The speed of circulation of money and its impact on the domestic economy of the country. Cash turnover ratio The period of cash flow is determined by the formula
1.Velocity of circulation of the average annual money supply. Calculated as the ratio of GDP (ND) to money supply (M2). Reveals the relationship between money circulation and macroeconomic processes. The velocity of circulation of the money supply usually decreases in conditions of macroeconomic stability and increases in conditions of crisis.
2. Indicator of money turnover in payment turnover. The ratio of the amount of transferred funds in bank current accounts to the average annual money supply (M2).
3. Speed of return of money to the cash desks of the Central Bank institutions. The ratio of the amount of money received at bank cash desks to the average annual mass of money in circulation.
4. Speed of circulation of money in cash circulation. Dividing the amount of cash receipts and disbursements, including the turnover of mail and institutions of Sberbank of Russia, by the average annual money supply (M2).
CONCLUSION:the supply of money is not an artificial, not a voluntaristic category; The supply of money is closely related to the achieved level of the economy, the volume of GDP, and the possibilities of its growth. The formation of the money supply is an important area of the monetary policy of the Central Bank.
BASIC TERMS AND CONCEPTS
Non-cash cash flow – part of the monetary turnover in which the movement of money is carried out in the form of transfers to the accounts of credit institutions and offsets of mutual claims.
Cashless circulation- movement of value without the participation of cash, which is carried out using checks, bills, credit cards.
Money supply – a set of purchasing, payment and accumulated funds that serve economic relations and belong to individuals and legal entities.
Money turnover - the totality of all payments in cash and non-cash forms for a certain period of time.
Money turnover - movement of money in cash and non-cash forms when they perform their functions.
Monetization rate – the reciprocal of the velocity of money circulation.
Cash ratio – the share of cash in the total money supply is calculated as the ratio of the cash money supply (M0) to the monetary aggregates M1, M2, M3.
Cash turnover includes all cash payments for a certain period of time (month, quarter, year).
Cash circulation- the movement of money in cash when they perform two functions: a medium of circulation and a means of payment.
Payment turnover represents a set of non-cash payments and part of cash payments related to wages.
Velocity of money circulation – the number of transactions that each monetary unit handles during the year.
SELF-TEST QUESTIONS
1. What is the monetary base?
2. Explain the difference between the monetary base in the narrow and broad senses?
3. Define the money supply.
4. What is a money multiplier?
5. What is a credit multiplier?
6. What underlies monetary aggregates?
7. Characterize the structure of monetary aggregates.
8. What is the difference between cash and non-cash money circulation?
9. What is money circulation?
10. What payments are made in cash?
11.Name the reasons for the increase in cash circulation.
12.What is the essence of the law of money circulation?
13. Describe the indicators of the velocity of money circulation.
TASKS FOR INDEPENDENT WORK
Task
Based on the table data, calculate the monetary aggregates: M0, M1, M2, M2X, the monetary base in a narrow and broad definition.
Billion rub.
Task
The country's gross domestic product (GDP) for 2007 was 28,800 billion rubles, the M2 monetary aggregate as of 01/01/2007 was 9,000 billion rubles, and as of 01/01/2008 – 13,300 billion rubles. Calculate the monetization rate.
Topic 1.3. Monetary system and types of monetary reforms
Concept and elements of the monetary system
Types of monetary systems
Monetary system of the Russian Federation
Inflation. Types of monetary reforms. Features of the inflation process in Russia
After studying this topic you will be able to:
- Define the monetary system and list its main elements;
- Understand the essence of the main types of monetary systems;
- Describe the monetary system of the Russian Federation and the role of the Bank of Russia in it;
- Understand the essence of modern inflation and its main types.
1. Concept and elements of the monetary system. Monetary system is called the system of circulation of money in the country, which has developed historically and is enshrined in law
The monetary system includes the following main elements :
1. Monetary unit(unit of account) used to measure the prices of goods. A monetary unit is a currency established by law that serves to measure the expression of prices of all goods and services.
2. Price scale. With the cessation of the exchange of credit money for gold, the official price scale lost its economic meaning.
3. Emission system - a legally established procedure for issuing money into circulation of banknotes. The emission system includes an emission center and emission legislation. The regulation of the monetary system is carried out by banks of issue, which bring its various elements into conformity.
