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 \u003d GDP or (ND) / Money supply (M 2 ).
This indicator characterizes the relationship of monetary circulation with the processes of economic development.
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 velocity of money is affected by:
general economic factors:
cyclic 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 in the money market;
introduction of computers for operations in credit institutions;
use of electronic money in settlements.
In addition, 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.
Because The velocity of money in circulation is inversely proportional to the amount of money in circulation. the 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 a depreciation of money, i.e. ultimately is one of the factors of the inflationary process.
Issue of cash and non-cash money.
The concepts of “issue of money” and “issue of money” are not equivalent.
Under issuance of money understand constant flow of money .
The release of money into circulation occurs constantly.
non-cash money issued into circulation when commercial banks lend money to their customers.
Cash 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 can be put into circulation does not mean an increase in money in turnover , since simultaneously with the release of money, bank customers repay bank loans and hand over cash to the operating cash desks of banks. At the same time, the amount of money in circulation may not increase.
Under emission is understood as the issuance of money into circulation, which leads to to an overall 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 split:
- issue of non-cash money produced by the commercial banking system;
- issue of cash - the state central bank.
Issue of non-cash money is an 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 through provision to enterprises by commercial banks loans .
However, banks can issue loans only within the limits of their available resources (the bank's own capital and borrowed capital - funds in customer deposit accounts). This can only satisfy the normal need of enterprises for working capital, and not additional.
And with the growth of production and trade, and with the rise in prices for goods, there is constantly emerging additional need for money .
To meet this need, a special mechanism for issuing non-cash money.
In conditions administrative system that need was met issue of non-cash money based credit plans , by expanding the loans provided in accordance with them.
In conditions market economy valid another mechanism.
The intensive circulation of money in the country is due to the abundance of purchase and sale transactions. Velocity of money- an indicator of the average annual amount of cash turnover due to the use of funds for the purchase of services, finished goods.
Velocity of money: calculation
Velocity of money(V) is calculated as the ratio of annual GDP (Y) to the average annual money supply (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 velocity of money circulation is affected by:
- banking infrastructure of the country;
- technical equipment of institutions participating in monetary schemes;
- economic activity.
The more perfect satellite, computer communications, the technical equipment of banking structures, the more intensively money turns around and less is required for the stable functioning of the economy.
The money supply required for payment transactions depends on the demand for money, the offer by banks.
Money turnover: change in the velocity of money
Change in the velocity of money due to an increase or decrease in production volumes - with an increase in production, the speed increases, with a reduction, it slows down. Indirectly, the circulation of money depends on the phases business cycle. So, in a crisis, the turnover of the money supply decreases.
Subject to price stability in the country, it can be traced:
- a slowdown in money turnover is a sign of a decrease in GNP;
- acceleration of money turnover is a criterion for raising GNP.
As inflation accelerates, cash flows increase equally.
A significant change in the indicator of the 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. Factors, affecting the speed coefficient:
- General economic. Conditions - cyclical development of the economy, price movements.
- Monetary:
- change in the structure of the payment cycle;
- development of credit transactions;
- intensity of mutual settlements;
- level of interest rates;
- the pace of development of production volumes;
- economic situation in the Russian Federation.
The development of payment and settlement systems accelerates the circulation of money. The indicator of the intensification of the money supply reflects the rate of inflation.
With an economic recovery, the turnover of money will decrease.
1.3 Velocity of money
Monetary units can be used over and over again in a circular income stream. The more often money is used for payments in a given period - the faster the money "turns around" - the smaller the required amount of money supply for a given amount of real income at a fixed price level. The rate of turnover of money stocks is called the rate of circulation of money income, since it equals the rate at which money is spent on goods and services within a given period of time. Consequently, velocity of money is an indicator of the frequency with which the average unit of the national currency is used to perform transactions during a given period of time. The speed of circulation of money mainly depends on the accepted customs of payment. In our society, for example, workers are paid weekly, every two weeks, or monthly rather than daily and more than once a year. The frequency of the receipt of wages and salaries appears to influence the amount of money which the workers withhold from one day of pay to the next; their average savings will decrease as wage frequency increases, and vice versa. This inverse relationship between average money savings and frequency of pay is also true for other sources of family income, as well as for the income of entrepreneurial firms.
