money supply and monetary base. One of the main quantitative indicators monetary circulation is money supply- a set of purchasing, payment and accumulated funds serving various communications and belonging to individuals and legal entities and the state.
With the development of forms of commodity exchange and payment and settlement relations, the composition and structure of the money supply underwent significant changes. At the beginning of the XX century. under gold circulation, the structure in developed countries was as follows: gold coins accounted for 40%, banknotes and other credit money - 50% and account balances in credit institutions- 10% on the eve of the First World War - respectively 15.22 and 63%;
The departure of gold money, first from internal and then from external circulation, had a serious impact on the structure of the money supply. Real money (gold) completely disappeared from circulation, fiat credit money (primarily banknotes), acting in cash and non-cash forms.
In economically developed countries, and later in our country in financial statistics to analyze changes in the money supply on a certain date and for certain period began to be used monetary aggregates:
To determine the money supply of the country, a different number of aggregates is used (the United States - four, France - two). In Russia, three aggregates are used to calculate the total money supply - m about , M 1 , M 2 .
Currently, to characterize the money supply, the indicator is used monetary base. It includes the unit m about plus cash on hand at commercial banks, banks' required reserves with the Bank of Russia, and funds on correspondent accounts of commercial banks with the Bank of Russia, so that the monetary base essentially equates to the aggregate M 2 .
The money supply depends on two factors; 1) the amount of money and 2) the speed of their turnover.
The law of money circulation. The amount of money necessary to fulfill their functions is established by the economic law of money circulation, discovered by K. Marx.
Law of currency determines: the amount of money for circulation is directly proportional to the quantity of goods and services sold on the market (direct relationship), as well as the level of prices of goods and tariffs (direct relationship) and inversely proportional to the velocity of money circulation (reverse relationship).
All factors are determined by the conditions of production. The more developed the social division of labor, the greater the volume of goods and services sold on the market; the higher the level of labor productivity, the lower the cost of goods and services, as well as prices.
With the advent and development of credit relations, the function of money as a means of payment arises, goods are sold on credit under debentures. Credit leads to a reduction in the total amount of money in circulation, since a certain part of the debt obligations is mutually repaid.
The law that determines the amount of money in circulation with a means of two functions - a means of circulation and a means of payment, is somewhat modified and takes the following form:
During the functioning of real money (gold), their quantity was maintained at the required level spontaneously, since the treasure function acted as a regulator. The ratio between the mass of goods and the mass of money was maintained relatively accurate. This ensured the stability of monetary circulation.
In the absence of the gold standard, the law of paper money circulation began to operate, according to which the number of signs of value was equated to the estimated amount of gold money required for circulation. In this situation, the stability of money was shaken, depreciation became possible.
Now, in the conditions of the demonetization of gold, i.e. their loss monetary functions, the law of monetary circulation has undergone a modification. Now it is no longer possible to estimate the amount of money from the point of view of even an approximate calculation of them through gold. It has gone out of circulation and does not function not only as a means of circulation and means of payment, but also as a measure of value.
A measure of the value of goods and services became money capital, which measures the value not in the market during the exchange (as it was before), but in the process of production - of goods to goods. Any commodity, being exchanged for fiat credit money, expresses its value by equating it to a multitude of commodities. Concerning commodity deal, estimated at certain amount fiat credit money, must provide the entrepreneur with such an amount of use value that, after the use value has been realized, he will be able to start a new production cycle. Because of this, money acquires the ability of a universal equivalent. Although there is no spontaneous regulator of the total amount of money under the dominance of signs of value, this role of regulating money circulation passes to the state.
Fiat credit money, acquiring traits paper money, are introduced by the state power, which endows them with a coercive course. Their emission without taking into account the value of goods produced and services rendered in the country will inevitably cause their surplus and ultimately lead to depreciation.
In this regard, the question of the need to determine the required amount of money for circulation is of great importance. According to the classical theory A. Marshall and I. Fisher, the amount of money is determined by the dependence of the price level on the money supply:
From the formula, the amount of money needed to circulate a certain mass of goods is:
and the price of the goods
The price level changes in proportion to the change in the amount of money in circulation.
