Gross Income Multiplier – 9 or Below The Gross Income Multiplier is used to compare the parameters of similar properties in a particular area. For example, you calculate the multipliers for three residential buildings located in the same area of ​​​​the city, and then

Considering the process of deposit expansion, we assumed that: 1) money does not leave the banking sector and does not settle in the form of cash, 2) credit opportunities are fully used by banks, and 3) the supply of money is determined only by the behavior of the banking sector. However, when studying the money supply, it should be borne in mind that its value is influenced by the behavior of households and firms (non-banking sector), and it is also important to take into account the fact that commercial banks may not fully use their lending capabilities, leaving excess reserves, which they do not provide on credit. And under such conditions, a change in the amount of deposits has a multiplier effect, but its magnitude will be different. Let's derive the formula money multiplier.

The money supply (M1) consists of funds in the hands of the population (cash) and funds in current bank accounts (deposits): M = C + D

However, the central bank, which controls the money supply, cannot directly influence the value of the money supply, since it does not determine the value of deposits, but can only indirectly influence their value through changing the reserve requirement norm. The central bank regulates only the amount of cash (since it itself puts it into circulation) and the amount of reserves (since they are stored in its accounts). The amount of cash and reserves controlled by the central bank is called monetary base(monetary base) or high power money(high-powered money) and is designated H:

H = C + R

How can a central bank control and regulate the money supply? This turns out to be possible through regulating the value of the monetary base, since the money supply is the product of the value of the monetary base by the value of the money multiplier.

To derive the money multiplier, we introduce the following concepts: 1) reservation rate rr (reserve ratio), which is equal to the ratio of the amount of reserves to the amount of deposits: rr = R/D or the share of deposits placed by banks in reserves. It is determined by the economic policy of banks and the laws governing their activities; 2) deposit rateсr(), which is equal to the ratio of cash to deposits: сr = С/D. It characterizes the population's preferences in the distribution of funds between cash and bank deposits.

Since C = сr x D, and R = rr x D, we can write:

M = C + D = сr x D + D = (сr + 1) x D (1)

H = C + R = сr x D + rr x D = (сr + rr) x D (2)

Divide (1) by (2), we get:

M (cr + 1) x D (cr + 1) (cr + 1)

—— = ————— = ———— from here M = ———— H

N (cr + rr) x D (cr + rr) (cr + rr)

(cr+1)

M = multden x H multden = ———-

(cr + rr)

Magnitude represents money multiplier or monetary base multiplier, i.e. a coefficient that shows how many times the money supply will increase (decrease) when the monetary base increases (decrease) by one. Like any multiplier, it works both ways. If the central bank wants to increase the money supply, it must increase the monetary base, and if it wants to decrease the money supply, then the monetary base must be decreased.

Note that if we assume that there is no cash (C = 0), and all money circulates only in the banking system, then from the money multiplier we obtain the bank (deposit) multiplier: multD = 1/ rr. It is no coincidence that the bank multiplier is often called the “simple money multiplier”, and the money multiplier is often called the complex money multiplier or simply the money multiplier.

The size of the money multiplier depends on the reserve ratio and the deposit rate.

Credit system

The higher they are, i.e. The larger the share of reserves that banks do not lend out and the higher the share of cash that the population keeps in their hands without investing it in bank accounts, the smaller the multiplier value. This can be shown on a graph that shows the ratio of the monetary base (H) and the money supply (M) through the money multiplier equal to: (cr + 1)/(cr + rr) Obviously, the slope is equal to (cr + rr) /(cr + 1) (Fig. 12.5.).

With a constant value of the monetary base H1, an increase in the deposit rate from сr1 to сr2 reduces the value of the money multiplier and increases the slope of the money supply curve (money supply), as a result, the supply of money is reduced from M1 to M2. So that when the value of the multiplier decreases, the money supply does not change (remains at the level of M1), the central bank must increase the monetary base to H2. So, an increase in the deposit rate reduces the value of the multiplier. Similarly, it can be shown that an increase in the reserve rate (increasing the share of deposits held by banks in the form of reserves), i.e. the greater the amount of excess bank reserves not issued on credit, the lower the value of the multiplier.

How is the money multiplier calculated taking into account the deposit rate?

In the last article, we looked at how banks create money through credit and deposit operations. The money supply in a country can theoretically exceed the monetary base by an amount that is the inverse of the required reserve ratio. Thus, by changing the reserve ratio, the Central Bank can control the money supply.