Thus, for a given level of income, the lower the average money accumulation of different economic units of the economy, the greater will be the rate of money accumulation and vice versa. The average amount of cash savings, and, consequently, the rate of turnover of cash reserves is determined mainly by the generally accepted scheme of payments and payments. True, some other economic variables also have an undeniable influence on the average amount of cash in families and entrepreneurial firms. The income and wealth of economic units have the following effect: the stock of cash tends to increase with an increase in income and general wealth. Interest rates also affect the supply of money (and hence the velocity of money). The higher the interest rates, the more unused cash is generated, and vice versa. Thus, we can expect the velocity of circulation to increase (average holdings of cash will decrease) as interest rates rise, and to fall as interest rates fall. However, the value of the so-called elasticity of demand for money with respect to interest (the degree of sensitivity of the desired size of average money savings to changes in interest rates) is problematic. Another significant factor related to the choice of the population how much cash to hold on hand is the expectation of upcoming economic events. For example, if high inflation is expected, the population will hold less cash because their purchasing power decreases as prices rise. On the other hand, the expectation of lower prices and/or employment leads to a desire to increase savings. Expectations related to upcoming interest rates can also have an impact on the cash supply. When interest rates are expected to rise, the public may withhold deposits until higher rates are announced and therefore hold more cash.
Money is in constant motion between three entities: individuals, business entities and public authorities. The movement of money in the performance of their functions in cash and non-cash forms is a monetary circulation.
The social division of labor and the development of commodity production are the objective basis of money circulation. Money serves the exchange of the total social product, including the circulation of capital, the circulation of goods and the provision of services, the movement of loan and fictitious capital and the income of various social groups.
The beginning of the movement of money is preceded by their concentration in the subjects. They are concentrated in the wallets of the population, at the box office legal entities, on accounts in credit institutions, in the treasury of the state. In order for the movement of money to arise, it is necessary that one of the two parties needs money. The demand for money arises in the implementation of transactions, money is needed for circulation, payments for goods and services. Their volume is determined by the nominal gross domestic product. The greater the total monetary value of goods and services, the more money is required to complete transactions. Demand for money is also presented for accumulation, which appears in various forms: deposits in credit institutions, securities, official state stocks.
The number of banknotes required for circulation is determined by the law of monetary circulation. All countries' money circulation is subject to this formula, also known as the equation of exchange. This equation expresses the rate of turnover of money:
M*V = P*Q V = (P*Q)/M
V- money turnover rate
M- amount of money
P– prices
Q- the value of all goods
The rate of circulation of money characterizes the speed with which money circulates in the economy, i.e. how many times in a certain period of time the ruble changes hands.
Suppose, for example, that in a given year 60 loaves of bread are sold at a price of 5 rubles per loaf. Then Q is equal to 60 loaves per year, and P is 5 rubles. The total number of rubles involved in transactions is equal to:
PQ = 5 rubles / per loaf * 60 loaves / per year = 300 rubles per year.
The calculation of the right side of the equation of the quantitative theory of money makes it possible to obtain a monetary expression for the sum of all transactions made during the year, equal to 300 rubles per year.
Suppose now that there are 100 rubles in circulation in the economy. In this case, we can calculate the velocity of money as follows:
V \u003d (P * Q) / M \u003d (300 rubles a year) / (100 rubles) \u003d 3 times a year.
This means that in order for transactions in the amount of 300 rubles to be made in a year in an economy where 100 rubles are in circulation, it is necessary that each ruble changes hands three times in a year.
General economic factors influence the velocity of money circulation, i.e. cyclical development of production, its growth rate, price movements, as well as monetary (monetary) factors, i.e. the structure of payment turnover (ratio of cash and non-cash money), the development of credit operations and mutual settlements, the level of interest rates for loans in the money market, as well as the introduction of computers for operations in credit institutions and the use of electronic money in settlements. (non-cash circulation of money). In addition to these general factors, the velocity of money circulation depends on the frequency of income payments, the uniformity of spending by the population of their funds, the level of savings (money lying at home cannot serve the circulation of consumers) and accumulation, etc.
Consider an example of the dependence of the rate of money turnover on the frequency (periodicity) of the payment of income (wages, rent, interest and profit): if wage, for example, 100 rubles a month is paid to employees once a month, then 100 rubles are needed to service this transaction. If you pay it twice a month (that is, in two installments) of 50 rubles, then for this you may need only 50 rubles - pay at the beginning of the month, and then the same 50 rubles (which the employee spends in a month) - in the middle of the month . Thus, the more often wages are paid, the less money may be required to secure this transaction.
Or, for example, on the rate of economic growth. The higher it is, the less money is required in quantitative terms. Suppose that you need to gradually spend 1000 rubles per month. Let spending be made twice a month and the velocity of circulation of the monetary unit will also be equal to the month. Thus, having spent 500 units at the beginning of the month, you will need another 500 units in the middle of the month to make the following expenses, since the 500 units spent earlier will not be returned until the next month. Thus, you need to have 1000 units. Now imagine that the velocity of circulation of money in the economy has increased and is half a month. Now, having spent 500 units at the beginning of the month, by the middle of the month you again get 500 units, which managed to turn around and returned to your system. You can make the second expense you planned for the same 500 units that you used to make the transaction at the beginning of the month. Thus, for the same amount of expenses, you no longer need 1000, but only 500 units.
