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 turnover:

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 of credit operations and mutual settlements;

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

introduction of computers for operations in credit institutions;

use of electronic money in payments.

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 customers.

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 in 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 intensive circulation of money in the country is due to the abundance of purchase and sale transactions. Velocity of money circulation- an indicator of the average annual amount of cash turnover due to the use of funds for the purchase of services and finished goods.

Velocity of Money: Calculation

Velocity of money circulation(V) is calculated as the ratio of annual GDP (Y) to the average annual supply of money (M): V=Y/M.

In the short term, the speed indicator is constant; in the long term, it is a variable value that can be adjusted. The speed of money circulation is affected by:

• banking infrastructure of the country;
• technical equipment of institutions participating in monetary schemes;
• economic activity.

The more advanced the satellite, computer communications, and technical equipment of banking structures, the more intensively the money is circulated and the less of it is required for the stable functioning of the economy.

The money supply required for payment transactions depends on the demand for money and supply by banks.

Money turnover: change in the velocity of money circulation

Change in velocity of money is caused by an increase or decrease in production volumes - when production increases, the speed increases, when production decreases, it slows down. Indirectly, the circulation of money depends on the phases of the economic cycle. Thus, during a crisis, the turnover of the money supply decreases.

Subject to price stability in the country, the following can be observed:

• a slowdown in cash flows is a sign of a decline in GNP;
• acceleration of money turnover is a criterion for increasing GNP.

As inflation accelerates, money turnover increases equally.

A significant change in the indicator of intensification of the movement of money supply can be caused by a qualitative transformation of the money circulation system.

Velocity of money circulation: factors of movement

To calculate the turnover of money in the economy, an indicator is used that determines velocity of money circulation. Factors, affecting the speed coefficient:

1. General economic. Conditions: cyclical development of the economy, price movements.
2. Monetary:

• changing the structure of the payment circuit;
• development of credit transactions;
• intensity of mutual settlements;
• level of interest rates;
• rate of development of production volumes;
• economic situation in the Russian Federation.

The development of payment and settlement systems accelerates the circulation of money. The money supply intensification indicator reflects the level of inflation.

With economic growth, money turnover will decrease.

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

Different countries use different monetary aggregates, 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.

Velocity of money circulation represents the speed of cash turnover 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 circulation 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

• Cyclicality in the development of the 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 their purchases to protect themselves from the deterioration in the purchasing power of 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.
• Regulation of interest rates in the money market. Increasing rates, on the one hand, stimulates accumulation, and on the other hand, reduces the possibility of receiving