But in the previous example, we deliberately made the following assumption: all funds during the exchange process (transactions between clients) were returned back to the banking system to client accounts. But in real life this is practically unattainable - in any country part of the money supply is in the hands of the population in the form of cash.

Economics_Efimova E.G.Uch. pos_MGIU, 2005

Today we’ll talk about the influence of this factor. The article will be more theoretical, but the theoretical foundations given are very important for understanding the relationships between processes. And identifying the relationships between global processes and understanding what is happening in the country at the macro level is very important for the correct perception of information and management of personal finances.

Calculation of the money multiplier in the case of storing part of the savings in the form of cash

Theoretical calculations of the relationship between the money multiplier and the ratio between non-cash funds and cash are as follows.

In the above calculations we introduced a very important indicator deposit rate – the ratio of cash (in the form of banknotes and coins) to non-cash. The money multiplier is the ratio of the money supply to the monetary base, depends on the deposit rate, as well as on the reserve rate (required reserve ratio). In this case, the deposit rate is both in the numerator of the money multiplier and in the denominator.

What characterizes the deposit rate indicator and what does it depend on?

The deposit rate, as already noted, is the ratio of cash to non-cash. When will the increase occur? When the amount of cash in the country increases (relative to non-cash). For businesses, the level of cash and the payments that can be made using cash are regulated by law. Enterprises must make payments using non-cash funds.

The population, as a rule, prefers to make payments using cash. Of course, recently more and more people are paying for goods and services using plastic cards and non-cash transfers. But here, as they say, “there is still room to grow.”

Another important point is how the population prefers to save their money. During periods of financial stability, the population places their savings in deposits in order to receive additional income. However, during periods of financial instability, especially in acute phases, the population makes “raids on banks,” terminates their deposits ahead of schedule and “goes into cash.” If at this moment there is a process of weakening of the national currency - devaluation, then part of the money is converted into “dollars” and “euro” (part of the rubles is returned to the cash desks of exchange offices).

Thus, the deposit rate indirectly characterizes the level of confidence in the country's banking system.

The impact of the deposit rate on the money multiplier

From the resulting formula m=(cr+1)/(cr+rr) it is obvious that, despite the fact that the deposit rate cr is in both the numerator and the denominator, the deposit rate still has an impact on the money multiplier m. When cr approaches 0, the money multiplier tends to 1/rr, a value inversely proportional to the reserve ratio. If the value of cr approaches 1 (and it is theoretically possible that cr will be greater than 1 – there is more cash in the country than non-cash), then the value of the money multiplier will depend to a lesser extent on the required reserve ratio.

In one of the previous articles, we presented a graph of the dynamics of M0/M2 - the ratio of cash to the money supply.

Modifying this graph, we obtain the dynamics of the deposit rate - the ratio of the amount of cash to non-cash funds.

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Money multiplier

In the third stage, the recipient of a 68-cent loan keeps 13.6 cents in cash (1:4 ratio) and deposits 54.4 cents in his bank.

Of this, the bank can issue a loan in the amount of 54.4 cents minus 15%, i.e. 46.24 cents. Consequently, the money supply will increase by 2.1424 cents (1.68 + 46.24).

The amount of money increases at each stage, but the increase becomes less and less. Finally, it turns out to be so small that it can be neglected. Ultimately, the money supply will increase by $3.125. A multiple increase in the money supply occurs because open market operations change the volume of reserves of so-called high-power money - N.

High-strength money H is the amount of cash issued into circulation, plus bank deposits with the Central Bank. Increased power money is also called the monetary base. Then
Money supply = MD N.

The stock of money with increased strength depends on the Central Bank. In addition to open market operations, the Central Bank can influence the money supply using the money multiplier through changes in the required reserve ratio. In general, this mechanism is presented in Fig. 7.6.

Rice. 7.6. Regulation of the money supply

The figure shows that money with increased efficiency is divided into cash in the hands of the population and bank reserves. Part of the money with increased strength - cash - is directly included in the money supply. The other part is the reserves of commercial banks, which create and generate a much larger amount of deposits, which is the source of the increased efficiency of this money. Moreover, the lower the norm of required bank reserves, the greater the scale of the resulting money supply. The figure shows that cash and deposits together form the money supply MI. The ratio of MI to H (money of increased strength) forms the money multiplier. The figure shows how the Central Bank regulates the money supply. This control is exercised through open market operations that change the amount of high-power money, as well as through the ability of the Central Bank to influence the value of the money multiplier by varying the rate of required bank reserves and the discount rate.

