Glossary · Money and central banks
Money printing
Money printing is the everyday name for a central bank creating lots of new money. Done too fast, it pushes prices up.
Also called: printing money, monetary financing, printing press
M2, 12 months to Feb 2021
Consumer prices, 12 months to Jun 2022
In plain words
Why can’t a country just print more money and make everyone rich? Imagine an island with 100 coconuts and $100: a coconut costs about $1. Print another $100 and hand it out. There are still only 100 coconuts, so people bid against each other until a coconut costs about $2. Nobody is richer; prices simply doubled.
That is the core of money printing: when money grows much faster than the things it can buy, inflation follows. Pushed to the extreme it becomes hyperinflation, as in Germany in 1923, Zimbabwe in 2008 or Venezuela after 2016.
Little of it involves printing presses today. Central banks create money electronically, mostly by buying bonds (quantitative easing). Whether that turns into higher prices depends on whether the new money gets spent.
Example
The equation behind it
- Money × how often each dollar is spent = prices × the amount of stuff bought. Economists write it M × V = P × Y.
- Start: $100 of money, each dollar spent twice a year, 200 coconuts sold at $1. 100 × 2 = $1 × 200.
- Double the money to $200. If people spend it just as often and the island grows no more coconuts, prices must double: 200 × 2 = $2 × 200.
- But if people hoard the new money and spend each dollar only once a year, prices stay at $1: 200 × 1 = $1 × 200.
Printed money raises prices when it is spent faster than the economy can grow. That is why the 2010s and the 2020s turned out so differently.
One level deeper
The dangerous kind is a central bank creating money to pay the government’s bills, called monetary financing. When a government cannot borrow or tax enough, the printing press is tempting, and nearly every hyperinflation began that way. That is why many countries forbid their central bank to lend to the government directly.
QE is different, at least in intent: the central bank buys bonds already in the market, to steer interest rates, and can reverse it later. After 2008 trillions of dollars of QE came with low inflation, because banks sat on the new reserves. In 2020–2021 QE came alongside huge government spending sent straight to households. US M2 grew 26.8% in the 12 months to Feb 2021, and inflation reached 9.0% in the 12 months to Jun 2022.
Supply problems mattered too: factories shut by the pandemic, jammed ports, then the 2022 energy shock. Economists still argue how much of the 2021–2023 inflation came from money and how much from shortages; most give weight to both.
Money growth and inflation in the US since 1960
Both lines are changes over 12 months. In the 1970s fast money growth and high inflation went together. In the 2010s money grew steadily while inflation stayed low. In 2020 money growth leapt, and within a year inflation followed.
The numbers behind the chart
| Date | Money supply (M2) growth | Inflation (CPI) |
|---|---|---|
| Jan 1960 | 4.0% | 1.2% |
| Dec 1960 | 4.9% | 1.4% |
| Dec 1970 | 6.6% | 5.6% |
| Dec 1980 | 8.5% | 12.3% |
| Dec 1990 | 3.8% | 6.3% |
| Dec 2000 | 6.2% | 3.4% |
| Dec 2010 | 3.7% | 1.4% |
| Dec 2020 | 24.5% | 1.3% |
| Dec 2022 | −1.0% | 6.4% |
| Dec 2023 | −2.4% | 3.3% |
| Dec 2024 | 3.4% | 2.9% |
| Dec 2025 | 4.0% | 2.7% |
| Sep 2026 | 5.7% | 3.7% |
Why it matters
It explains the worst monetary disasters in history, from Weimar Germany to Zimbabwe, and why central banks are kept at arm’s length from governments.
It is at the heart of the debate about the inflation after 2020, and about what QE really does.
It matters for savers: cash loses purchasing power fastest when money is created to pay a government’s bills.
A common mistake
Myth: Any new money causes inflation right away.
In fact: Only money that is spent pushes prices up, and only if the economy cannot produce more to meet the demand. After 2008 the Fed created trillions of dollars of reserves, yet US inflation stayed mostly below 2% for a decade.
Questions people ask
Why don’t governments just print money to pay off their debt?
Because the money would lose value about as fast as it was printed: prices would rise, lenders would demand much higher interest rates or refuse to lend in that currency, and savers would be wiped out. Countries that tried it, from Germany in the 1920s to Zimbabwe and Venezuela, ended in hyperinflation.
Who prints US dollars?
Paper money is printed by the Bureau of Engraving and Printing, part of the Treasury, and coins are made by the US Mint; the Federal Reserve orders the notes and puts them into circulation. Most money, though, is electronic, created by the Fed and by commercial banks.
Did money printing cause the 2021–2023 inflation?
It was part of the story. US money grew faster than at any time since 1960 and spending surged, while supply chains broke down and energy prices jumped. Most economists give weight to both.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US recessions (NBER business cycle dates): National Bureau of Economic Research (NBER), Business Cycle Dating Committee: US Business Cycle Expansions and Contractions.
- Consumer price index, all items (CPI-U): U.S. Bureau of Labor Statistics, Consumer Price Index, series CPIAUCSL; retrieved from FRED, Federal Reserve Bank of St. Louis.
- M2 money stock: Board of Governors of the Federal Reserve System, H.6 Money Stock Measures, series M2SL; retrieved from FRED, Federal Reserve Bank of St. Louis.
- This page explains a term. It is not investment advice.