Main characteristics inherent in the money supply

Definition 1

The money supply is the amount of money that is available to economic entities countries.

The money supply includes:

• cash (banknotes, banknotes);
• non-cash payments (money in bank accounts).

Cash circulation is possible thanks to the presence of special banknotes. On the territory of the Russian Federation there are such forms of banknotes as banknotes and metal coins. The Central Bank is responsible for issuing banknotes and coins. Russian Federation.

Non-cash money circulation is the movement of money between accounts without the participation of cash. Non-cash payments are made through checks, credit cards, etc.

The constituent elements of the money supply are its aggregates. Among the monetary units that currently operate on the territory of the Russian Federation are:

1. $M_0$, or cash in circulation. It includes cash that the Bank of Russia issued for circulation on the territory of the state. However, they do not include cash that is in the cash desks of branches of the Bank of Russia and other credit institutions.
2. $M_1$, or money. It includes cash that is in circulation, with the exception of banking system(in other words, this is an aggregate of $M_0$), as well as money that is in various types of demand accounts of residents of the Russian Federation (the population, as well as financial (except for credit) and non-financial organizations).
3. $M_2$, or money supply in national definition. It includes the monetary aggregate $M_1$, and, consequently, the aggregate $M_0$, as well as funds that were raised through time deposits from residents of the Russian Federation.
4. $M_2X$ or money supply according to the monetary survey methodology. Includes $M_2$ aggregate and foreign currency deposits.

Calculation of the velocity of money supply

Definition 2

The velocity of money is the movement of money, both cash and non-cash, in the process of performing its functions.

The speed of circulation depends on two indicators: the number of turnovers of the money supply; duration of money supply turnover.

The number of turnovers of the money supply is a value that shows how many times the same monetary unit is used in the domestic market over a certain time interval (often a year). This indicator can be calculated using the formula:

• where GDP is gross domestic product, rub.;
• $M$ – money supply in circulation, rub.

The duration of circulation of the money supply is an indicator that demonstrates after what period of time the same monetary unit will be used for the second time. reporting period. The formula is written as follows:

• where D is the number of days in the reporting period;
• $V$ is the number of money supply turnovers during the reporting period.

Let's look at the use of these two indicators using an example.

Example 1

According to statistics, the GDP of the state of A. in 2015 amounted to 3590 million den. units, in 2016 – 3870 million den. units It is also known that the volume of money supply in circulation is, respectively, 910 and 955 million den. units Calculate the amount and duration of circulation of the money supply in state A.

It is known that the speed of money turnover is influenced by the number of turnovers of the money supply and the duration of the turnover of the money supply.

The number of turnovers of the money supply is calculated by the formula:

We substitute the data from the condition into the formula and get:

$V2015=3590/910=$3.95

$V2016=3870/955=$4.05

Taking into account these data, as well as the fact that the reporting period is 1 year, i.e. 365 calendar days in 2015 and 366 days in 2016 (since it is a leap year), we can calculate the duration of the turnover:

Substituting the necessary values ​​we get:

$t2015=365/3.95≈92$

$t2016=366/4.05≈90$

Leap years are often not used. Instead, the standard number of calendar days is taken - 365. Also, depending on the situation, a certain period of the reporting period can be set, for example, a quarter - 90 days, etc.

Velocity of money represents the speed of turnover Money when servicing transactions, which is characterized by the number of repetitions of the same monetary unit of functions and for a specific time interval.

Velocity of money increases when people do not want to keep money and strive to spend it faster (this happens during periods), and conversely, a decrease in speed occurs when people try to spend less and accumulate more (period).

Figuratively, the essence of the economic category under consideration can be understood by imagining the simplest economic system. For example, there is a small economy whose total money supply is $100. The only economic agents are the oilman and the car manufacturer, who interact with each other, making only three transactions per year: the Oilman buys a car from the Automaker for $100, and the Automaker pays the oilman $60 for gasoline and $40 for diesel fuel. The total amount of transactions in this case is $200 with a money supply of $100. This situation turned out to be possible, because every $ was spent on average 2 times per year, i.e. the velocity of money is equivalent to 2.

In practice, calculating this indicator is not so easy, because it is difficult to quantify, therefore, in the calculations, indirect data are used: money turnover in the income circuit and money turnover in the payment turnover, the calculation formulas for which are given below.

What determines the velocity of money circulation?

Many factors can influence this indicator; in general, they are divided into two groups.

1. General economic factors

• Cyclicity in development economic system . Economic downturns and financial collapses are usually accompanied by a decrease in the speed of the money cycle, and economic recovery is usually accompanied by an acceleration of their turnover.
• Change in general price level. The depreciation of banknotes increases the willingness to buy “just in case”, consumers increase purchases to protect themselves from deterioration purchasing power monetary resources. With a strong depreciation, a flight from money to goods begins (i.e. trade), which consequently accelerates money turnover.

