system
Given the following post, respond as if you're commenting on Reddit:
human
How do countries decide how much money there needs to be?

Are there calculations they can make, or do they essentially estimate and then course correct as inflation is under/over target? Or something else?
gpt
I think its important to clarify that there are multiple types of money.

Hard money/currency is generally not directly involved in managing monetary policy and central banks ensure there is always enough to meet demand (as if there is not that tends to cause bank runs). A bank can order as much currency as they want from a central bank.

Taking the example from the US the Federal Reserve system is responsible for distributing currency and they order currency from the US Mint (coin) and US Bureau of Engraving and Printing (paper). Commercial banks can convert their reserve in to physical currency (also in reverse) and also exchange old currency for new currency (EG worn out notes). While banks are not required by law to be able to meet any currency demand they are required to be able to meet reasonable currency demand. 

Central banks have lots of tools for managing inflation and there is some variation between how countries manage it but they are looking to manage the supply of money, generally growth in deposit accounts. In most countries the traditional policy tool for this is managing the cost of credit by influencing the overnight rate banks lend reserves to each other at, they do this by buying or selling assets banks hold in reserve.

In the US the Federal Open Market Committee meets to set a target rate. The OMO desk at the NYFed executes trades to nudge the actual rate towards the target rate. The OMO desk buys & sells US Treasuries from banks, this changes reserve liquidity which changes the overnight rate. The process of credit creation is a bit weird but the TLDR here is that when banks create credit they need access to overnight markets to settle accounts so a higher overnight rate will increase the rates they charge for credit.