Educational and methodological complex on “Economic Theory” Part 1 “Fundamentals of Economic Theory”: educational and methodological manual. – Irkutsk: BGUEP Publishing House, 2010. Compiled by: Ogorodnikova T.V., Sergeeva S.V.

Federal state educational budgetary institution

higher professional education

"Financial University under the Government of the Russian Federation"

(Financial University)

Institute for Short Programs

TEST

Money, credit, banks

option No. 41

Money multipliers in modern Russia.

Completed by: ISP student

(BU group set 03/06/2010)

Katsin Alexey Sergeevich

Checked:

Associate Professor, Candidate of Economic Sciences

Afanasyeva Oksana Nikolaevna

In this work, we will introduce the concepts of required bank reserves, banking and monetary multipliers and try to calculate these indicators for the Russian Federation as of 10/01/2011.

MONEY MULTIPLIER

Required bank reserve ratio

3. Money multiplier

Bibliography

Annex 1

1. Norm of required bank reserves

The required reserve ratio (RR) is the percentage of total deposits that commercial banks are not allowed to lend and which they keep with the Central Bank in the form of interest-free deposits. In order to determine the amount of required reserves of a bank, you need to multiply the amount of deposits (D) by the norm of reserve requirements:

It is obvious that with a full reservation system the norm of reserve requirements is equal to 1, and with a partial reservation system it is 0< rr < 1.

If we subtract the amount of required reserves from the total amount of deposits, then we get the amount of credit opportunities or excess reserves (in excess of the required ones):

In Table T.P.1. (see appendix) presents the required reserve norms established by the Central Bank of the Russian Federation (data as of November 1, 2011). It follows from the table that, from a deposit placed in a commercial bank by a citizen of the Russian Federation or a legal entity, the bank keeps 4.0% in the Central Bank of the Russian Federation as a reserve. For further calculations, the coefficient rr=0.04 will be used.

2. Bank (deposit) multiplier

Thanks to the system of partial, and not full reserve, discussed in the previous chapter, as a result of active banking operations, non-cash issue of money occurs. And the state, in turn, can control this non-cash issue by regulating the parameter rr (compulsory reserve norms). Let's follow the process. The figure (Р.Г2.1.) shows the mechanism of non-cash issue.

R.G2.1. Mechanism of non-cash issue.

The process of creating money is called credit expansion or credit multiplication. It begins when money enters the banking sector and commercial bank deposits increase, i.e. if cash turns into non-cash. If the amount of deposits decreases, i.e. the client withdraws money from his account, the opposite process will occur - credit compression.

Let us assume that Bank 1 receives a deposit equal to D = 1000 rubles, and the norm of reserve requirements in Russia, as we stipulated in the previous chapter, is 4%. In this case, Bank 1 must contribute Rob = 40 rubles to required reserves (Rob. = D×r = 1000 × 0.04 = 40), and its credit capabilities will amount to 960 rubles (K = D× (1 –rr) = 1000 ×(1–0.04) = 960). If he uses them completely, then his client (Client 2) will receive 960 rubles on credit. Client 2 uses these funds to purchase the goods and services he needs (the company – investment, and the household – consumer or purchase of housing), creating income (revenue) for the seller (Client 3), which will go to his (the seller’s) current account with Bank 2. Bank 2, having received a deposit equal to 960 rubles, will deduct 960 rubles × 0.04 = 38.4 rubles to required reserves, and its credit capabilities will amount to 960 × (1–0.04) = 921.6 rubles, by issuing which on credit Bank 2 will make it possible to his client (Client 4) to pay for the transaction (purchase) for this amount, i.e. will provide revenue to the seller (Client 5), and 921.6 rubles in the form of a deposit will go to the current account of this seller in Bank 3, etc. We get a kind of pyramid:

This is the process of deposit expansion. If money does not leave the banking sector and settles with economic agents in the form of cash, and banks fully use their lending capabilities, then the total amount of money (total amount of bank deposits 1,2,3...N created by commercial banks will be:

Multiply the expression by , Then

As of January 1, 2011, there were 1,012 banks operating in the Russian Federation. Since 0 can be considered 0. Therefore:

Let's substitute our data into formula F.G2.1:

Thus, a non-cash issue occurred in the amount of 24,000 rubles (25,000 rubles - 1,000 rubles).