2. Monetary factors

• Changes in the structure of money circulation. The expansion of the non-cash sphere of money circulation reduces the time for making payments and thus speeds up their turnover.
• Regulatory norms interest rates on money market . Increasing rates, on the one hand, stimulates accumulation, and on the other hand, reduces the possibility of receiving

To calculate the velocity of money circulation, two indicators are used:

The speed of movement of money in the circulation of the value of a social product or the circulation of income:

O = GDP or (ND) / Money supply (M 2 ).

This indicator characterizes the connection between money circulation and economic development processes.

Money turnover in payment circulation:

Amount of money in bank accounts / Average annual money supply in circulation

This indicator characterizes the speed of non-cash payments.

The speed of money circulation is affected by:

general economic factors:

cyclical development of production;

its growth rate;

price movement.

monetary (monetary) factors:

structure of payment turnover (ratio of cash and non-cash money);

development credit operations and mutual settlements;

the level of interest rates for loans on the money market;

introduction of computers for operations in credit institutions;

usage electronic money in calculations.

In addition, the speed varies depending on the frequency of income payments, the uniformity of the population’s spending of their funds, the level of savings and accumulation.

Because the velocity of circulation of money is inversely proportional to the amount of money in circulation, then acceleration of their turnover means an increase in the money supply . An increase in the money supply with the same volume of goods and services on the market leads to the depreciation of money, i.e. ultimately is one of the factors in the inflationary process.

Issue of cash and non-cash money.

The concepts of “issue of money” and “issue of money” are not equivalent.

Under issuing money understand constant flow of money into circulation .

The release of money into circulation occurs constantly.

Non-cash money are issued into circulation , When commercial banks provide loans to their clients.

Cash are issued into circulation , when banks, in the process of carrying out cash transactions, issue them to customers from their operating cash desks.

But issue of money maybe into circulation does not mean more money V turnover , since simultaneously with the issue of money, bank clients repay bank loans and hand over cash to the banks' operating cash desks. At the same time, the amount of money in circulation may not increase.

Under emissions is understood as the release of money into circulation, which leads to to a general increase in the money supply , in circulation.

There is an issue of cash and non-cash money.

In the USSR, both issues were carried out by the State Bank.

In a market economy the emission function is divided:

- issue of non-cash money produced by the commercial banking system;

- cash issue - state central bank.

Issue of non-cash money is primary , since before cash appears in circulation, it must be reflected in the form of entries in the deposit accounts of commercial banks.

The purpose of issuing non-cash money into circulation - to satisfy additional need enterprises V working capital , this goal is achieved by provision to enterprises by commercial banks loans .

However, banks can issue loans only within the limits of the resources they have (the bank's own capital and attracted capital - funds in customer deposit accounts). This can satisfy only the usual need of enterprises for working capital, and not additional.

And with the growth of production and trade turnover, and with the rise in prices for goods, there constantly arises additional need for money .

A special mechanism for issuing non-cash money.

In conditions administrative and economic system this need was satisfied issue of non-cash money based credit plans , by expanding the loans provided in accordance with them.

In conditions market economy valid different mechanism.

The velocity of money is represented by the average frequency of use monetary unit for the acquisition of new goods and services in a specific period of time. In many ways, this indicator depends on economic activity at the current money supply. When determining a specific time period, the velocity of money circulation is represented as a number.

It is quite easy to imagine the calculation of this indicator on specific example. For example, let’s imagine a private economy with a money supply of 500 rubles and two business entities: a farmer and a mechanic, who carry out several transactions with each other per year. So, a farmer pays a mechanic to repair a tractor. The mechanic buys grain for 400 rubles, and also pays the farmer 100 rubles for inspecting and feeding his pets. Thus, the total value of all transactions is 1000 rubles, and each ruble was used twice in a year. That is why the velocity of money circulation is two per year.

The circulation of money is represented by its manifestation in its movement. It also covers the process of exchange and distribution. The volume and structure of turnover are influenced by production and consumption.

Yes, long lasting manufacturing process, which requires an increase inventories, significantly increases the turnover of money associated with such an acquisition. And the production of products with high labor intensity increases wages and, as a consequence, increases the monetary income of the population, which are subsequently directed towards consumption.

One of the components of the indicator under consideration is payment turnover, in which money can be used as a means of payment to repay emerging obligations. This turnover can be carried out both in cash and non-cash forms.

Summarizing what has been said, we conclude that money must be in constant movement between the following main subjects of the economy: government agencies, legal and individuals. It is their movement in various forms (cash and non-cash) that determines the speed of circulation of money.

State bodies mean both regulatory, fiscal authorities, and National Bank. As legal entities Commercial banks can participate in money circulation.

The issued mass of money in circulation forms an issue, which can be primary, carried out by the central bank, and secondary (issue of deposit money of commercial banks).

Another way to replenish the money supply in circulation is the fiscal debt tracking system, which is based only on the placement of government debt on the market valuable papers.

Through the sale of such securities, the state borrows funds from entities financial system and formalizes them as government debt countries. By purchasing government obligations, central bank directly increases the circulation of the money supply and forms the basis for the subsequent issue of depository banks.