In Russia, the main reason for the increase in the money supply is a huge deficit federal budget, which for 2000 is provided in the amount of 57.87 billion rubles, or 1.08% of GDP. During the first half of the 1990s, it was repaid additional issue money in circulation, at the same time, the turnover of goods actually declined due to the reduction in production volume.
The growth of the money supply contributes money multiplier(from lat. multiplicator - multiplying), arising with the development credit system(in terms of two or more levels). Its essence is that the money supply in circulation increases as a result of expansion credit operations banks with their clients by receiving funds from the centralized reserve of the Bank of Russia, formed from mandatory deductions from banks. Theoretically, the multiplication factor is equal to the value of the reverse rate required reserves, established by the Bank Russia for the banks of the country. It is calculated for a certain period of time, usually a year, and characterizes how much the money supply in circulation will increase over this period. The Bank of Russia, managing the money multiplier, carries out monetary regulation in the country.
Money turnover rate. This is the second factor in the change in the money supply. To calculate the velocity of circulation of money, i.e. their intensive movement when they perform the functions of circulation and payment, are used two indicator.
1. The speed of movement of money in the circulation of the value of a social product or the circulation of income:
This indicator testifies to the connection of monetary circulation with the processes of economic development.
2. Turnover of money in the payment turnover:
This indicator indicates the speed of cashless payments. Other indicators of the velocity of money turnover are also used. The velocity of money is affected by:
- 1) general economic factors - cyclical development of production; its growth rate; price movement.
- 2) monetary (monetary) factors - the structure of the payment turnover (the ratio of cash and non-cash money); development of credit operations and mutual settlements; level interest rates for a loan for money market; introduction of computers for operations in credit institutions; usage electronic money in calculations
The rate varies depending on the frequency of income payments, the uniformity of spending by the population of their funds, the level of savings and accumulation.
money supply- a set of consumer, payment and accumulated funds serving economic ties and owned by individuals and legal entities, as well as the state.
The money supply is an important quantitative indicator of money and consists of two main components - active money used in cash and non-cash circulation and passive money (accumulation and savings, reserves, account balances).
The money supply is affected by two factors:
- the amount of money in circulation;
- velocity of money.
The volume of the money supply is determined by the state - the issuer of money, its legislative power. The growth of emissions is due to the needs of the commodity turnover and the state.
In Ukraine, the main reasons for the growth of the money supply are: excessive deficit state budget and a significant reduction in the rate of production and turnover.
An indicator of the mass of money in circulation ( M) has several values (monetary aggregates). The NBU defines the following aggregates:
- М0= cash in circulation;
- M1 = М0+ leftovers cash deposits on the bank accounts poste restante;
- M2 = M1+ balances of cash deposits in bank term accounts;
- M3 = M2+ funds of clients on trust operations of banks.
In addition, the NBU determines an indicator called the monetary base. It includes the unit М0, cash at the cash desks of banks and reserves of commercial banks in their accounts with the NBU. This money does not participate in credit banking turnover and does not additionally increase the amount of money in circulation, but only serves as the basis for its growth.
Each aggregate has a specific purpose in the practice of money circulation management, and together they give a complete picture of the structure and dynamics of the money supply and money circulation.
Velocity of circulation of money and its influence on the supply and stability of money
Velocity of money- represents the intensive movement of money when they perform the functions of circulation and payment.
The following methods are used to calculate this indicator:
- The speed of movement of money in the circulation of the value of a social product or the circulation of income is defined as the ratio of GNP or ND to the money supply (aggregates M1 or M2). This indicator testifies to the connection between money circulation and the processes of economic development.
- The turnover of money in the payment turnover is determined by the ratio of the amount of money in bank accounts to annual average money supply in circulation. This indicator indicates the speed of cashless payments.
In addition, general economic factors are used, i.e. cyclical development of production, its growth rate, price movements, as well as monetary (monetary) factors, i.e. the structure of payment turnover (the ratio of cash and non-cash money), the development of credit operations and mutual settlements, the level of interest rates on loans in the money market, as well as the introduction electronic systems for operations in credit institutions and the use of electronic money in settlements.
In addition, the frequency and uniformity of income payments, the level of savings and savings have a significant impact on the velocity of money circulation.