The value is called the bank (or credit, or deposit) multiplier. Another name for it is the deposit expansion multiplier. All these terms mean the same thing, namely: if commercial bank deposits increase, then the money supply increases to a greater extent. The bank multiplier shows how many times the value of the money supply will change (increase or decrease) if the value of commercial bank deposits changes (increases or decreases, respectively) by one unit. Thus, the multiplier acts in both directions. The money supply increases if money enters the banking system (the amount of deposits increases) and decreases if money leaves the banking system (that is, it is withdrawn from deposits). And since, as a rule, in the economy money is simultaneously invested in banks and withdrawn from accounts, the money supply cannot change significantly. Such a change can only occur if the Central Bank changes the required reserve ratio, which will affect the lending capabilities of banks and the size of the bank multiplier. It is no coincidence that this is one of the important instruments of monetary policy (policy for regulating the money supply) of the Central Bank. Formula for multiplier:

Let's continue the transformation. Let's combine formulas F.G1.1 and F.G2.1, we get:

We got an interesting result - the deposit deposited in the first bank is equal to the sum of all mandatory transfers of reserves from all banks in the chain. (See Figure R.G2.1). In other words, the amount given in cash to a commercial bank in its entirety falls at the disposal of the state in the form of reserve funds, regardless of the reserve rate. This paradox can be obtained with a number of assumptions made by us:

1) money does not leave the banking sector and does not settle in the form of cash,

2) credit opportunities are fully used by banks

3) the supply of money is determined only by the behavior of the banking sector.

3. Money multiplier

When studying the money supply, it should be borne in mind that its value is influenced by the behavior of households and firms (non-banking sector), and it is also important to take into account the fact that commercial banks may not fully use their lending capabilities, leaving excess reserves that they They do not issue loans. And under such conditions, a change in the amount of deposits has a multiplier effect, but its magnitude will be different. Let us derive the formula for the money multiplier. To do this, we introduce 3 more concepts:

Money supply (M2) (national definition) - a set of funds in the currency of the Russian Federation intended for payment for goods and services, as well as for savings purposes by financial (except credit) and non-financial organizations and individuals - residents of the Russian Federation. Let us consider the structure of the M2 unit in more detail:

M0 = Cash in circulation.

M1 = M0 + funds in current accounts and current accounts (for firms with limited economic independence, the use of funds is limited to the estimate - receiving cash for salary and other expenses) + funds in budget accounts (budgetary organizations - treasury) + funds on demand accounts + funds on card accounts

M2 = M1 + time deposits up to 1 year. Hence:

Monetary base.(H) — high-powered money - characterizes the monetary obligations of the Bank of Russia in the national currency, which ensure growth of the money supply; The monetary base is not a monetary aggregate, but represents the basis for their formation; This is “increased efficiency” money.

SB structure = Cash in circulation, taking into account balances in cash registers + Mandatory reserves + BR obligations to repurchase securities

Reserve funds for foreign exchange transactions deposited in the BR. Therefore it is the sum of cash and reserves controlled by the central bank. Let's write it in the form of a formula:

Deposit rate (cr) — characterizes the population’s preferences in the distribution of funds between cash and bank deposits. Written by the formula:

Now let’s define the money multiplier and get a formula for calculating it by making a series of transformations using the previously obtained formulas:

This coefficient shows how many times the money supply will increase (decrease) when the monetary base increases (decrease) by one unit. Like any multiplier, it works both ways. If the central bank wants to increase the money supply, it must increase the monetary base, and if it wants to decrease the money supply, then the monetary base must be decreased. Note that if we assume that there is no cash (C = 0), and all money circulates only in the banking system, then from the money multiplier we will obtain the bank (deposit) multiplier.

4. Money multipliers in modern Russia.

Here are the data from the Central Bank website as of 10/01/2011.

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Monetary base is the totality of the central bank's obligations.

Monetary base and money supply

The monetary base is not one of the aggregates of the money supply, but includes the monetary aggregate M0 (cash national currency in circulation outside credit institutions). In addition to M0, the monetary base always includes cash national currency at the cash desks of credit institutions and accounts of credit institutions with the central bank (required reserves R), which can act as required reserves for attracted deposits and means of settlement. Other liabilities of the central bank to financial and nonfinancial corporations, resident households, and nonprofit institutions serving households, as well as liabilities of the central bank to other government agencies in the form of cash may also be included in the monetary base.

