In a market economy, various groupings of money are used. They are called monetary aggregates and serve as alternative measures of the money supply in circulation.
In developed countries, a different number of monetary aggregates is used to determine the money supply (in England and France - two, Japan and Germany - three, the USA - four).
To calculate the total money supply in Russia, the following monetary aggregates are provided:
The accelerated growth of the money supply, both in cash and in non-cash form, has a downward effect on national currency rate.
In a market economy, along with markets for consumer goods, capital and labor, there is a money market.
Money market(money market) - a market in which the demand for and supply of money determine the interest rate (or level of interest rates) paid by banks.
The considered functions of money largely determine the demand for them on the part of economic agents. The demand for real money arises in connection with their performance of the functions of a means of circulation of goods and the preservation (saving) of their value. It consists of the following elements:
General demand for money is the total amount of money people want to have in transactions and as assets at every possible interest rate.
A change in nominal GDP causes a change in the overall demand for money: an increase in nominal GDP means people will want more money to trade, while a fall in nominal GDP means a decrease in the overall demand for money.
On the whole, it can be said that the demand for money is a mirror in which, in one way or another, all or almost all processes occurring in a market economy are reflected.
To summarize, we note that the demand for money (M) depends on prices (RU GDP (U) and money turnover (V). This can be expressed in this way:
The simplest mathematical form of the relationship of the presented quantities is the expression: MU = RU.
IN economic theory this expression is called the basic equation of the quantity theory of money.
The stability of modern money is determined not by the gold reserves, but by the amount of paper money needed for circulation.
Most Western economists use the mathematical formula proposed by the American economist I. Fisher (which is known as the "equation of exchange"), which shows the dependence of the price level on the money supply:
where M - money supply;
V- speed of circulation of money;
R- the level of commodity prices;
ABOUT- the number of circulating goods. In accordance with this formula, the amount of money supply can be determined by the formula
So, the money supply indicator is determined by dividing the volume of GDP by the velocity of money.
The reverse indicator, i.e. the quotient of dividing the money supply by GDP is an indicator of the level of monetization of the economy. If it is small, then the economy suffers from a lack of money and they should be added. This addition does not lead to inflation.
The high degree of conventionality in the calculation of the velocity of money and the reciprocal of the level of monetization leaves a lot of room for political debate about what kind of monetary policy should be pursued. In addition, the conduct of monetary policy in terms of meeting demand is highly dependent on the value of the money supply. The amount of money in circulation is controlled by the state.
The most important quantitative indicator of money circulation is the money supply - the total volume of purchasing and payment means serving the economic turnover and owned by individuals, enterprises and the state. To analyze quantitative changes in money circulation on a certain date and for a certain period, as well as to develop measures to regulate growth rates and the volume of money supply, various indicators (monetary aggregates) are used.
In the financial statistics of industrialized countries, the following set of basic monetary aggregates is used to determine the money supply: M-1 - cash in circulation (banknotes, coins) and funds in current bank accounts; M-2 - aggregate M-1 plus fixed-term and savings deposits in commercial banks (up to four years); M-3 - aggregate M-2 plus savings deposits in specialized credit institutions; M-4 - aggregate M-3 plus certificates of deposit of large commercial banks.
In the United States, four monetary aggregates are used to determine the money supply, in Japan and Germany - three, in England and France - two. Analysis of the structure and dynamics of the money supply has great importance in the development of monetary policy guidelines by central banks.
To calculate the total money supply in circulation in Russia, the following monetary aggregates are provided: aggregate M-0 - cash; unit M-1 - unit M-0 plus settlement current and other accounts (settlement accounts, special accounts, capital investment accounts, letters of credit and checking accounts, local budget accounts, accounts of budgetary, trade union, public and other organizations, State insurance funds, long-term fund lending) deposits in commercial banks; demand deposits in Sberbank; unit M-2 - unit M-1 plus term deposits in Sberbank; aggregate M-3 - aggregate M-2 plus certificates of deposit and government bonds.
IN international statistics in the volume of the money supply, in addition to cash, deposit money is also taken into account. The IMF calculates a common M1 indicator for all countries and a broader “quasi-money” indicator (term and savings bank accounts and the most liquid financial instruments circulating on the market). The use of various indicators of the money supply allows a differentiated approach to the analysis of the state of money circulation. A change in the volume of money supply can be the result of both a change in the mass of money in circulation and an acceleration of their turnover.