The velocity of circulation of money is inversely proportional to the amount of money in circulation, so the acceleration of their turnover means an increase in the money supply. An increased money supply with a constant volume of goods and services on the market leads to the depreciation of money, that is, in the end it is one of the factors of the inflationary process.
The law of the amount of money needed for circulation, its essence, requirements and consequences of violation of requirements
To ensure the stability of money, it is necessary to maintain proportionality between the mass of commodities and the volume of monetary services to the population, on the one hand, and the money supply in circulation, on the other. The development of credit relations and banking contributed to a decrease in the need for cash banknotes. The amount of money required for circulation is determined by the formula:
where KD- the amount of money in circulation;
DH- the sum of the prices of goods sold;
To- the sum of the prices of goods sold on credit;
P- payments for which the due date has come;
BP- mutual settlements;
O- the number of revolutions of the same name monetary unit;
DR- monetary reserve for the sphere of circulation.
The excess of the number of monetary units in circulation over the sum of commodity prices (and as a result, the appearance of monetary units that do not have commodity coverage) leads to inflation.
The problem of monetization of the gross domestic product
Performing the functions of a means of circulation and payment, money is constantly moving from one economic entity to another, thereby serving the sale and purchase of goods and services, that is, the implementation of GDP.
The process of movement of money that serves the implementation of GDP is called money circulation.
There is an internal connection between the process of realizing GDP and money circulation: the larger the nominal volume of realizing GDP, the greater will be the flow of money circulation, and vice versa.
Nominal GDP is determined by two factors: the physical volume of goods and services sold ( Q) and their price level ( P). And the amount of money is determined by the amount of money in circulation ( M), and the velocity of circulation of the monetary unit ( V).
The above quantities are taken into account in the exchange equation:
On its basis, it is possible to determine the patterns of change in the main market processes and indicators, in particular: the level of commodity prices, the velocity of money circulation, the mass of money in circulation.
The level of commodity prices is determined by the equation:
Velocity of money:
The amount of money in circulation is characterized by the equation:
This equation is often called the law of money circulation.
The issue of filling the economy with money is extremely important for Ukraine. It is believed that the low (compared to other states) degree of monetization is almost main reason rising debt and numerous other problems.
The degree (level) of monetization of the economy is calculated as the quotient of dividing the money in circulation by the volume of GDP. Both indicators are used in physical terms.
The growth of the money supply has its source in the growth of GDP. Growing monetization means that a larger and larger share of GDP remains in monetary form and vice versa.
Thus, an increase in the degree of monetization indicates an increase in the mobility of the economy, an increase in the potential flexibility of the behavior of economic entities.
The article presents the dynamics and structure of the money supply from 1993 to 2015. The indicators of money circulation in the Russian Federation from 2005 to 2015 are also presented. and an analysis of the relationship between the velocity of circulation of the money supply and various economic indicators was carried out.
The money supply is one of the main elements of any monetary system, so we considered it relevant to conduct statistical analysis money circulation in the Russian Federation.
Consider the aggregated indicators of the structure of the money supply in the Russian Federation for 1993-2015, which are the main macroeconomic indicators, using the data in Table 1 as an example.
Table 1. Money supply and money supply structure in the Russian Federation for the period from 1993 to 2015
|
Monetary aggregate М0 |
Monetary aggregate M1 |
Monetary aggregate M2 |
Money supply in the national definition |
|
Per last years characteristics of the money supply have undergone significant changes. As can be seen from Table 1, the M0 monetary aggregate, which is cash in circulation, increased rapidly from 1993 to 2015, which meant an increase in the amount of money issued by the Central Bank of the Russian Federation.
How to determine the velocity of money
However, in the period from 2008 to 2009 and from 2014 to 2015, a slight decline was revealed this indicator by 5.1% and 1.9%, respectively.
Indicator M1 (aggregate M0 + funds of enterprises in banks, etc.) and M2 (aggregate M1 + deposits of the population in banks) tended to increase during the years under consideration, but from 2010 to 2011 decreased by 16.8 % and by 42.2%.
As for the money supply in the national definition, it, equivalent to M1 and M2, decreased by 31.3% in the period from 2010 to 2011, then the situation stabilized.