Chapter 2. The concept of money supply
One of the main guidelines of monetary policy is the money supply. It is this parameter of money circulation that has an impact on economic growth, price dynamics, employment, and the smooth functioning of the payment and settlement system.
money supply represents the total volume of cash and money of non-cash turnover.
The composition and structure of the money supply:
To measure the amount of money, special indicators are used - monetary aggregates, which are approved by law.
The monetary aggregate is a specific grouping of liquid assets that serve as a measure of the money supply.
IN different countries various monetary aggregates are used - from the narrowest ("monetary base") in Switzerland to a broad measure of liquidity in the UK and "total credit" in Italy. Taking into account the experience of foreign countries, the Central Bank of the Russian Federation calculates the following monetary aggregates:
M0 - cash in circulation;
M1 = M0 + funds on settlement, current and special accounts of legal entities, funds of insurance companies, demand deposits of the population in banks;
M2 = M1 + term deposits population in Sberbank;
М3 = М2 + certificates and government bonds.
Equilibrium occurs at M 2 >M 1, strengthens at M 2 +M 3 >M 1.
The composition of the monetary aggregates of different countries is not the same. So, in France, 2 monetary aggregates are used, in the USA - 4, in Japan and Germany 3, and in England five monetary aggregates.
Currently, the monetary base indicator is used to characterize the money supply. It includes aggregate M0 + 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, thus the monetary base is essentially equal to aggregate M2.
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 obeys certain laws. Knowing them allows you to quickly respond to or 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.
The basic law of money circulation, the formula of which was presented by K. Marx, connects prices, velocity of circulation and the amount of money.
One of the main guidelines of monetary policy is the money supply. It is this parameter of money circulation that has an impact on economic growth, price dynamics, employment, and the smooth functioning of the payment and settlement system.
The money supply is the total amount of cash and money in non-cash circulation. In the composition of the money supply, active and passive money are distinguished. 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 include funds on term and savings deposits in commercial banks and special credit institutions. They are similar to money, since they cannot be used directly as a purchasing and means of 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 circulation.
To measure the amount of money, special indicators are used - monetary aggregates, which are approved by law.
The monetary aggregate is a specific grouping of liquid assets that serve as a measure of the money supply.
Different countries use different monetary aggregates, from the narrowest (“base money”) in Switzerland to the broad measure of liquidity in the UK and “total credit” in Italy. Taking into account the experience of foreign countries, the Central Bank of the Russian Federation calculates the following monetary aggregates:
M0 - cash in circulation;
M1 = M0 + funds on 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;
М3 = М2 + certificates and government bonds.
Equilibrium occurs at M 2 >M 1, strengthens at M 2 +M 3 >M 1.
The composition of the monetary aggregates of different countries is not the same. So, in France, 2 monetary aggregates are used, in the USA - 4, in Japan and Germany 3, and in England five monetary aggregates.
Currently, the monetary base indicator is used to characterize the money supply. It includes aggregate M0 + 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, thus the monetary base is essentially equal to aggregate M2.
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 obeys certain laws. Their knowledge allows you to quickly respond to or 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 currency
The basic law of money circulation, the formula of which was presented by K. Marx, links prices, velocity of circulation and the amount 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 the limited gold reserves, the ratio between the amount of gold (coins) and goods is established spontaneously, but relatively accurately: an excess of money is withdrawn from circulation and goes into the sphere of accumulation (treasures), and with a shortage coins, their seized part is returned to their treasures in circulation.
When credit money appears, as mentioned above, there is a practically unsecured issue, i.e. the amount of money can be arbitrarily large. In this case, the appearance of inflation is inevitable, i.e. depreciation of money due to their increased quantity. In this case, it is necessary to track that part of monetary obligations that can be mutually repaid without additional emission. The above equation takes the following form:
where KD is the amount of money needed as a means of circulation and payment;
SP - the sum of the prices of goods sold;
K - the amount of goods and services sold on credit, the payment period for which has not come;
P - the amount of payments on debt obligations;
VP - the amount of mutually repaying payments;
O - the average number of revolutions of money as a means of payment and a means of circulation.
Irredeemable credit money, acquiring the features of paper money, is introduced by the state power, which endows them with a forced exchange rate. 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 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 is the price of the goods;
Y is the velocity of money circulation;
Q is the number of goods on the market.
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 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 are used to calculate it.
In most foreign countries, two indicators are usually calculated:
indicator of speed in the circulation of income: it is calculated as the ratio of the gross national product (GNP) or national income to the aggregates M1 or M2. the dynamics of the calculated value shows the relationship between money circulation and the processes of economic development;
the indicator of money turnover in the payment turnover 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 cashless payments.