As per the news published in the media, India, China and some other countries are trying to grapple with money flooding the economy from a record trade surplus, and
swelling of foreign exchange reserves of the country. Why do the Central Banks of such countries have to make special efforts to check the flooding of money and foreign
exchange in economy whereas for an ordinary man more money means richness and prosperity ?
1. It generates artificial inflation in economy.
2. It makes the Govt. of that country to revaluate its currency.
3. It creates a situation where rate of interest on loans and advances starts coming
down sharply.