A sharp jump and fall in all indicators is associated not only with a decrease in the volume of cash in circulation, but also with a decrease in the volume of deposits of the population, enterprises and organizations in settlement accounts in banks. It should be noted that non-cash prevail among non-cash and cash money.
Considering the dynamics of monetary circulation, it would be appropriate to analyze the relationship between the velocity of circulation of the money supply and various economic indicators.
Table 2. Indicators of money circulation in the Russian Federation from 2005 to 2015
|
Monetary aggregate M2 |
Cash in circulation |
Velocity of money supply |
The rate of growth of the velocity of money |
||
Table 2 shows that over the period under review, the characteristic of the velocity of circulation of the money supply tended to a significant decline. Between 2005 and 2010 and from 2011 to 2015 it decreased by 63.5% and 69.6%, respectively. With regard to the growth rate of the velocity of money, from 2005 to 2009. the figures were intermittent, but since 2010 there has been a significant drop of 62.6%. Consequently, the dynamics of these indicators indicates a decrease in the turnover of monetary aggregates, i.e., a decrease in their liquidity.
A slight decrease in cash in circulation in the structure of the money supply indicates a slight decrease in inflationary pressure from aggregate demand. It can also be concluded that non-cash funds will exceed cash by 10-15%. Such an irrational ratio of these two areas negatively affects money circulation in general, because most of the cash does not participate in banking, in contrast to non-cash funds. This phenomenon undermines the stability banking system, therefore, there is a reduction in cash in the credit sector.
The money supply is understood as the totality of generally accepted means of payment in the economy, the amount of cash and non-cash Money.
To measure the money supply, monetary aggregates are used: MO, Ml, M2, MZ. Monetary Aggregates are classified depending on the degree of liquidity of monetary assets.
A liquid asset is an asset that can be used as a means of payment or turned into a means of payment and has a fixed face value. The composition and number of monetary aggregates used vary by country.
To calculate the total money supply in the Russian Federation, the following monetary aggregates are provided:
- MO - cash;
- Ml is equal to the MO aggregate plus settlement, current and other accounts, deposits in commercial banks, demand deposits; the indicator Ml is intended to measure the volume of actual means of circulation, therefore it refers to the money supply in the narrow sense of the word;
- M2 - consists of Ml plus term deposits. Using the indicator M2, they try to measure the stock of highly liquid property owned by the population and which, under certain conditions, can turn into money. Therefore, M2 is the money supply in the broadest sense;
- MOH includes M2 plus certificates of deposit and government bonds.
The velocity of money is the average annual number of revolutions made by money that is in circulation and used to buy money. finished goods and services.
What formula is used to calculate the velocity of circulation of money, its concept and essence
The velocity of circulation of money is equal to the ratio of the nominal gross national product to the mass of money in circulation:
where V is the velocity of money circulation;
U- nominal volume of GNP;
M is the amount of money in circulation.
The velocity of circulation of money in the short run is usually a constant value, and in the long run it changes, but only slightly. This speed is quite manageable and depends on the work of the country's banking system and on the level of technical equipment of institutions that participate in monetary transactions.
The higher the technical equipment of banks, the more widely they use modern computers and satellite communication lines, the faster the money turns around and the less money is needed for the normal functioning of the economy.
The money supply required for exchange and payment transactions depends on the demand for money and on the supply of money by the banking sector.
"Money Supply. Velocity of Money" and other materials on the topic "Macroeconomics"
1. Velocity of circulation of the average annual money supply. Calculated as GDP ratio(ND) to the money supply (M2). Reveals the relationship between money circulation and macroeconomic processes. The velocity of circulation of the money supply usually decreases in conditions of macroeconomic stability and increases in times of crisis.
2. Indicator of money turnover in the payment turnover. The ratio of the amount of funds transferred on bank current accounts to the average annual value of the money supply (M2).
3. The speed of the return of money to the cash desks of the institutions of the Central Bank. The ratio of the amount of money received at the bank's cash desks to the average annual supply of money in circulation.
4. Velocity of circulation of money in cash circulation. Dividing the amount of receipts and withdrawals of cash, including the turnover of mail and institutions of the Savings Bank of Russia, by the average annual money supply (M2).
