a central authority with the power to regulate, provide, and insure it. People don't learn the dangers of fractional reserve banking and the resulting expansions and contractions of the money supply when the providers of the currency aren't allowed to fall, taking the savings of depositors with them. Insuring people against the dangers of mismanaged money guarantees the mismanagement of money. "If the government prints money recklessly and causes inflation, people will come to expect inflation, and the value of the currency will plummet, and you'll end up like Zimbabwe where a trillion dollars won't buy a loaf of bread.  If the government actually pays people for the money they borrow, they don't have this problem - and as it turns out, the US government can get pretty good rates on borrowing in general, in part because they're extraordinarily good about paying them back. (Also, inflation expectations are low, so people will accept 1-2% interest rates. If you expected inflation of 10%, you'd see people demanding something more like 12% interest rates.) (The downside of too much of this sort of borrowing is that it ""crowds out"" other borrowing, which may harm the economy. Who would lend money to / invest in a small business, if the government is paying good money and there's almost no risk at all?) Now, inflation can come into play afterward, if the Fed decides it needs to maintain ""easy money"" policies to stimulate the economy (because taxes are too high because we're paying off the debt, or because we've crowded out smaller borrowers, or something). -- In general, you can count on the the principle that if you, as the government, try to play too many games with people's money... well, people aren't stupid; they will eventually catch on, and adjust their behavior to compensate, and then you're right back where you started, but with less trust." Who says they don't? In the United Kingdom the Bank of England and the Bank of Scotland print the money. In some other countries (like Hong Kong, Israel, and the US) commercial banks were issuing the currency at some point of time, but now the governments do that. The problem with commercial banks issuing currency is the control. If a bank is allowed to print money - how can the amount of currency be controlled? If it is controlled by the government then the bank will be just a printing press, so what's the point? And since governments now want to control the monetary policy, banks have no reason to just be printing presses for the government, the governments have their own. edit Apparently in Hong Kong it is still the case, as I'm sure it is in some other places in the world as well. The real problem is the international bubble. China for one pegs their currency against the dollar and it's banks use even more leverage than ours do. There is no safe haven for money, because everyone is printing the shit out of their money. The way it actually works is that low-but-steady inflation (ie: printing of new dollars without any debt behind them) keeps the debts serviceable.  In real life, unfortunately, too little of the money supply is printed rather than lent into existence. Oh, thank god. They can just print their way out! That will solve all their economic problems!   Oh wait. That would just cause basic food and energy costs to skyrocket while destroying savings even more. Sure, maybe exporters would get a boon, but Japan kind of has to import a lot too. All printing money would do is make 5% of the people richer while making 95% of them poorer. "This chart summarizes the FED's balance sheet (things the FED has purchased - US treasuries, mortgage backed securities, etc.) nicely.  It shows the massive level of ""printing"" the FED has done in the past two years.  The FED ""prints"" new money to buy these assets. As lucius has pointed out the fractional reserve banking process also expands the money supply.  When the FED buys something from Bank A, then Bank A can take the money and start lending it out.  This process continues as the recipients of the money deposit the newly printed money in other fractional reserve banks. FYI....it took 95 years for the FED to print the first $900 billion.  It took one year to print the next $900 billion." &gt; The issue I have with your use of Japan is that Japan has very strong exports of superior quality and low cost, we do not.  That has no bearing on their sovereign debt situation though. Japan's debt is yen-denominated. Does Japan rely on the rest of the world to supply it with yen via exports? No. Japan issues the yen.  &gt;And what about South and Central American Pesos?   Where you saw actual debt crises, it was countries that owed US dollars. Peg your peso to the US dollar and/or borrow US dollars and you are on the hook for US dollars which you can run out of.  Let's just apply this as a general rule: any example of actual sovereign debt crisis you want to offer, before you do... look for where they're on the hook for foreign currency. You'll find it.  &gt;What about Keynes, Minsky, and the trilemma? Their central banks were completely overridden by foreign speculators. We can only choose two out of three options, peg our currency, spend to help the economy, and/or maintain free trade, not all three  What I'm describing is consistent with the trilemma [triangle](http://en.wikipedia.org/wiki/Impossible_trinity#mediaviewer/File:Impossible_trinity_diagram.svg). I'm saying the sovereign monetary policy with a floating rate currency is the one which allows a country the most policy space for responding to crisis and funding its domestic economy in general up to its own real capacity limits.  I want to emphasize here that the printing press isn't some magic fountain of real wealth. Your potential real wealth is limited by what you have the real resources to produce. The idea is to fund yourself to the point where you're producing up to your own real limits of output capacity at full employment. Maximize your own potential. As opposed to adopting voluntary financial constraints which force you to leave some of that potential idle, making you poorer in real terms. It's ultimately limited by how much debt people are good for, which is limited by the worth of labor.  You are correct, that the fractional reserve system does not limit how much money can be created, and with just that an no requirement for new debt to be good debt, infinite money could be created. "&gt; but the buying power of that money can be significantly reduced to the point where it's fundamentally useless, i.e. inter-war Germany and many countries in South and Central America.  That's true, but *how* does that come about? The effect on buying power stems from the level of spending in the present period. Too little leaves you anywhere from outright deflation and contraction to weaker growth falling short of capacity. Too much reaches capacity and keeps spending, bidding up prices and driving down purchasing power.  It has nothing to do with debt:GDP or interest payments.  &gt; Germany managed to skate by by creating a new Deutschmark in a confidence trick, and it worked because Germany is a solid, iron clad manufacturing powerhouse of a lot of stuff.   