MONEY MULTIPLIER

National definitions of the term "monetary base" may vary somewhat. Moreover, national statistics may highlight several indicators of the monetary base.

Determination of the monetary base by the Bank of Russia

The Central Bank of Russia calculates the indicators “monetary base in a narrow definition” and “monetary base in a broad definition”.

Narrow monetary base

Monetary base in a narrow definition includes cash issued by the Bank of Russia (taking into account balances in the cash registers of credit institutions) and balances in the accounts of required reserves of credit institutions for funds raised in national currency, deposited (from the Latin dēpōnō - “I put, I leave”) in the Bank Russia. Information on the volume of the monetary base in a narrow definition is published by the Bank of Russia weekly in the form of press releases.

Broad monetary base

Broadly defined monetary base includes:

1. Cash issued by the Bank of Russia, including balances in the cash registers of credit institutions;
2. Balances in required reserve accounts for funds attracted by credit institutions in national and foreign currencies, deposited with the Bank of Russia;
3. Funds in correspondent accounts in the currency of the Russian Federation (including average balances of required reserves) and deposit accounts of credit institutions with the Bank of Russia;
4. Investments of credit institutions in Bank of Russia bonds (at market value);
5. Other obligations of the Bank of Russia for transactions with credit institutions in the currency of the Russian Federation.

Information on the volume and structure of the monetary base in a broad definition is published monthly in the database of the Central Bank of the Russian Federation and in the Bulletin of Banking Statistics.

Monetary base and money multiplier

The money multiplier (from the Latin multiplicare - to multiply, multiply, increase) is an economic coefficient equal to the ratio of the money supply to the monetary base and demonstrating the theoretically possible degree of growth of the money supply due to credit and deposit banking operations. This coefficient links the monetary base and the money supply. It shows how much money will be created as a result of the multiplication of the original money issued by the central bank. The money multiplier is equal to the ratio: (1 + deposit ratio cr) / (deposit ratio cr + required reserve ratio rr) and depends on these two values:
deposit ratio;
norm of required reserves.

How it works?
For example, if people do not trust the banking system and do not bring their cash to banks, then the share of cash in the country's economy increases and cr increases, then the multiplier will become smaller. That is, from the same monetary base it will be possible to make less money supply.

If we increase the required reserve ratio, force banks to reserve more depositors' money and issue less loans, fewer loans will be issued, credit emission will decrease and again, less money supply will be created from the same monetary base. The multiplier will become smaller. The same thing will happen if banks begin to be cautious with loans and add excess reserves to the required reserve ratio. The so-called will do less. credit animation and money supply will be created in a smaller volume.

Offer of money. Money and Bank Multiplier

Money supply(MS) includes cash (C) outside the banking system and deposits (D), which economic agents, if necessary, can use for transactions (in fact, this is an aggregate Ml):Ms = C+D. The modern banking system is a system with partial reserve coverage: Banks keep only part of their deposits as reserves, and use the rest to issue loans. Unlike other financial institutions, banks have the ability to increase S money (“create money”). Credit animation - the process of issuing means of payment within the system of commercial banks.

Money multiplier

In general, the additional S money resulting from the appearance of a new deposit is equal to: Мs= ,whererr — bank reserve ratio, D— initial contribution. Coefficient 1/rr — bank multiplier, or monetary expansion multiplier. A more general model of S money is built taking into account the role of the Central Bank, as well as taking into account the possible outflow of part of the money from deposits of the banking system into cash. It includes a number of new variables. Monetary base (money of increased power, reserve money) - This is cash outside the banking system, as well as reserves of commercial banks stored in the Central Bank. Cash is a direct part of S money, while bank reserves affect the ability of banks to create new deposits, increasing S money. Let us denote the monetary base by M.B. bank reserves through R, Then: M.B. = C+R, Where MB - monetary base, C - cash, * R— reserves. Ms=C+D, where Ms — offer of money WITH - availability, D— demand deposits. Money multiplier (m) — is the ratio of S money to the monetary base: t = Ms/MB Ms = tMV The money multiplier can be represented by cash-deposit ratio сr(deposit ratio) and reserves-deposits rr (reservation rate):

Divide the numerator and denominator of the right side of the equation term by term by D(deposits) and we get:

Magnitude сr determined mainly by the behavior of the population, which decides the proportion of cash and deposits. The rr ratio depends on norms of required reserves, established by the Central Bank, and on the value excess reserves, which commercial banks expect to hold in excess of the required amount.