As indicated, issuers of the money supply can also be commercial banks, which form deposits by providing loans to citizens or business entities. When a loan is granted, it increases, when the loan is repaid, it decreases. The occurrence of such an effect can be a success when purchasing commercial bank on stock market government securities (only in this case government obligations can turn into But an additional issue can take place when the bank purchases foreign currency.

One of the main guidelines of monetary policy is the money supply. It is this parameter of monetary circulation that influences the economic growth, price dynamics, employment, uninterrupted functioning of the payment and settlement system.

The money supply is the total volume of cash and non-cash money. The composition of the money supply distinguishes between active and passive money. Active money serves cash and non-cash payments, passive money serves savings, reserves and account balances. Passive money can potentially be used for settlements. There are so-called quasi-money, which includes funds on time and savings deposits in commercial banks and special credit institutions. They are a semblance of money, since they cannot be directly used as a means of purchase and payment. In countries with developed market economies, quasi-money is the main and most active component of monetary aggregates.

The structure of the money supply in circulation is the ratio of cash and non-cash money, as well as the ratio of banknotes of different denominations in the total money turnover.

To measure the amount of money, special indicators are used - monetary aggregates, which are approved by law.

A monetary aggregate is a specific grouping of liquid assets that serve as measures of the money supply.

IN different countries Various monetary aggregates are used, from the narrowest (“money base”) in Switzerland to the broad liquidity measure in the UK and “total credit” in Italy. Taking into account the experience of foreign countries, the Central Bank of the Russian Federation carries out calculations of the following monetary aggregates:

M0 – cash in circulation;

M1 = M0 + funds in settlement, current and special accounts of legal entities, funds of insurance companies, demand deposits of the population in banks;

M2 = M1 + time deposits of the population in Sberbank;

M3 = M2 + certificates and government bonds.

Equilibrium occurs when M 2 >M 1, strengthens when M 2 +M 3 >M 1.

The composition of monetary aggregates varies from country to country. Thus, in France there are 2 monetary aggregates, in the USA - 4, in Japan and Germany 3, and in England there are five monetary aggregates.

Currently, the monetary base indicator is used to characterize the money supply. It includes the M0 aggregate + cash in the cash desks of commercial banks, required reserves of banks in the Bank of Russia and funds in correspondent accounts of commercial banks in the Bank of Russia, thus, the monetary base is essentially equal to the M2 aggregate.

The money supply depends on two factors: the amount of money and the speed of its turnover

The circulation of money does not occur spontaneously - it is subject to certain laws. Their knowledge allows you to react more quickly to other changes, make appropriate corrective decisions and influence economic development in the most favorable way. These rules of circulation are called the laws of money circulation.

Law of money circulation

The basic law of monetary circulation, the formula of which was presented by K. Marx, connects prices, velocity of circulation and quantity of money:

However, it must be remembered that this formula is more valid for gold circulation. The fact is that when gold circulates as money, due to limited gold reserves, the relationship between the amount of gold (coins) and goods is established spontaneously, but relatively accurately: excess money is withdrawn from circulation and goes into the sphere of accumulation (treasures), and if there is a shortage the withdrawn part of the coins is returned to circulation.

When credit money appears, as mentioned above, a practically unsecured emission occurs, i.e. the amount of money can be arbitrarily large. In this case, inflation is inevitable, i.e. depreciation of money due to its increased quantity. In this case, it is necessary to track that part of monetary obligations that can be mutually repaid without additional issue. The above equation becomes:

where CD is the amount of money needed as means of circulation and payment;

SP – the sum of prices of goods sold;

K – the amount of goods and services sold on credit, the payment terms for which have not yet arrived;

P – amount of payments on debt obligations;

VP – the amount of mutually canceling payments;

O is the average number of turnovers of money as a means of payment and medium of exchange.

Irreplaceable credit money, acquiring the features of paper money, is introduced by the state authorities, which endows them with a forced exchange rate. Their issue without taking into account the cost of goods produced and services provided 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 becomes of great importance. According to the classical theory of A. Marshall and I. Fisher, the amount of money is determined by the dependence of the price level on the money supply:

,

where M is the mass of money;

P – price of the product;

Y – velocity of money circulation;

Q – the number of goods presented on the market.

The velocity of circulation of money is an indicator of the intensification of the movement of money when functioning as a means of circulation and a means of payment and represents the number of turnovers of the money supply per year, where each turnover serves the expenditure of income.

This indicator is difficult to quantify, so indirect data is used to calculate it.

In most foreign countries, two indicators are usually calculated:

an indicator of speed in the circulation of income: it is calculated as the ratio of gross national product (GNP) or national income to aggregates M1 or M2. the dynamics of the calculated value shows the relationship between money circulation and economic development processes;

the money turnover indicator in payment circulation is defined as the ratio of the amount of money in bank accounts to the average annual value of the money supply in circulation. This indicator determines the speed of non-cash payments.