CONCLUSION:the supply of money is not an artificial, not a voluntaristic category; money supply is closely related to achieved level economy, the volume of GDP, with the possibility of its growth. The formation of the money supply is an important area of the monetary policy of the Central Bank.
BASIC TERMS AND CONCEPTS
Non-cash money turnover - part cash flow, in which the movement of money is carried out in the form of transfers to the accounts of credit institutions and offsets of mutual claims.
Cashless circulation- the movement of value without the participation of cash, which is carried out with the help of checks, bills of exchange, credit cards.
money supply - a set of purchasing, payment and accumulated funds serving economic relations and owned by individuals and legal entities.
Money turnover - the totality of all payments in cash and non-cash forms for a certain period of time.
Money turnover - the movement of money in cash and non-cash forms in the performance of their functions.
Monetization coefficient - the reciprocal of the velocity of circulation of money.
Cash ratio - the share of cash in the total money supply is calculated as the ratio of cash money supply (M0) to monetary aggregates M1, M2, M3.
Cash turnover includes all cash payments for a certain period of time (month, quarter, year).
Cash circulation- movement of money cash when they perform two functions: means of circulation and means of payment.
Payment turnover represents a set of non-cash payments and a part of cash related to wages.
Velocity of money circulation the number of transactions that each monetary unit serves during the year.
SELF-CHECK QUESTIONS
1. What is the monetary base?
2. Explain the difference between narrow and broad monetary base?
3. Define the money supply.
4. What is a money multiplier?
5. What is a credit multiplier?
6. What underlies monetary aggregates?
7. Describe the structure of monetary aggregates.
8. What is the difference between cash and non-cash money circulation?
9. What is money circulation?
10. What payments are made in cash?
11. What are the reasons for the growth of cash circulation.
12. What is the essence of the law of money circulation?
13. Describe the indicators of the velocity of money.
TASKS FOR INDEPENDENT WORK
A task
Based on the data in the table, calculate the monetary aggregates: M0, M1, M2, M2X, the monetary base in a narrow and broad definition.
Billion rub.
A task
Gross domestic product(GDP) of the country for 2007 is 28,800 billion rubles, the M2 monetary aggregate as of 01.01.2007 - 9,000 billion rubles, as of 01.01.2008 - 13,300 billion rubles. Calculate the monetization ratio.
Topic 1.3. Monetary system and types monetary reforms
The concept and elements of the monetary system
Types of monetary systems
Monetary system of the Russian Federation
Inflation. Types of monetary reforms. Features of the inflationary process in Russia
After studying this topic, you will be able to:
- Define the monetary system and list its main elements;
- Understand the essence of the main types of monetary systems;
- Describe the monetary system Russian Federation and the role of the Bank of Russia in it;
- Understand the essence of modern inflation and its main types.
1. The concept and elements of the monetary system. monetary system is the system of circulation of money in the country, which has developed historically and is enshrined in law
The monetary system includes the following main elements :
1. Monetary unit(unit of account) used to measure the prices of goods. The monetary unit is the one established in legislative order banknote, which serves to measure the expression of the prices of all goods and services.
2. Price scale. With the cessation of the exchange of credit money for gold, the official price scale lost its economic meaning.
3. Emission system - legally established procedure for issuing money into circulation of banknotes. The emission system includes an emission center and emission legislation. The regulation of the monetary system is carried out by issuing banks, which bring its various elements into conformity.
4.The structure of the money supply in circulation represents the ratio of cash and non-cash money, as well as the ratio of banknotes of different denominations in the total turnover.
5. The order of predictive planning includes a system of money circulation plans, the bodies that make up these plans, and the tasks solved by the plans.
6.Monetary regulation mechanism is a set of instruments of state influence on the economy as a whole.
7. The procedure for establishing the exchange rate or currency quotes, that is, the ratio of the country's currency to foreign currencies.
8. The order of cash discipline in the economy reflects a set of rules, forms, cash and reporting documents that guide legal entities and the population in the organization of cash circulation.
Types of monetary systems.
