We hear about world debt and lots of countries owing a lot of money, and countries taking loans and you cant help but wonder, why owe when you can just get the printing machine and print more money then use it to settle the debts. Sound like a very good plan right? When countries are taking loans, they take the loan in dollars, and for a country that does more of importing than exporting, this means that they dont have to convert the foreign currency to their local currency, since they will be utilizing the currency from the foreign market. But most times it hard for these countries to pay back these loans, so why not print more money, convert it to the foreign currency and pay back the loan.
Well, printing excess money will cause inflation, but how will they know? Money is just paper, it what it can buy that gives it value. For instance, you value $100 more than you value $1 because $100 can buy more than what $1 can buy. We humans are naturally greedy, that is why the value of assets get higher when demand goes up. So when the government prints excess cash to buy dollar so they can pay their debt, this means it will increase the demand for more dollars in that country and this will increase the value of dollar. When the value of dollar increases and this country depends more on importation than exportation, the citizens will have to pay more to import. When they do this, they will want yo compensate by making profit, which will make them increase the price of their goods and services, thereby increasing the cost of living. There you have it, inflation at your doorstep.
Lots of countries have tried this and they have failed, look at the zimbabwéen currency, they tried and now their currency has no value. When too much money is in circulation when the country is not having any economical value impacted on them, you will see people spending more of their currency for less. But when countries focus more on making their currency more valuable there wont be any need for printing more money. Because the cost of living will be higher, when foreigners are demanding for the local currency because they want to patronize the country, the value will increase.