4.Structure of money supply in circulation represents the ratio of cash and non-cash money, as well as the ratio of banknotes of different denominations in the total turnover.
5. Forecast planning procedure includes a system of cash flow plans, the bodies that draw up these plans, and the tasks solved by the plans.
6.Monetary regulation mechanism is a set of tools for the state to influence the economy as a whole.
7. The procedure for establishing the exchange rate or currency quotes, that is, the ratio of the country’s currency to foreign currencies.
8. The procedure for cash discipline on the farm reflects a set of rules, forms, cash and reporting documents that guide legal entities and the population when organizing cash flow.
Types of monetary systems.
There are systems of circulation of metallic and non-metallic money. In the first case, metallic money performs all the functions of money, and credit money (banknotes) is exchangeable for gold. In the second case, non-metallic money that is not convertible into gold circulates. There are 2 types of metallic currency circulation systems; bimetallism and monometallism. Under bimetallism refers to a monetary system in which the role of universal equivalent is legally assigned to two metals, usually silver and gold. There is provision for free minting of coins from these metals, as well as their circulation on an equal basis. Under monometallism refers to a monetary system in which the role of universal equivalent is legally assigned to one metal (copper, silver, gold).
Types of bimetallism:
- Parallel Currency System when the ratio between silver and gold coins was established spontaneously in accordance with the market price of the metal;
- Dual currency system when the ratio between gold and silver coins is established by the state;
3.Lame currency system , when gold and silver coins were legal tender, but not on equal terms. Free minting of gold coins and closed minting of silver coins were provided for. Silver coins acted as signs of gold.
Bimetallism existed for quite a long time, although the use of two metals as money contradicts the nature of the universal value equivalent. The legislative assignment of the role of money to two metals came into conflict with the nature of money as the only product designed to perform the function of a universal equivalent.
Varieties of gold monometallism:
1. Gold coin standard. Circulation of gold coins and paper money, freely exchangeable for gold. Existed under free competition capitalism. Such monetary systems are stable and elastic. The gold coin standard is characterized by free minting of gold coins; free exchange of tokens of value for gold; free movement of gold between countries. The exchange of banknotes for gold was suspended only during wars.
2. Gold bullion standard. Paper banknotes were exchanged for gold bars (Great Britain, France, Japan). There was no free minting of gold coins. The exchange of money for gold was limited by the value of bullion.
3. Gold motto standard. Currencies were exchanged for mottos in currencies redeemable for gold. Mottos – means of payment in foreign currency. The connection with gold is becoming more and more indirect.
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 and finished goods.
Velocity of Money: Calculation
Velocity of money(V) is calculated as the ratio of annual GDP (Y) to the average annual supply of money (M): V=Y/M.
In the short term, the speed indicator is constant; in the long term, it is a variable value that can be adjusted. The speed of money circulation is affected by:
- banking infrastructure of the country;
- technical equipment of institutions participating in monetary schemes;
- economic activity.
The more advanced the satellite, computer communications, and technical equipment of banking structures, the more intensively the money is circulated and the less of it is required for the stable functioning of the economy.
The money supply required for payment transactions depends on the demand for money and supply by banks.
Money turnover: change in the velocity of money circulation
Change in velocity of money is caused by an increase or decrease in production volumes - when production increases, the speed increases, when production decreases, it slows down. Indirectly, the circulation of money depends on the phases of the economic cycle. Thus, during a crisis, the turnover of the money supply decreases.
Subject to price stability in the country, the following can be observed:
- a slowdown in cash flows is a sign of a decline in GNP;
- acceleration of money turnover is a criterion for increasing GNP.
As inflation accelerates, money turnover increases equally.
A significant change in the indicator of intensification of the movement of money supply can be caused by a qualitative transformation of the money circulation system.
Velocity of money circulation: factors of movement
To calculate the turnover of money in the economy, an indicator is used that determines velocity of money circulation. Factors, affecting the speed coefficient:
- General economic. Conditions: cyclical development of the economy, price movements.
- Monetary:
- changing the structure of the payment circuit;
- development of credit transactions;
- intensity of mutual settlements;
- level of interest rates;
- rate of development of production volumes;
- economic situation in the Russian Federation.