The velocity of circulation of money is an indicator of the intensification of the movement of money when they function as a means of circulation and a means of payment. It is difficult to quantify, so indirect data are used to calculate it. In industrialized countries, two indicators of the growth rate of money turnover are mainly calculated: the rate of circulation in the circulation of income is the ratio of gross national product (GNP) or national income to the money supply, namely to the M-1 or M-2 aggregate. This indicator reveals the relationship between money circulation and economic development processes; the indicator of money turnover in the payment turnover is the ratio of the amount of funds transferred on bank current accounts to the average value of the money supply.
In the Russian Federation, in the practice of statistical work, depending on the completeness of coverage of the circulation of cash, there are: 1) the rate of return of money to the cash desks of the institutions of the Central Bank of Russia as the ratio of the amount of cash receipts to the bank cash desks to the average annual mass of money in circulation; 2) the velocity of circulation of money in cash circulation, calculated by dividing the amount of receipts and disbursements of cash, including the circulation of mail and Sberbank institutions, by the average annual supply of money in circulation. The change in the velocity of money circulation depends on many factors, both general economic (cyclical development of the economy, economic growth rates, price movements) and purely monetary (the structure of payment turnover, the development of credit operations and mutual settlements, the level of interest rates in the money market, etc. .). The acceleration of the circulation of money is facilitated by the replacement of metallic money with credit, the development of a system of mutual settlements, the introduction of computers in banking, and the use of electronic means of monetary settlements.
When money depreciates, consumers increase their purchases of goods in order to protect themselves from a fall in the purchasing power of money, which speeds up money circulation. Ceteris paribus, the acceleration of the velocity of money is equivalent to an increase in the money supply and is one of the factors of inflation.
6. Law of monetary circulation
Commodity-money relations require a certain amount of money for circulation. The law of monetary circulation, discovered by K. Marx, establishes the amount of money necessary for them to perform the functions of a means of circulation and a means of payment.
The amount of money needed to fulfill the function of money as a medium of exchange depends on three factors:
-number of goods and services sold on the market (direct connection);
- the level of prices for goods and tariffs (direct connection);
-Velocity of circulation of money (feedback 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 and prices.
The amount of money for circulation and payment is determined by the following conditions:
- the total volume of circulating goods and services (direct dependence);
- the level of commodity prices and tariffs for services (the relationship is direct, since the higher the prices, the more money is required);
- the degree of development of non-cash payments (dependence is inverse);
-velocity of circulation of money, including credit (dependence is inverse).
Thus, the law that determines the amount of money in circulation has next view:
The amount of money needed as a medium of circulation and a means of payment \u003d (The sum of prices of goods and services sold - The sum of prices of goods sold on credit, the due date for which has not come + The sum of payments on debt obligations - The sum of mutually repaying payments) / Average number of money turnovers both means of exchange and means of payment
money supply- a set of consumer, payment and accumulated funds serving economic relations and owned by individuals and legal entities as well as the state.
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:
The amount of money in circulation is characterized by the equation:
This equation is often referred to as .
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. Increasing monetization means that a larger and larger share of GDP is kept in cash 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.
Money is a means of circulation, performing the role of an intermediary in the process of exchanging goods. They have a universal use value, they are the universal embodiment of value and a clot of social labor. Being a universal commodity, they act as a category of the national economy. Money is characterized by liquidity, high ability to sell, the exchange with their help is greatly facilitated.
The basis of money circulation is commodity production, and the movement of cash, which serve the retail turnover. Money acts as a means of circulation and payment and is transferred from one entity to another as payment for goods, services, work, etc. The means of exchange are: change, paper notes (treasury bills), banknotes. The state controls the amount of money supply, preventing inflation.
To provide normal functioning financial mechanism in the country, it is necessary to maintain a sufficient amount of money supply from the subjects of monetary circulation for their exchange of goods and other financial transactions. The state should have such a volume of money supply that it allows to ensure the growth of the national product (GDP) and does not allow inflationary processes. This requires constant state regulation of the amount of money in circulation.
Velocity of money is a category representing the number of revolutions of money in circulation during the year. This is the ratio of the nominal gross national product to the amount of money in circulation. With an increase in the growth of non-cash and cash money supply, there is a fall in the exchange rate of the national currency.