There are systems of circulation of metallic and non-metallic money. In the first case, metal money performs all the functions of money, and credit money (banknotes) is exchanged for gold. In the second case, non-metallic money that cannot be exchanged for gold circulates. There are 2 types of metallic money circulation systems; bimetallism and monometallism. Under bimetallism is understood as a monetary system in which the role of the universal equivalent is legally assigned to two metals, usually silver and gold. Free minting of coins from these metals is provided, as well as their circulation on an equal footing. Under monometallism is understood as a monetary system in which the role of the universal equivalent is legally assigned to one metal (copper, silver, gold).
Varieties of bimetallism:
- Parallel currency system , when the ratio between silver and gold coins was established spontaneously in accordance with market price metal;
- Dual currency system when the ratio between gold and silver coins is established by the state;
3.The lame currency system when gold and silver coins were legal tender, but not on an equal footing. Provision was made for the free minting of gold and closed silver coins. Silver coins acted as signs of gold.
Bimetallism has existed for a long time, although the use of two metals as money is contrary to the nature of the universal value equivalent. Legislative assignment of the role of money to two metals came into conflict with the nature of money as the only product designed to perform the function of a universal equivalent.
Varieties of gold monometallism:
1. Gold coin standard. Circulation of gold coins and paper money freely exchangeable for gold. There was free competition under capitalism. Similar monetary systems stable and elastic. The gold coinage standard is characterized by the free minting of gold coins; free exchange of signs of value for gold; free movement of gold between countries. The exchange of banknotes for gold was suspended only during wars.
2. Gold bullion standard. Paper banknotes were exchanged for gold bars (Great Britain, France, Japan). There was no free minting of gold coins. The exchange of money for gold was limited by the value of bullion.
3. Gold-motto standard. Currencies were exchanged for mottoes in currencies convertible to gold. Mottos - means of payment in foreign currency. The connection with gold is becoming more and more indirect.
The concept of "money turnover"
With the development of society, the geographical division of labor and trade, the emergence of money as a means of exchange and payment also became natural. In natural economy, the role of money was played by coins made of precious metals. The value of money was determined by the amount of this metal in the coin (its size and weight). In the market there was a primitive exchange of goods for a certain number of coins (a certain amount or weight of the precious metal).
But with the development of capitalist relations and the formation of a market, metal money was replaced by paper money, and recently electronic money has also appeared.
For any state, the need for a clear monetary policy has become obvious. An important guideline of this policy is the money supply. It is she who affects the growth of the economy, employment, price dynamics in the market, the stable functioning of the payment system.
Definition 1
money supply - this is the total amount of cash and non-cash turnover.
In this set of money supply, scientists distinguish between active and passive money, quasi-money. Active money includes funds that take part in cash and non-cash payments. And passive money includes money that serves various kinds of savings, reserves and account balances. This money can be used to make payments. Quasi-money includes the money of fixed-term and savings deposits held in commercial banks and various credit institutions. They cannot be used directly as a means of payment.
The money supply depends on the amount of money and the speed of their turnover. Money is issued by the state in a strictly defined amount. If you print more of them, then this threatens to depreciate money - inflation. There is a constant movement of money between authorities, business entities and individuals.
The movement of money in the performance of their functions in cash and non-cash forms is called money circulation. This process is objective and subject to economic laws. These laws are called the laws of money circulation.
Cash turnover rate
Definition 2
Money turnover rate - this is the average number of turnovers per year of each monetary unit.
This process is important indicator the degree of intensity of the movement of money as a means of circulation and payment. In modern economics there is a formula that reflects the speed of money turnover (Y) through taking into account the mass of money (M), the price of goods (P), the number of goods on the market (Q).
it classic formula Mashalla-Fischer. It follows from this that an increase in the rate of circulation of funds can be equated with a reduction in the money supply, which means strengthening the economy and reducing the risk of inflation.
Factors affecting the rate of money turnover
The rate of cash turnover is influenced by the degree of development of the credit system and non-cash payments, the improvement of non-cash payments, the volume economic activity for a given money supply. In addition, the rate of money circulation is influenced by state intervention in the regulation credit and financial system and the process of reproduction of capital.
Commercial Bank loan and the expansion of the network of commercial banks are also capable of accelerating the process of money circulation. The money supply in circulation maintains the balance in the economy, the balance of supply and demand. An increase in the velocity of money circulation is an important condition for limiting the money supply.
