Disadvantages of Paper Money
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Disadvantages of Paper Money

Disadvantages of Paper Money 1. Paper money is of no importance outside the nation of issue. Silver as well as gold coins are acknowledged even by outsiders, as they have got some fundamental worth.

Disadvantages of Paper Money

1. Paper money is of no importance outside the nation of issue. Silver as well as gold coins are acknowledged even by outsiders, as they have got some fundamental worth.

2. There is a likelihood of damage to paper money. Flames may blaze it; if the place is flooded, it is gone; it may also be eaten up by white ants.

3. A stern disadvantage in paper money is the simplicity through which it can be issued. There is for all time a risk of its over-issue when the administration is in economic problems. The temptation is too great to be resisted. Once this route is adopted, however, it gathers momentum and results in added note-printing, and this goes on till the paper currency loses all value. This happened in various countries in recent times: in Russia (1917), in Germany (1919), in China (1944), and so on. .

An excessive issue of notes, in other words 'inflation', brings many evils in its train. Some of them are:

(a) Prices rise heavily. Consequently, laborers and other inhabitants from the fixed revenue group suffer very much.

(b) The circuitous outcome of the increase in prices is a decline in exports and an increase in imports. This results to the export of gold from the nation, which is not an advantageous thing. Its equilibrium of payments becomes unfavorable.

(c) The rise in prices also leads to a fall in the external value of the home currency. The rate of exchange falls. More home currency will have to be paid to buy units of foreign currency.

Really, paper money, if it is issued and regulated carefully, is without any disadvantage. All countries issue paper currency, and, in normal times, they do not suffer from it in any manner. Only when it is over-issued, it becomes a great danger and a curse. It may cause grave discontent among the masses. When paper money is over-issued, there is inflation and prices rise. It hits hard several important sections of the people like workers and fixed-incomists. The people might lose confidence in the currency and it might become useless. As mentioned already, such a situation arose in many European countries during and after World War I, and later in China.

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