In the short term, this category is a constant value, and in the long term, it may vary slightly. The speed of circulation of the money supply is under the control of the banking system of the country, it also depends on the technical support of banking institutions, the availability of computers and satellite communications.
Money takes an active part in the economic turnover of the state, their release into circulation is permanent. Non-cash money enters circulation in the form of loans that provide commercial banks to their clients. At the same time, cash comes into circulation when banks issue money from cash desks. Customers are given the opportunity to both repay bank loans and deposit cash at the cash desk.
Money circulation is a continuous process. As a means of payment, money can wear out during use. The Central Bank withdraws obsolete and worn-out coins and banknotes, introducing new ones into circulation. Usually both old and new banknotes are in circulation. Complete replacement banknotes occurs as a result of monetary reform.
The totality of all funds in the economy in cash and non-cash forms and performing the functions of a means of circulation and accumulation form the money supply.
Separate types of funds circulating in the country, in accordance with the level of liquidity inherent in them, are combined into monetary aggregates (M). An aggregate with a higher degree of liquidity is included integral part into a complex with a lower level of liquidity. As a result, a system of aggregates is formed, each characterizing a certain supply and structure of the money supply.
Monetary aggregate M1 includes the most mobile money: cash, metallic and paper money (banknotes) in circulation (excluding bank cash) in bank accounts on demand (checking deposits).
The M2 money supply consists of M1, checkless savings accounts, and small time deposits.
The monetary aggregate MZ is formed from M2 and large deposits.
Monetary aggregates allow you to determine the amount of money in circulation. But what does it depend on? The answer to this question is given by I. Fisher's equation of exchange, according to which the amount of money in circulation should be such that a balance is maintained between them and the cost of goods and services produced in the country, taking into account their prices.
M - the amount of money (or money supply);
V is the velocity of money circulation (average annual number of times, which is the monetary unit for the purchase of goods and services);
P – price level (weighted average price index of goods and services);
Q is the real volume of national production.
Simple transformations allow you to get a formula for determining the amount of money needed for circulation:
From this formula, it is clear that the more the national currency created by the country, the more money should be in circulation. With an increase in the physical quantity of goods, it is necessary to increase the money supply.
Since the velocity of circulation of money and the real volume of production are determined by non-monetary factors, they can be considered as constants. Then, it is obvious that the price level and the amount of money in circulation are directly dependent: price increases lead to an increase in the money supply and, conversely, an increase in the money supply leads to an increase in prices. However, there will be no rise in prices if the increase in the money supply occurs simultaneously with the expansion of the output of goods and services.
The amount of money in circulation directly affects their value.
The value of money is its purchasing power, i.e. the quantity of goods and services that can be bought with a unit of money. This indicator expresses the actual value (real value) as opposed to the printed face value (nominal) value of money. The value of money is inversely related to the amount of money in circulation. The more money in circulation, the lower its value, and vice versa.
In progress economic activity some economic entities have temporarily free cash resources (enterprises have a depreciation fund, wage fund, profits, etc., the population has savings, the state has unused budget revenues), while other entities have a need for additional funds (to pay for goods, services, works, etc.)
Free funds are provided to those who need them for temporary use, in debt. The mechanism through which the movement of temporarily free funds from their owner to the borrower occurs is called a loan. The transfer of temporarily free funds is carried out on the basis of urgency, repayment, payment and security, i.e. the loaned amount must be repaid after a certain period, and a fee is charged for the use of the money.
Credit performs in a market economy important features:
Ensures the continuity of the reproduction process;
Redistributes funds between enterprises, industries, territories, population groups;
Helps to increase production efficiency, stimulates scientific and technical progress; generates credit money;
Expands non-cash turnover, accelerates the movement of cash flows;
Turns money savings into capital;
Contributes to the process of concentration and centralization of capital.
In the process of historical development, credit has acquired various forms, the main of which are commercial and bank credit.
A commercial loan is a loan provided by manufacturers (sellers) to consumers (buyers) in the form of a deferred payment for the goods provided, i.e. commercial credit has a commodity form. Relationships of commercial credit are drawn up by a promissory note.
A promissory note is a written promissory note issued by the borrower to the lender and giving the lender the indisputable right to demand payment of the debt from the borrower within a certain period of time. A bill of exchange is a payment, settlement and credit document suitable for paying for goods and services, providing a loan, repaying previously received loans. An important property of a bill is its negotiability. By means of an endorsement (endorsement), a bill can circulate among an unlimited circle of persons, performing the functions of cash.