There are two important differences between inter-war Germany and the US. First is that inter-war Germany *lost a war*. This real shock is kind of important. When you're talking about buying power of money, one side of it is the amount of money in circulation but the other side of it is how much real output there is to buy and German real output capacity collapsed after the war. Their most productive regions were occupied territory and they were no longer a powerhouse manufacturing a lot of stuff, driving down the value of their currency.  So lesson number one from Germany: real output collapse harms your currency.  The second problem is that losing a war left Germany saddled with war reparations denominated in foreign currency. When you're on the hook for something you don't print you're in a situation where you can run out of money and that's exactly what happened to them. They tried printing more of their own currency to buy the foreign stuff with but that quickly drove down the value of German currency.  So lesson number two from Germany is you don't want to be on the hook for a currency you don't issue.  Put the two together and you have a real supply shock + foreign-denominated debt eviscerating the buying power of German currency. It wasn't debt:GDP but the real basis for their economy collapsing out from under them pushed along by a need for foreign currency.  &gt;My question is, at what point do we engage Washington's unlimited money printing presses until we reach that point?  In answer to your question, the printing presses are what funds the real economy. The worry in terms of avoiding ""that point"" is in making sure we keep that real economy productive and fully funded. Ironically, taking our eye off the ball to focus on budget balance at the expense of real output pushes the economy in the direction you're afraid of going. See also: the euro zone today." The only reason inflation has yet to show in the CPI is because the dollar is the global reserve currency and is the best house in a bad neighborhood, but that just means the rest of the world is becoming poorer at the same time as the U.S. - QE was 4 trillion. That's a debasement of the currency even if, for the reason I've already stated, it's not reflected in CPI. "Correct!  But this is only true when a central bank is involved.  So if there's a single institution that has a territorial monopoly on the production of money (and competing currencies aren't allowed via ""legal tender laws""), then the debt-based money system OP describes isn't actually the system being used.  That's the problem with his post:  he's trying to make it seem like our current system of fiat currencies is somehow natural or emergent.  It's not.  What we have now is the result of a legal monopoly." So the Japanese are better at the circle jerk.  An amusing note, if you pay attention to this stuff at all, you will notice that Japan can't actually just print the money.  The process you refer to is considered inflating the debt away.  When Japan prints money now, their currency gains value.  So they are actually pretty fucked.  http://www.zerohedge.com/news/2012-10-30/when-¥11-trillion-not-enough-japans-qe-9-disappoints-halflife-zero-time-qe10  edit:spelling/grammar sorry "Bingo, great question.  I'm not the original poster, ""otherwiseyep"", but I am in the economics field (I'm a currency analyst for a Forex broker).  I also happen to strongly disagree with his posts on the origin of money.  To answer your question:  the villagers are forced to use the new notes by their government, which demands that their income taxes be paid with the new currency.  This is glossed over by otherwiseyep, which is unfortunate because it misleads people who are new to economics into believing the system of fiat money we have now is natural/emergent (created from the bottom-up) and not enforced from the top-down.  Legal tender laws enforced in each nation's courts mean that all contracts can be settled in the local fiat currency, regardless of whether the receiver of the money wants a different currency.  These laws (and the income tax) create an artificial ""root demand"" for the fiat currency, which is what gives it its value.  We don't just *decide* that green paper has value.  We are forced to accumulate it by the government.  Fiat currencies are not money.  We call them money, but in fact they are credit derivatives.  Let me explain:  A currency's value is inextricably tied to the nation's bond market.  When investors buy a nation's bonds, they are loaning that nation money.  The investor expects to receive interest payments on the bonds.  The interest rate naturally rises as the bonds are perceived to be more-risky, and naturally falls as the bonds are perceived to be less-risky.  The risk comes from the fact that governments sometimes get really close to not being able to pay their interest payments.  They get into so much debt, and their tax-revenue shrinks as their economy worsens.  That drives up the interest rate they must pay when they issue new bonds (ie add debt).  So the value of a currency comes from tax revenue (interest payments).  If a government misses an interest payment, or doesn't fully pay it, the market considers this a ""credit event"" and investors sell their bonds and freak out.  Selling bonds has the effect of driving interest rates even higher, so it's a vicious cycle.  If the government defaults, there's massive deflation because all debt denominated in that currency suddenly skyrockets due to the higher interest rates.  This creates a chain of cascading defaults - one person defaults, which leads another person, and another, and so on.  Everyone was in debt to everyone else, somewhere along the chain.  In order to counteract this deflation (which ultimately leads to the kind of depression you saw in 1930's US), governments will print print print, expanding the credit supply via the banks.  So this is what you see happening today - banks are constantly being bailed out all over the Western world, governments are cutting programs to be able to meet their interest payments, and central banks are expanding credit supplies and bailing out their buddies.  Real money has ZERO counterparty risk.  What is counterparty risk?  It's just the risk that the guy who owes you something won't honor his debt.  Gold and silver and salt and oil aren't IOU's.  So they can be real money." "This might sound absurd, but Japan has a lot of debt held by itself. In other words, when people say a country is ""just printing money"" it's rarely true. It's often some kind of beyond being issued and sold to the public or to institutions. But in Japan's case they actually did ""print money"" and have done so for 30 years. Yet they've had a deflation almost every year since. This shows that expanding the money supply doesn't always result in inflation, it depends a lot on the country and its people and means of production. I guess Japan's move to cut the debt is a step into unknown territory, and we can't really know what will happen."