Now the money supply can be represented as

Ms=

Those. S money directly depends on the size monetary base and money multiplier. The money multiplier shows how S money changes when the monetary base increases by one. Increasing the deposit ratio and reserve ratio reduces the money multiplier.

Related information:

1. Gerund is translated into Russian as a noun, gerund, infinitive or whole sentence
2. IV. Write out a sentence containing a form of comparison from paragraph 3 and translate it into Russian
3. MPC-MPS, multiplier, accelerator
4. A) Give the number of the paragraph in which Participle I is a definition. Write down this sentence and translate it into Russian
5. A) Read the text and divide it into paragraphs. Express the idea of ​​each paragraph in one sentence
6. A) make up a sentence using the objective infinitive phrase
7. A. Aggregate demand and aggregate supply
8. A13. Indicate a sentence that requires one comma. (no punctuation marks)
9. A21. Indicate a sentence that requires two commas. (There are no commas in the sentences.)
10. A22. Specify a sentence that requires one comma

It shows how the amount of money in the country's circulation should change due to credit operations. This term was first introduced into circulation by the English economist R. Kann in 1931. The theory of the money multiplier was described in his book by J. Keynes in 1936. The money multiplier has other names, such as banking, credit or deposit.

How the money multiplier works

The increase in the level of money multiplication is due to the fact that some banks cash out customer deposits. You can consider the principle of animation using a specific example. Let’s say in our country the total monetary base for the entire population is 10 rubles, and they are in a bank account. Ivanov contacts the bank and asks to open a deposit for 1 ruble. What is happening at this moment? The monetary base remains equal to 10 rubles, and the borrower has 1 ruble in his account. That is, the volume of the total deposit increased by 1 ruble and became 11 rubles, and the total money supply increased accordingly.

If other people turn to the bank to open deposits, there will be a gradual increase in the money supply. But if people ask for cash, then it will not be possible to give them more than 10 rubles.

In order not to disrupt the circulation of money, it is necessary to provide people with the opportunity to receive cash from their accounts. This is observed by each of you who has at least once opened a deposit in a bank. At the stage of concluding an agreement, a bank employee advises on the terms of the deposit, discusses the term of the deposit, the amount of the deposit and the possibility of withdrawing cash.

The financial system in our country is two-tier. The structure of the system includes the Central Bank, which regulates the circulation of cash, and banks with deposits. Thanks to the joint work of organizations, the monetary multiplication indicator operates successfully.

Money multiplier relationship

The money multiplier indicator directly depends on the deposit and resonation rates. The resonation rate shows the ratio of all the country's reserves to the deposits held by banks. The deposit rate determines the ratio of cash to deposits. An increase in the deposit level lowers the multiplier level. With an increase in bank reserves stored in the Central Bank, the level of the money multiplier decreases. The money multiplier directly depends on:

• total cash turnover in the country;
• deposits in non-state banks;
• the amount of reserve deposits in the Central Bank.

Money multiplier management

The multiplier level increases due to the opening of deposits in commercial banks. In this situation, the Central Bank is in charge of managing the money multiplier coefficient.

The Central Bank has a mandatory reserve of funds, which is used in the event of destabilization of the economy. It is the Central Bank that controls the movement of cash in the country and, thus, influences the level of the money multiplier. Commercial banks are responsible for the movement of non-cash funds that accumulate due to open customer deposits.

Thus, when banks carry out transactions with the movements of funds in customer accounts, they have a direct impact on the multiplier. Since people open accounts in different banks, it is safe to say that the volume of deposits in the banking system is always greater than the original one.

The Central Bank, acting as the “manager” of the process of movement of funds, regulates the volume of money through reserve savings. Reserve savings are amounts of money from non-state banks that are not cashed out, but are kept in accounts. Due to the continuous flow of funds, the money multiplier indicator is constantly changing.

Increasing the size of the money multiplier can lead to inflation. Therefore, one of the main tasks of the Central Bank is to regulate the size of the monetary base.

In a developed market and credit and banking system, it is subject to the effect money multiplier, i.e., an increase in money in the rhythm of a certain coefficient.