The development of payment and settlement systems accelerates the circulation of money. The money supply intensification indicator reflects the inflation rate.
With economic growth, money turnover will decrease.
1.3 Velocity of money
Monetary units can be used again and again in a circular flow of income. The more often money is used for payments in a given period - the faster the money “turns around” - the smaller the required volume of money supply for a given volume of real income at a fixed price level. The rate of turnover of cash reserves is called the rate of circulation of money income because it equals the rate at which money is spent on goods and services within a given period of time. Hence, velocity of money is an indicator of the frequency with which the average unit of a national currency is used to carry out 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 or once a year. The frequency of receiving wages and salaries appears to influence the amount of money workers retain from one payday to the next; their average cash savings will decrease as the frequency of wages increases and vice versa. This inverse relationship between average savings and frequency of receipts 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 monetary savings of different economic units of the economy, the greater will be the rate of accumulation of money 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 receipts and payments. True, some other economic variables also have an undeniable influence on the average amount of cash in families and business firms. The income and welfare of business units have the following impact: cash reserves tend to increase as income and general welfare increase. Interest rates also affect money holdings (and therefore 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 increase and decrease as interest rates decrease. However, the value of the so-called interest elasticity of demand for money (the degree of sensitivity of the desired amount of average cash savings to changes in interest rates) is problematic. Another significant factor related to people's choice of how much cash to hold on hand is expectations of upcoming economic events. For example, if high inflation is expected, the population holds less cash because... their purchasing power decreases as prices rise. On the other hand, expectations of lower prices and/or employment leads to a desire to increase monetary savings. Expectations related to upcoming interest rates can also have an impact on cash holdings. When interest rates are expected to rise, the public may hold off on deposits until higher rates are announced and therefore hold more cash.
Money is in constant movement between three entities: individuals, business entities and government bodies. The movement of money when performing their functions in cash and non-cash forms constitutes 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 income of various social groups.
The beginning of the movement of money is preceded by its concentration among subjects. They are concentrated in the wallets of the population, in the cash registers of legal entities, in accounts in credit institutions, and in the state treasury. For the movement of money to arise, there must be a need for money on one of the two sides. The demand for money arises when carrying out transactions; money is needed for circulation and payments for goods and services. Their volume is determined by nominal gross domestic product. The greater the total monetary value of goods and services, the more money is required to complete transactions. There is also a demand for money for savings, which comes in various forms: deposits in credit institutions, securities, official government reserves.
The number of banknotes required for circulation is determined by the law of monetary circulation. All monetary circulation of countries is subject to this formula, also known as the equation of exchange. This equation expresses the rate of money turnover:
M*V = P*Q V = (P*Q)/M
V– speed of money turnover
M- amount of money
P– prices
Q– the size of all goods
The money turnover rate characterizes the speed at which money circulates in the economy, i.e. how many times during 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 equals 60 loaves per year, and P equals 5 rubles. The total number of rubles involved in transactions is equal to:
РQ = 5 rubles/per loaf * 60 loaves/per year = 300 rubles per year.
Calculating the right side of the equation of the quantitative theory of money allows us to obtain the monetary value of the sum of all transactions made during the year, equal to 300 rubles per year.
Let us now assume that the total circulation in the economy is 100 rubles. In this case, we can calculate the velocity of money as follows:
V = (P*Q)/M = (300 rubles per year)/(100 rubles) = 3 times a year.
This means that in order for transactions worth 300 rubles to be completed in a year in an economy where 100 rubles circulate, it is necessary for each ruble to change hands three times in a year.
The speed of circulation of money is influenced by general economic factors, i.e. cyclical development of production, its growth rate, price movements, as well as monetary factors, i.e. the structure of payment turnover (the 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 transactions in credit institutions and the use of electronic money in settlements. (non-cash money circulation). In addition to these general factors, the speed of circulation of money depends on the frequency of income payments, the uniformity of the population’s spending of their funds, the level of savings (money lying at home with consumers cannot service the turnover) and accumulation, etc.
