State money supply. What are the consequences of increasing the money supply? What acts as the narrowest indicator of the money supply

Let's consider nature and causes of deflation and decline in money supply .

Deflation (decrease in the general price level) may be a consequence of a contraction in the money supply or GDP growth with a stable money supply.

In turn, we can distinguish three reasons for the decline in money supply:

An increase in the demand for cash and, consequently, a decrease in the amount of money in circulation;

Curtailment of bank lending;

State intervention.

Growing demand for cash occurs when an individual's expectations about future events deteriorate, causing consumption and savings to decline. This is a natural mechanism of protection against a possible downturn in business activity and in this sense does not pose any particular danger.

Increase in cash in the hands of the population may cause only minor deflation unless bank runs occur as a result of changes in individual preferences.

Then deflation may accelerate due to bank loan compression, especially if the outflow of deposits turns into a rush to withdraw money from banks, ending in the ruin of the latter. Just a similar scenario was realized during Great Depression, when the collapse of the Bank of the United States led to a chain reaction, and ultimately the entire banking system was destroyed.

However, even this a form of deflation cannot be called harmful, since the withdrawal of money from banks is the result of the legal demands of depositors to receive money entrusted to the bank on the basis of a contract. The fact that no bank can withstand a massive influx of customers is not a sufficient reason to fear deflation.

Firstly, at long term deflation risk assessment and the lending process itself fundamentally change, and the likelihood of a bubble inflating in various markets goes to zero if the central bank does not provide inflationary fuel to the economy.

Secondly, even in the most difficult crisis periods there are banks and financial institutions that maintain solvency and sufficient reserves. Proper risk management of these organizations allows them to subsequently acquire less prudent competitors and expand their business. In this case deflation- a reflection of the recovery of the economy, after the accumulation of a critical mass of errors on the part of market agents and the government.

For example, in the USA during the financial crisis of 1839-1843. the money supply fell by 34% (more than during the Great Depression), and Wholesale prices fell by 32%. At the same time, GNP and consumption in real terms increased by 16% and 20%, respectively, but investment fell by 33%. Deflation and the collapse of a number of banks were the result of ineffective investments made during the inflationary boom preceding the crisis.

However, the targeted “reckoning” had a healing effect and made it possible to pass without serious consequences. crisis period. That's why money supply contraction as a result of voluntary and legal interaction of citizens, it is beneficial for the economy and does not threaten economic growth.

Of course, there are a number negative consequences deflation, especially pronounced in the short term and in relation to certain groups of people. But for the most part, the severity deflation during crisis due to serious misstatements market signals, which took place due to the artificial pumping of money into the economy by the government. The longer it lasts artificial growth of money supply, the heavier the reckoning, and the current financial and economic crisis is an excellent illustration of this.

However, when the government artificially contracts the money supply, the resulting deflation is not only unhelpful, but can be very dangerous. Withdrawal of money, like additional emission, significantly distorts market signals, but has a different impact on the behavior of market agents.

State regulation of money supply- another reason for the manifestation of rigidity wages. When people expect prices to rise, workers will never agree to a reduction nominal wage, despite the fact that producer prices usually drop sharply. In addition, the money withdrawn will have to be returned to the economy one way or another - either through interest payments on government bonds or through government spending, and this is a double whammy.

At the first stage, due to the outbreak deflation borrowers lose, and then inflation hits those who keep their money in cash or in low-yielding financial instruments. And finally, do not forget that all these events, like any other government intervention in the economy, requires resources to maintain officials and additional transactions.

A good example artificially created deflation is The Great Depression, when the Federal Reserve and the US government, pursuing different goals (fighting speculators, preserving gold reserves), compressed the money supply, bankrupting many banks and plunging the country into a multi-year recession.

Nevertheless, deflation as a result of targeted public policy - a costly undertaking for the government and not promising large benefits, therefore, after the 1930s. Not a single central bank in the world decided to repeat the actions of the Fed.

Were described above monetary reasons for the decline in the general price level. Deflation can also occur as a result of GDP growth in an economy with a stable quantity of money.

If the money supply and velocity of circulation are stable, then as output increases, the price level will decrease. This type of deflation can be called deflationary growth. This is the most useful form of deflation, which is often kept silent, and its consideration is necessary for an adequate analysis of sources economic growth.

Suppose the money supply in a country is fixed and the state only has the right to print new money to replace old, worn-out bills, but changing the total amount of money in circulation is prohibited. Then at economic growth the general price level will begin to decline.

Deflation in long term and with a stable money supply possible with economic growth, but if there is a decline in economic activity, then the general price level will rise and inflation, which is familiar today, will arise. The depreciation of money stimulates more active investment and growth of consumption, due to a decrease in passive savings (cash, demand deposits, etc.)

The growth of consumption will increase the profits of firms, and the growth of active savings (bank deposits, trust management, etc.) will increase investment and reduce the cost of borrowed funds, which together will create favorable conditions for firms to overcome the crisis. Inflation will not become a hidden form of taxation and will only reveal the presence of excessive cash balances, which will be reduced due to less conservative investment decisions.

