It seems that it is very difficult for humans to learn from past mistakes. The South African head of National Treasury, Nhlanhla Nene, recently said that the government will print money to end poverty in the country. But the comments did not stop there, he added that the authorities will make every single poor person a billionaire if it would be possible.
South Africa “Magic” Solution
It is clear that printing money is not the solution to end poverty. Countries that printed banknotes did not finish with food shortage or infrastructure problems, but instead, they have increased them. Some time ago, we published an article about Venezuela and how the country is being destroyed by inflationary monetary policy.
The poverty in the South American country is around 90% and the Bolivar, (Venezuela’s currency) lost over 90% of its value in the last years. But this did not happen by itself. The socialist government has been applying policies of monetary expansion that totally ruined the country.
South Africa may be ready to try a similar experiment. Mr Nene, who previously served as a Minister of Finance, is back with a very polemic plan to print money and end poverty in one of the richest countries in Africa.
Nhlanhla Nene said about his plan:
“South Africans continuing to be poor when we can print more money to ensure that everybody has it. Our people are poor because there is a shortage of money in the country. It’s not the shortage of jobs that makes people poor, it is the shortage of money. We have paper and ink, so we will print more money and give it to the poor, and make all of them billionaires if that is possible.”
Apparently, he did not specify how much money he will need to make every South African a billionaire. But past experiences all over the world tell that more banknotes in the economy do not help to make people rich.
Inflation in the Neighbourhood
Venezuela is far away from South Africa and has a different social and economic reality. But Zimbabwe shares boundaries with South Africa and has an important problem with inflation. Indeed, Zimbabwe was one of the countries with the highest inflation rates ever recorded.
In Zimbabwe, its citizens are not billionaires, but trillionaires! You may think that this is great, but that’s not so good for them. In November 2008, the inflation reached unprecedented levels of 79,600,000,000%. The Reserve Bank of Zimbabwe has even printed a one hundred trillion dollars bill! The poverty there reaches today 72% of the population.
Cryptocurrencies work in a different way. As they are not regulated by a central authority and their supply is limited, in the long term, they are deflationary currencies. That means that no government can start to print money and give it to the poor as a magic solution to their problems.
At the moment, cryptocurrencies like Bitcoin have 4% inflation rate. Of course, higher than the global inflation average. But in some years, these numbers will be reduced, and eventually reach values near to zero.
Each coin will be worth more as time passes, compared to other fiat currencies. By that time, South Africans will not trust their currency anymore and they will search for other solutions, like cryptocurrencies. In Venezuela, it already happened and in Zimbabwe, Bitcoin was traded at premium rates due to the increased demand of its citizens.
Check out this video from WonderWhy to learn more about the tinker-bell effect why printing money to solve poverty is a bad idea.
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