With a bank issue, situations of large growth may arise compared to its initial increase (primary issue). For example, the central bank buys 10 thousand rubles. securities and, paying their seller, issues money (banknotes) for this amount. The seller can deposit the money received into his account with a commercial bank, which, due to the increase in its assets, can in turn issue loans for 10 thousand rubles, thereby carrying out a new credit issue and increasing the money supply. Subsequent stages of moving money and increasing it accordingly are also possible. This effect is called the money multiplier. In our example, it can be written as follows:

and the final formula for recording the money multiplier in our case

Since the value of the initially issued money supply is not a constant, but a variable value, then in general the formula for the money multiplier is as follows:

K = E / (1 - k)

• E— primary issue;
• k- money multiplier.

Money multiplier

To manage the money supply, the money multiplier indicator is calculated.

central bank regulates the value of the money multiplier through the mechanism of required reserves of commercial banks in the central.

The value of the money multiplier fluctuates in time and space (it varies in different countries). The value of the money multiplier can exceed 2-3 times the value of the initial issue. In the process of regulating the size of the money multiplier by the central bank ( k) the concept arises monetary base, which is based on cash as the most liquid and deposits of commercial banks (mandatory) in the central bank.

Monetary base = M 0+ funds in required reserves (in the Central Bank of the Russian Federation) + funds of commercial banks in correspondent accounts of the Central Bank of the Russian Federation.

The monetary base shows how much money supply the Central Bank can operate.

Money supply = Monetary base * Money multiplier

Hence, Money multiplier = M 2(money supply) / Monetary base.

There is an inverse relationship between the amount of required reserves of commercial banks in the central bank and the value of the money multiplier.

The higher the required reserve ratio of commercial banks in the central one, the lower the value of the money multiplier.

If the money multiplier is high, there is an increase in non-cash turnover compared to cash, since the growth of the money multiplier always depends on the growth of cash and the balance on correspondent accounts with the Central Bank of the Russian Federation.

The essence and mechanism of banking animation and its role in regulating money circulation

The mechanism for issuing money is implemented differently in countries with command-distribution and market economies. In the first case, money is issued on the basis of directive plans. In the second case, there is a two-tier banking system in the form of a central and commercial banks. Here the emission mechanism is built on the basis of banking (credit, deposit) multiplication.

The Central Bank, managing the multiplication mechanism, expands or contracts the issuing capabilities of commercial banks.

In economics, the multiplier means the rate of change in aggregate output per monetary unit of increase in aggregate demand. Monetary multiplication refers to the process of issuing means of payment by participants in economic turnover when the monetary base (central bank money) increases by one monetary unit.

Money multiplier - This is a numerical coefficient showing how many times the money supply will increase or decrease as a result of an increase or decrease in contributions to the monetary system by one monetary unit, and is defined as the ratio of the money supply (aggregate) to the narrow monetary base.

Monetary base(in a narrow sense) includes cash in circulation outside the Central Bank of the Russian Federation and required reserves of credit institutions for funds raised in national currency. In a broad sense, the monetary base includes cash in circulation outside the Central Bank of the Russian Federation. mandatory reserves of credit institutions for funds raised in national and foreign currencies, funds of credit institutions in correspondent and deposit accounts with the Bank of Russia, its obligations to repurchase securities and bonds of the Bank of Russia, as well as reserve funds for foreign exchange transactions deposited with the Bank of Russia.

The money multiplier coefficient can be represented as follows:

Bank multiplier

In modern economic literature, in addition to the concept of a money multiplier, the concept of a banking multiplier is given, and the mechanism of banking multiplier is presented substantively and functionally.

Bank multiplier is the process of increasing money in the deposit accounts of a commercial bank as it moves from one commercial bank to another.

The bank multiplier mechanism can be used not only when bank loans are provided, but also when the central bank buys securities or currency from commercial banks. As a result of this, the resources of banks invested in active operations decrease, and the free reserves of these banks used for credit operations increase, i.e. The banking animation mechanism is activated. The central bank can also activate this mechanism when it reduces the rate of deductions of required reserves. In this case, the free reserve of commercial banks also increases, which leads to an increase in lending and the inclusion of a bank multiplier.

The management of the banking multiplier mechanism, and therefore the issue of non-cash money, is carried out exclusively by the central bank, while the issue is carried out by a system of commercial banks. Thus, the central bank performs its function of monetary regulation by expanding or contracting the issuing capabilities of commercial banks.

