Banknote Production

Thai Opposition Party warns government on Currency policy

Politicians in Thailand’s opposition party are warning the government not to force the central bank to print extra currency to cover the country’s public debt, saying this process would simply turn banknotes into “worthless paper.”

In their proposed 2012 fiscal plan, the Thai government is attempting to borrow Bt400 billion to finance the budget deficit and intends to borrow another Bt400 billion in order to finance restoration projects that are necessary to help rebuild the country after it was struck by major flooding in the spring of 2011. On top of this, the government has also announced efforts to shift the public debt of Bt1.14 trillion to the Bank of Thailand’s account.

“The government’s plan to force the central bank to repay the debts of the Financial Institution Development Fund would result in the printing of more money for the government,” said Democrat MP Sansern Samalapa. “People would be happy for a while, for there would be no need to pay taxes, but then the banknotes would become worthless paper.”

Printing more money than needed is a dangerous road, writes MSNBC Senior Producer John W. Schoen.

“If you create more currency without raising the value of the whatever backs that currency, the value of the currency drops,” he says. “Currency is really just a piece of paper that stands for something of value. Increasing the amount of currency without increasing the value it represents just makes the currency worth less than when you started.”

Samalap provided examples of Latin American countries who tried to undergo similar debt shifts, and who ended up in situations of hyperinflation leading to the collapse of their economies.

Michael K. Salemi, an economics professor at the University of North Carolina, provides an account of one of these situations, which occurred in Bolivia.

“The Bolivian hyperinflation is a case in point. Eliana Cardoso explains that in 1982 Hernán Siles Suazo took power as head of a leftist coalition that wanted to satisfy demands for more government spending on domestic programs but faced growing debt service obligations and falling prices for its tin exports,” he writes. “The Bolivian government responded to this situation by printing money. Faced with a shortage of funds, it chose to raise revenue through the inflation tax instead of raising income taxes or reducing other government spending.”

Hyperinflation, Salemi says, always reduces an economy’s efficiency due to the fact that it drives people away from monetary transactions.

SOURCES:
The Nation: “Govnt Debt Policy Will Make Currency ‘Worthless’”
MSNBC Answer Desk: “US Budget Deficit Fix: Print More Money?”
The Concise Encyclopedia of Economics: “Hyperinflation”

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