The use of commercial credit has its limits: first. it is limited by the size of the reserve fund of the creditor enterprise; secondly, since a commercial loan is presented in a commodity form, it has a limited scope, for example, it cannot be used to pay wages; thirdly, commercial credit can be provided by the supplier to the consumer, but not vice versa.
The limitations inherent in commercial credit are overcome by the development of bank credit, which in modern world and is the main form of credit.
A bank loan is a loan provided for a certain period of time by financial institutions (banks, funds, associations) to individuals and legal entities in the form of a cash loan.
By terms, bank loans are divided into: short-term (up to one year), medium-term (up to 3 years) and long-term (over 3 years). Loans can be guaranteed (issued against material security, pledge, guarantee of a bank or other individual or legal entity) or non-guaranteed (blank). The maximum amount of a loan issued by a bank to one borrower is regulated.
The fee for the use of money (price of credit) is called interest. The level of the interest rate is differentiated depending on the nature of the loans and is determined in the money market, where the supply and demand for money collide. The exception is the discount rate (refinancing rate) - the interest rate charged by the Central Bank on loans provided to commercial banks.
The basis for determining the interest rate for specific loans is the so-called base rate - the loan interest rate charged by large banks on short-term (up to 180 days) loans provided to the most reliable borrowers. Further, the base rate is differentiated depending on the term and size of the loan, on whether the loan is guaranteed or non-guaranteed, whether it is provided by a small enterprise or large borrowers.
Other common forms of credit include:
Mortgage loan - a long-term loan secured by real estate (land, buildings, structures, etc.). As a rule, such a loan is issued for housing and industrial construction at a high interest rate. In Russia, in a planned economy, there was no mortgage loan. Today, with the transition to the market, a mortgage law has been developed, allowing the issuance of a loan secured by real estate.
consumer credit- provided to private individuals by commercial enterprises when buying consumer durables in the form of deferred payment (installment sale) or by banks or other financial institutions in the form of bank loans for consumer purposes (payment for education, treatment, recreation, etc.). Consumer credit has a major impact on consumption and aggregate demand.
State credit - a form of credit in which the borrower is the state, and the lenders are individuals or legal entities.
International credit - the movement of money between lenders and borrowers in different countries. International credit is due to the presence of foreign economic relations and exists in the form of commercial, banking, state credit, i.e. lenders and borrowers can be banks, private firms, governments, international and regional organizations.
The totality of credit and financial institutions that accumulate and lend funds forms the credit system of the country. Banks are the main link in the credit system. A two-tier banking system has been adopted in a market economy. The upper level is represented by the Central Bank, which does not directly lend to enterprises and the population, but controls and regulates the country's money circulation and manages the entire banking system existing in the country, is a "bank of banks". The second level is occupied by many independent commercial banks and non-banking financial and credit institutions (pension, insurance, investment funds, savings and loan associations, credit unions, etc.), which bear the brunt of the work of accumulating savings and placing loans. Commercial banks are independent organizations. Administratively, they are not subordinate to the Central Bank, although they are obliged to follow the instructions of the Central Bank within the limits established by law.
Banks are financial intermediaries that accept funds from depositors and provide them to borrowers on terms of repayment, urgency and payment in order to make a profit. Bank profit is the difference between the interest that banks receive for the money they lend and the interest they pay for the money they lend, minus the costs associated with the operation of the bank.
All banks can be characterized in different ways:
According to the method of formation of the authorized capital (cooperative, joint-stock, mixed);
By affiliation (national, joint, foreign);
By type of operations performed - universal or specialized (mortgage, investment, innovation, land, trade, exchange, etc.);
By field of activity - branch and national economic;
According to the territorial principle - regional and national.
The main functions of banks: accumulation of funds and savings; providing loans to individuals and legal entities;
Carrying out cash settlements and cash services for customers;
Issue, purchase, sale of payment documents and securities.
All banking operations are divided into active and passive.
Operations through which banks realize the resources at their disposal are called active; operations through which banks form their resources for active operations are called passive.
Commercial banks attract money from depositors and use the funds raised to provide loans and purchase securities. Depositors are the owners of funds and provide them to banks for use. The attracted funds are issued in the form of checking, savings, term deposits and, from the point of view of the bank, are debt obligations and are related to liabilities.