Thus, banking animation is a process of multiple (multiplicative) increase (decrease) of money as permanent deposits in commercial banks as a result of an increase (decrease) in bank reserves when commercial banks carry out credit, deposit and settlement operations within the banking system.

Both expansion and contraction of the money supply can be multiplicative. In the economic literature, the greatest attention is paid to the processes of multiple increases in money, since the stability of the monetary system and the level of inflation largely depend on this. Banking animation is a combination of deposit and credit expansion processes. Moreover, one process cannot exist in isolation from another. They are connected by the common nature of turnover money: central bank money (money in the reserve account) and commercial bank money (money in client deposit accounts). The money in the reserve account represents the liabilities of the central bank and at the same time the assets of the commercial bank.

Example. An economic entity serviced by bank A sold export proceeds with the direct participation of the bank on the interbank currency exchange in the amount of 5,000 rubles, which was credited to the correspondent account of the bank RKTs Central Bank of the Russian Federation. Bank A credited the amount to the current account (demand deposit). Part of this amount must be placed in a special account in the form of mandatory minimum reserves. According to existing regulations, the required reserve ratio (R) is 2.5%; the reserve amount will be 119 rubles.

Thus, the commercial bank will have 4881 rubles left, which can be used in further activities. This amount represents the so-called excess reserves of a commercial bank. The bank can use these funds to provide a loan to another client. The second client was granted a loan in the amount of RUB 4,881, resulting in a reduction in the excess reserve from RUB 4,881. to zero while simultaneously increasing bank deposits by the same amount. Next, the client will pay with funds from the deposit for the equipment and transfer the entire amount to his counterparty to Bank B. As a result of this operation, Bank B will receive 4881 rubles into its account with the Central Bank of the Russian Federation. and will increase its reserves, then this amount will be credited to the client’s current account. This bank will form a reserve in the amount of 122 rubles from the deposit amount. and transfer it to a reserve account with the Central Bank of the Russian Federation. Bank B transforms the difference between the amount of the reserve and the required reserve (4881-122 = 4759 rubles) into a loan.

Thus, in addition to existing deposits and loans, we receive a new deposit of 48,810 rubles. and credit 4759 rub.

Consequently, there is a process of sequential emergence of new deposits in commercial banks (emission of turnover money) as a result of the expansion of loans based on the repeated movement of excess reserves within the banking system. As a result of the emergence of new deposits, a mandatory reserve is formed in the Central Bank of the Russian Federation, an excess reserve and new loans appear.

The bank multiplier is a quantitative assessment of the process of multiplying money in the deposit accounts of commercial banks.

The banking multiplication mechanism operates constantly and is determined using coefficients:

1. banking multiplier coefficient:

2. coefficient of change in money supply:

• M2 n.g.— money supply at the beginning of the year;
• M2 k.g.— money supply at the end of the year;
• M0 n.g.- cash at the beginning of the year.

The banking animation mechanism can only work within the framework of a two-level banking system: the central bank (first level) controls this mechanism, commercial banks (second level) force it to operate automatically, regardless of the wishes of the heads of individual banks. One bank cannot multiply money; it is multiplied by the system of commercial banks. If the norm of mandatory minimum reserves of the central bank decreases, commercial banks' free reserves will increase, which will lead to an increase in lending volumes and the inclusion of a banking multiplication mechanism.

Of all the investments of commercial banks in active operations, only credit investments create new deposits, i.e. allow the country's banking system to perform the issuing function. The greater the share of loans in its assets, the greater the volume of its issuing activity.

Table 5.1. Issuance activity of the banking system, million rubles.

Since the banking multiplier is based on deposit-credit operations of commercial banks, it is often called deposit-credit in the economic literature. It is necessary to clarify these concepts. The bank multiplier characterizes the animation process from the position of the subject, i.e. the answer is given to the question of who multiplies money; The credit multiplier shows the engine of the animation, namely, the fact that the multiplication can be produced when lending to the economy.

The credit multiplier is the ratio of the dynamics of the volume of lending carried out by a group of homogeneous credit institutions to the dynamics of reserve assets, which caused a change in the volume of loans. In other words, the credit multiplier is the ratio of the change in bank deposit liabilities caused by the expansion of credit to the initial increase in reserve assets. The credit multiplier can be expressed as follows:

Deposit multiplier reflects the animation object, i.e. money in deposit accounts of commercial banks (it is they that increase in the process of multiplication).