Why doesn’t the government simply print more currency notes when a country is short of money?

No country would embank on currency printing frenzy unless it wants to bring on hyperinflation and ruin its economy as Germany did in the decade of 1920s.
 
The point is that if a government’s central bank prints more money and puts it into circulation, it effectively devalues that currency and reduces its buying power by the same amount. In other words, if a hundred dollar note is just another printed paper like a handbill or a leaflet then why should anyone see it as having any more value than just another piece of paper? People with fattened pockets will have to pay more for the same product because wages and raw material that went into manufacturing that product have been paid for with more currency notes.

In short, double the money supply and the buying power of that money goes down by half. People lose confidence in such currency. That is why years ago countries often used to tie-up how much money they had in circulation with how much gold the government had in their vaults. This meant that for every dollar in circulation in a country like the US, there was a dollar’s worth of gold reserve with the central bank. This tie-up of gold with currency was called the gold standard. It has how been abandoned because times have changed.

Today, with international trading of currency and stokes and shares, it’s the strength of a country’s economy and a government’s control over it that determines the strength or weakness of currency.

More reading:
Gold standard (Wikipedia)
Hyperinflation (Wikipedia)
Monetary system (Wikipedia)

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