Let's consider an example of the dependence of the speed of money turnover on the frequency (periodicity) of payment of income (wages, rent, interest and profit): if a salary of, 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 only need 50 rubles - pay at the beginning of the month, and then with the same 50 rubles (which the employee will spend for the month) - in the middle of the month . Thus, the more frequently wages are paid, the less money may be required to secure the transaction.
Or, for example, on the rate of economic growth. The higher it is, the less money is required in quantitative terms. Let's assume 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 a 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 next expenses, since the 500 units spent earlier will only be returned in the next month. So you need to have 1000 units available. Now imagine that the speed 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 receive 500 units, which managed to turn around and returned to your system. You can make your second planned expenses for the same 500 units with which you carried out the operation 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 monetary circulation that influences economic growth, price dynamics, employment, and the smooth functioning of the payment and settlement system.
Money supply represents the total volume of cash and non-cash money.
Composition and structure of the money supply:
To measure the amount of money, special indicators are used - monetary aggregates, which are approved by law.
A monetary aggregate is a specific grouping of liquid assets that serve as measures of the money supply.
Different countries use different monetary aggregates, from the narrowest (“money base”) in Switzerland to the broad liquidity measure in the UK and “total credit” in Italy. Taking into account the experience of foreign countries, the Central Bank of the Russian Federation carries out calculations of the following monetary aggregates:
M0 – cash in circulation;
M1 = M0 + funds in settlement, current and special accounts of legal entities, funds of insurance companies, demand deposits of the population in banks;
M2 = M1 + time deposits of the population in Sberbank;
M3 = M2 + certificates and government bonds.
Equilibrium occurs when M 2 >M 1, strengthens when M 2 +M 3 >M 1.
The composition of monetary aggregates varies from country to country. Thus, in France there are 2 monetary aggregates, in the USA - 4, in Japan and Germany 3, and in England there are five monetary aggregates.
Currently, the monetary base indicator is used to characterize the money supply. It includes the M0 aggregate + cash in the cash desks of commercial banks, required reserves of banks in the Bank of Russia and funds in correspondent accounts of commercial banks in the Bank of Russia, thus, the monetary base is essentially equal to the M2 aggregate.
The money supply depends on two factors: the amount of money and the speed of its turnover
The circulation of money does not occur spontaneously - it is subject to certain laws. Their knowledge allows you to react more quickly to other changes, make appropriate corrective decisions and influence economic development in the most favorable way. These rules of circulation are called the laws of money circulation.
The basic law of monetary circulation, the formula of which was presented by K. Marx, connects prices, velocity of circulation and quantity of money.
Money supply and monetary base. One of the main quantitative indicators of money circulation is money supply- a set of purchasing, payment and accumulated funds serving various communications and belonging to individuals and legal entities and the state.
With the development of forms of commodity exchange and payment and settlement relations, the composition and structure of the money supply underwent significant changes. At the beginning of the 20th century. with gold circulation, the structure in developed countries was as follows: gold coins accounted for 40%, banknotes and other credit money - 50%, and account balances in credit institutions - 10% on the eve of the First World War - 15.22 and 63%, respectively;
The withdrawal of gold money, first from internal and then from external circulation, had a serious impact on the structure of the money supply. Real money (gold) completely disappeared from circulation, the dominant position was taken by irredeemable credit money (primarily banknotes), appearing in cash and non-cash forms.
In economically developed countries, and later in our country, financial statistics began to use monetary aggregates:
To determine the money supply of countries, different numbers of aggregates are used (USA - four, France - two). In Russia, three aggregates are used to calculate the total money supply - m O , M 1 , M 2 .
Currently, the indicator used to characterize the money supply is monetary base. It turns on the unit m O plus cash in the cash desks of commercial banks, required reserves of banks in the Bank of Russia and funds in correspondent accounts of commercial banks in the Bank of Russia, thus the monetary base is essentially equal to the aggregate M 2 .
The money supply depends on two factors; 1) the amount of money and 2) the speed of their turnover.
Law of money circulation. The amount of money needed to perform its functions is established by the economic law of money circulation, discovered by K. Marx.
Law of money circulation determines: the mass of money for circulation is directly proportional to the quantity of goods and services sold on the market (direct relationship), as well as the level of prices of goods and tariffs (direct relationship) and inversely proportional to the speed of circulation of money (inverse relationship).
