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Monetary Statistics Indicators

Money supply is one of the most essential factors forming the exchange rate. Money supply is defined as the total volume of the means of purchase which serve economics and belong to individuals, businesses and the country. The overabundance of one currency leads to its increased supply on the foreign exchange market and causes its rate drop in relation to other currencies. Correspondingly, a currency deficiency when there is a demand for it will result in the rate’s increase.

Money supply includes the following:

  • - Active money which maintains cash flow and non-cash transactions. High powered money is also considered as active money.
  • - Passive money is the money which can be potentially used for payments. Savings, reserves, account balance, i.e. the assets on the small time deposits and saving accounts in commercial banks, certificates of deposits and so called quasimoney.

In macroeconomics it is admitted to structure money supply by dividing it into several parts depending on the level of liquidity. Liquidity is a measure of how fast one can exchange an asset for cash for it to be used as a means of payment. The higher the liquidity the faster it can be transmitted into cash money.

Low liquid assets are the assets unable to employ as the means of payment till they are not remitted into another, more liquid asset. The liquidity is an important characteristic. The more liquid is an asset the more opportunities it gives to its owner.

The indicator which takes into consideration the amount of money with different level of liquidity and defines the structure of money supply is called monetary aggregate.

Monetary aggregates include:

  • - M0 aggregate – cash money. 2-3% of the total mass is coins, the other bulk is banknotes.
  • - M1 aggregate – cash money M0 and the current account balance to be applied to for the direct payments cashless or by cash remittance.
  • - M2 aggregate – M1 plus the money on the small time deposits, saving accounts, the amount of money on mutual funds accounts. This aggregate incorporates high liquid monetary assets.
  • - M3 aggregate – M2 aggregate and large time deposits, for example 100000 dollars in the USA.

As a result there is a system of aggregates structuring themselves one in the other but each is characterized by particular indicators of the content and the amount of money supply.

There are two main factors which exert an impact on the total amount of money supply. They are the amount of money in circulation and the money turnover speed. The amount of money in circulation is determined by the government on the basis of the economic demands and the state budget’s deficit. The money turnover speed depends on the duration of technological progresses in the capital intensive industry sectors, the structure of payment cycles (cash and non-cash balance), the level of technological development in credit institutions.