Money supply is the blood of the economy

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Money supply is the money used to buy or sell goods or services. They are owned by institutional owners, individuals and countries. The structure of the money supply is as follows:

1) active funds that are used in circulation;

2) passive – savings, account balances, etc. They can potentially move into the first group, and vice versa.

Money supply is a set of funds that determine the economy of a state. It includes, in particular, deposits, savings certificates, etc. In general, this is everything that can be classified as finance in circulation in a particular country or locality. This includes all means of payment.

In countries with a modern, developed economy, the money supply is mostly non-cash. These include checks, payment orders, settlement documents, etc. Non-cash money supply exists in the form of entries on the accounts of branches of central or commercial banks. This type of finance is not a means of payment. However, it can be cashed out at any time. This process is guaranteed by certain credit institutions.

In general, non-cash money has a number of advantages.

Transporting large quantities of banknotes is costly and unsafe. A non-cash transfer can be done in a much simpler way. In addition, bills and coins can be counterfeited. And just fakes make up an average of 15 to 25% of the total turnover. Leading financiers predict that in the future, cash will disappear and be replaced by electronic money. It will be both more comfortable and safer. Already, cash is gradually fading into the background. The vast majority of transactions are made using bank accounts. Even retail is no longer an exception to this rule.

Cash money supply is the funds that only the state has the right to issue. However, not every country can afford to print banknotes and stamp coins on its own. Therefore, some states transfer the order for the creation of banknotes to other countries. In addition, banknotes must be changed every five years.

Money supply is financial flows that are constantly in motion. Many factors affect their speed of circulation. In particular, the gradual replacement of metal and paper money with credit cards, the use of electronic systems, the introduction of modern technologies in banking, etc. The acceleration of the circulation of funds provokes an increase in the money supply, which is one of the reasons for the increase in inflation. The expansion of lending also leads to additional issuance. Inflation is curbed by setting reserve requirements anddiscount rates, the establishment of certain economic framework for banks. As lending increases, so does the money supply. And vice versa - when loans are returned, the issue decreases.

If the volume of money supply grows, this is not always a negative phenomenon for the economy. For example, a constant and moderate emission, combined with an increase in production, contributes to price stability. By itself, the amount of money supply is not a decisive factor in the economy.