All factors are determined by production conditions. 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, as well as prices.
With the emergence and development of credit relations, the function of money as a means of payment arises; goods are sold on credit against debt obligations. Credit leads to a reduction in the total amount of money in circulation, since a certain part of debt obligations is mutually repaid.
The law that determines the amount of money in circulation with a medium of two functions - a medium of exchange and a means of payment - is somewhat modified and takes on the following form:
When real money (gold) was functioning, its quantity was maintained at the required level spontaneously, since the function of the treasure acted as a regulator. The relationship between the mass of goods and the mass of money was maintained relatively accurately. This ensured the stability of money circulation.
In the absence of a gold standard, the law of paper money circulation began to operate, in accordance with which the number of tokens of value was equated to the estimated amount of gold money required for circulation. In this situation, the stability of money was shaken, and depreciation became possible.
Nowadays, in the conditions of demonetization of gold, i.e. loss of its monetary functions, the law of monetary circulation underwent modification. Now it is no longer possible to evaluate the amount of money from the point of view of even an approximate calculation through gold. It has gone out of circulation and does not serve not only as a means of circulation and a means of payment, but also as a measure of value.
A measure of the cost of goods and services became money capital, measuring value not on the market during exchange (as was before), but in the production process - commodity to commodity. Every commodity, exchanged for irredeemable credit money, expresses its value by equating it to a variety of commodities. In this regard, a commodity transaction, valued at a certain amount of irredeemable credit money, must provide the entrepreneur with such an amount of use value that will allow him, after realizing the use value, to begin a new production cycle. Because of this, money acquires the ability to be a universal equivalent. Although there is no spontaneous regulator of the general amount of money under the dominance of signs of value, this role of regulating money circulation passes to the state.
Irreplaceable credit money, acquiring the features of paper money, is introduced by the state authorities, which endows them with a forced exchange rate. Their issue without taking into account the cost of goods produced and services provided in the country will inevitably cause their surplus and ultimately lead to depreciation.
In this regard, the question of the need to determine the required amount of money for circulation becomes of great importance. According to classical theory A. Marshall And I. Fischer, amount of money is determined by the dependence of the price level on the money supply:
From the formula, the amount of money required to circulate a certain mass of goods is equal to:
and the price of the goods
The price level changes in proportion to changes in the mass of money in circulation.
In Russia, the main reason for the increase in the money supply is the huge federal budget deficit, which for 2000 is envisaged in the amount of 57.87 billion rubles, or 1.08% of GDP. During the first half of the 90s, it was repaid by additional issue of money in circulation, at the same time, commodity turnover actually declined due to a reduction in production volume.
The growth of the money supply is facilitated by money multiplier(from Latin multiplicator - multiplying), arising with the development of the credit system (in conditions of two or more levels). Its essence is that the money supply in circulation increases as a result of the expansion of credit operations of banks with their clients by receiving funds from the centralized reserve of the Bank of Russia, formed from mandatory contributions from banks. Theoretically, the multiplication coefficient is equal to the value of the inverse rate of required reserves established by the Bank of Russia for the country's banks. It is calculated for a certain period of time, usually a year, and characterizes how much the money supply in circulation will increase during this period. The Bank of Russia, managing the money multiplier, carries out monetary regulation in the country.
Speed of money turnover. This is the second factor in changes in the money supply. To calculate the velocity of money circulation, i.e. their intensive movement when performing the functions of circulation and payment, are used two indicator.
1. The speed of movement of money in the circulation of the value of a social product or the circulation of income:
This indicator indicates the connection between money circulation and economic development processes.
2. Money turnover in payment circulation:
This indicator indicates the speed of non-cash payments. Other indicators of the speed of money turnover are also used. The speed of money circulation is affected by:
- 1) general economic factors - cyclical development of production; its growth rate; price movement.
- 2) monetary (monetary) factors - the structure of payment turnover (ratio of cash and non-cash money); development of credit operations and mutual settlements; the level of interest rates for loans on the money market; introduction of computers for operations in credit institutions; use of electronic money in payments
The speed varies depending on the frequency of income payments, the uniformity of the population’s spending of their funds, the level of savings and accumulation.