Deposits (deposits in banks) serve as a source of credit. However, banks are not allowed to lend for the full amount of their deposits. The bank is obliged to keep a part of its deposits in the form of cash or deposits in interest-free accounts of the Central Bank. Minimum size The deposit that a bank must keep at the Central Bank or have in cash is called the required reserves. The amount of required reserves is determined on the basis of the standard established by the Central Bank in the form of a share (percentage) of the bank's deposits.
At first glance, it may seem that the amount of required reserves is a kind of insurance fund from which commercial banks can draw the funds they need in the event of large and unexpected withdrawals of money by their depositors. However, it is not. The fact is that deposits in commercial banks can be several times greater than the amount of reserves, i.e. reserves are partial. Therefore, in case of sudden and large withdrawals of funds by depositors, the presence of required reserves will not save commercial banks from bankruptcy. The requirement to keep part of the liabilities in the form of reserves is explained by the need to control the ability of commercial banks to lend to their customers. The central bank, as a coordinating body, seeks to prevent an excess or shortage of credit and thereby have the necessary impact on the amount of money in circulation and on the macroeconomic situation as a whole. In fact, the reserves of the bank, as a rule, are more than required; these excesses are called excess reserves, which serve as sources of loans.
Cash on hand and debts to the bank (loans issued) form the assets of the bank. If the bank's assets are greater than its liabilities, the bank is solvent. The difference between assets and liabilities is the bank's own capital (shares).
The most typical, common are the following operations of banks:
Acceptance (issuance) of cash;
Making payments on behalf of clients;
Accounting checks; issuance of loans;
Purchase (sale) of securities.
The huge role that modern banks play in a market economy is related to the ability of the banking system to create new money.
Each bank has handicapped to expand its loans and investments. He cannot lend more than what he received from depositors, he cannot lend the entire amount of deposits, since, in accordance with the requirements of the Central Bank, he must keep part of the deposits in the accounts of the latter. However, when a commercial bank makes a loan, the money supply increases by more than the amount of the loan.
Let's briefly consider how this happens. At the same time, we will remember that checking deposits make up the bulk of the M1 monetary aggregate.
Let us assume that the standard of reserve requirements is set by the Central Bank at the level of 0.2. Then the first commercial bank, which received a deposit of 1000, can issue a loan of 800. The loan received is used to pay bills (for the supply of materials, equipment, etc.) and goes to the account of the second bank. The second bank, having received a deposit of 800, can issue a loan equal to 640. This loan is spent similarly to the first and comes in the form of a deposit to the account of a third bank, which from the received deposit of 640 can represent in the amount of 512, etc. At the end, we will see that the newly created deposits for the system as a whole will be:
1000+ 800 + 640 + 512 + 410...=
1000x =
1000 x \u003d 1000 X (1: 0.2) \u003d 5000.
Thus, the entire banking system increased the initial deposit of 1000 by 5 times. turning it into 5000. i.e. there is a multiplicative expansion of deposits. In other words, the banking system as a whole can lend several times its excess reserves.
Of the 5,000 in the money supply, 1,000 are "old money" and 4,000 are "new" money created by the banking system. The total amount of newly created money is equal to the amount of excess reserves multiplied by the money multiplier.
The money multiplier (MR) is a coefficient characterizing the degree of increase in the money supply as a result of an increase in excess reserves. The money multiplier is equal to one divided by the standard of reserve requirements (yy):
MR= 1 100%
In addition to those considered, commercial banks perform dozens of other types of operations, while the range of banking services provided is constantly expanding. In particular, intermediary and fiduciary banking services such as bill accounting, factoring and trust are becoming more widespread today.
Accounting for bills - a credit operation, which consists in the purchase by the bank of bills before the due date for payment on them. When discounting a bill, money is advanced to the bearer of the bill. In this case, the bank charges a certain percentage, reducing the amount paid accordingly. Upon the expiration of the bill of exchange, its nominal amount is charged from the person who issued the bill.
Factoring - a type of banking activity, which consists in buying the client's obligations, advancing the client in the amount of 60-90% of the amount of the obligations with the final recalculation after the debt is repaid. The bank charges a fee for these services.
Trust transactions - the performance by the bank of various functions related to the management of property, pension funds of certain companies, the storage of securities by proxy of the client. By concentrating trust assets, banks have the opportunity to significantly expand the scope of their activities and influence, thus ensuring high profits for themselves.
