Page last updated at 19:21 GMT, Thursday, 5 March 2009

The fear of printing too much money

Chris Bowlby
BBC Radio Current Affairs

Past events incite anxiety when printing more money today
Amid all the talk of solving the global economic crisis, there is one phrase the bankers and politicians try to avoid.

"Nobody is talking about printing money" insisted the Chancellor in January.

Much safer to deal in baffling jargon such as "quantitative easing" that few outside a financial elite really understand.

For Mr Darling knows that talk of emergency money printing conjures the most disturbing of ancient and modern anxieties - of politicians ruining a currency, and thereby utterly undermining a society's stability.

Technically, Mr Darling is right. Physical currency plays a much reduced role in the modern economy. Most money is merely electronic.

And quantitative easing does involve a purchase of assets rather than simply an attempt to pay off debts, though the money to buy the assets is created by the Bank of England, with government permission.

So the billions governments everywhere are trying to inject into their economies are not going to take the form of vast numbers of new banknotes.

Nonetheless, measures under consideration such as "quantitative easing" do amount to the deliberate creation of much more circulating money. And that can certainly have implications for currencies and inflation rates.

Fear factor

At the extreme end of popular anxiety, it prompts fears of panicking politicians setting in motion something they cannot ultimately control.

For those who know their history, the image this conjures up is non-stop printing presses churning out money that loses its value faster than anyone can spend it.

Zimbabwe currency
A fistful of fistful of ten million dollars
But this is not just a memory. Today's Zimbabwean government has just about admitted defeat in its attempt to save a ruined currency.

The country's inflation rate has been calculated at over 230 million per cent, banknotes were issued with the nominal value of 100 trillion Zimbabwe dollars.

The government in Harare is now intending to pay salaries in other currencies such as US dollars, if it can obtain enough.

In a delicious historical irony, the Mugabe regime in Zimbabwe was helped until last year in its printing of the hyper-inflating local currency by a German firm supplying special paper, and an Austrian company supporting the software to enable all those zeros to be added efficiently.

For it is Germany and Austria that have the most profound European anxieties about printing money, having lived through ruinous hyperinflation in the 1920s.

German experience

The German firm Giesecke & Devrient notes on its website that it first won business from the German central bank in 1923, when a government in Berlin facing huge post-war reparations tried to print its way out of trouble.

In the end nearly 1800 printing presses churned out banknotes day and night, and employees raced to spend their barrow-loads of wages before prices went up.

Wallpaper money
In post-war Germany, this man finds it cheaper to paper his walls with money.
While this was devastating for many, especially those on fixed incomes, anyone with hard currency could gain spectacularly.

Foreigners bought apartment blocks in Berlin for a hundred US dollars.

The Austrian writer Stefan Zweig, living in Salzburg during his country's hyperinflation, recalled a group of unemployed Englishmen living in a luxury hotel there on their sterling dole money "as it was cheaper than in their slums at home".

The whole of Austrian and German society, wrote Zweig, was perverted by the collapse of currency. In the end, even after stability has been restored, memory of the chaos and resentment at its consequences prompted many to vote Communist or Nazi.

And the Nazi catastrophe led in Germany to another currency collapse in the 1940s, with cigarettes the only reliable means of exchange until the creation of the new deutschmark in 1948.

Currency, and the central banks that defend its value, became central to modern German identity.

Hard times remembered

And Germans are among the most nervous as they consider whether today's huge government bail-outs of banks and businesses will lead to sharply rising inflation and undermine the European Central Bank's commitment to price stability.

Hyperinflation may seem hard to imagine now. But German anxiety about money and what politicians might do to it "strangely doesn't get any less" says David Marsh, author of a new book on the history of European money and the creation of the euro.

John Maynard Keynes, an economist much back in fashion in today's frantic search for a cure to the global recession, stated boldly the dangers that lurk if politicians take their power over money creation too far.

"There is no subtler, no surer way of overturning the existing basis of society", he said, "than to debauch the currency".

So there are some parts of the world in particular where the ghosts of the printing presses rattle away alarmingly whenever the politicians talk of pumping new money into the system.

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