However, new, more risky projects will be carried out taking into account long-term deflationary trend, that is, all the investment conditions will remain the same. Under the influence of the changed value of money, only the structure of investment portfolios will change in favor of more profitable projects.

Inflation objectively limited the size of the money supply and as we recover economic activity, in an economy with a stable level of money supply will prevail deflationary trend and prices will continue to decline, which will become an additional restriction for unreasonably risky projects.

Thus, deflation may be painful, unless, of course, this is a one-time process that goes against the general inflationary trend. However, if the decline in the general price level is long-term, economic processes and the expectations of market agents will change, changing the entire economic system. Most likely, peak GDP growth rates there will be lower modern meanings, but the likelihood of crisis phenomena will decrease even more significantly.

Of course, completely exclude crises difficult, after all, all people can sometimes make mistakes and the possibility of individual errors accumulating in deflationary economy exists. But stimulation through natural inflation in the economy with a fixed money supply during downturns in business activity is a good self-regulation mechanism that mitigates many possible negative consequences of crises.

Denial mass– is defined as the amount of cash in the hands of the population and in the cash registers of business entities, as well as deposits in bank accounts.

Quantitative determination of the monetary mass and its individual components is possible by constructing various indicators, applications. such displays as monetary aggregates.

The National Bank of the Republic of Belarus uses the following monetary aggregates to determine the monetary mass:

1. M0 – mass of cash in national currency.

2. M1=M0+ demand deposits in national. shaft.

3. M2=M1+ time deposits in national. currency.

4. M3=M2+ other deposits in national. currency.

5. M4=M3+ deposits in foreign currency.

Monetary aggregates M0, M1, M2 are the most highly liquid part of the money supply.

These are assets that are used in calculations without prior sale. Currently M0, M1, M2 occupy the largest specific gravity in the structure of the monetary mass. The remaining monetary units are still in the development stage.

Monetary base– cash in circulation and bank deposits with the Central Bank.

There is a direct connection between the monetary base and the volume of money supply. In developed market economy reg-xia scoop-e money mass, and not its individual elements.

The mass of money in circulation is determined by the law of monetary circulation, open Marx.

According to this law, quantity of money required for circulation, determined by the following formula:

D=R/S,

where D is the amount of money, P is the sum of prices, C is the turnover rate of monetary units.

With the development of credit relations and implementation money f-i s-va payment, the amount of money needed for circulation is determined by the following formula(as the sum product prices subject to sale P, - the sum of prices tov-v-prod-x on credit K + payments for which payment is due P - the amount of mutually extinguishing payments to VP and all this is divided by the number of turnovers of the same monetary units C): D=(R-K+P-VP)/S

Exchange level ( Fisher equation), close to Marx’s equation, looks like this: MV=QP

The product of the value of the currency in circulation M by the average circulation velocity of the monetary unit V = the product of the price level P by the real volume of the national product Q.

This Fisher equation allows us to explain such a phenomenon as inflation in terms of violations in the field of paper and money circulation.

Fisher's formula shows the dependence of the price level on the money supply.

10. Concept and structure of monetary turnover. In the process of production and household activities of business entities, settlements and payments arise when delivering products, providing services, and communications. with the relationship between financial and credit. systems. Business entities and the population make payments to the budget, extra-budgetary funds, repayment of loans and interest on them. A scoop of all these money. receipts and payments form money. turnover

Den. turnover- the movement of money, which is mediated by money. relations between enterprises, institutions, enterprises and the state, between the population and the state, between individual citizens.

Den. turnover is possible classify depending on the characteristics:

1. depending on nature of payments: commodity and non-commodity;

2. depending on payment method: non-cash and cash.

Part of the money turnover can be considered as payment. turnover, in which money functions in the quality of money. payment.

Payment turnover incl. includes part of cash. and non-cash turnover.

Scoop den. funds that are at the disposal of individuals and legal entities. persons called den. weight in circulation. Regulating money mass – basic task of the National Bank of the Republic of Belarus.

Methods for regulating money. turnover:

1. determination of the norms of required reserves;

2. determining the terms of the loans provided;

3. setting the interest rate on loans;

4. regulation of investment transactions based on prices. securities and in the foreign exchange market.

Non-cash.den. turnover

non-cash.den. turnover– a bunch of payments, actual. without using cash money. It is closely related to cashless transactions. calculations.

Non-cash. calculations– den. settlements made by recording the payment and receipt accounts.

Non-cash. den. turnover prevails in all countries of the world and is served next. tools: plat. order, payment demand-order, checks, letters of credit, plastic. cards.

Non-cash. calculations are carried out in m/d:

state and economic entities,

state and population,

state and commercial banks,

banks and business entities,

center. and commercial banks.

M/d cash-den. and non-cash. there is a close relationship, i.e. money moves from cash to non-cash.

12.Equivalent content of cash turnover

In countries with developed markets. economy under in cash we mean the amount of money available to payers. No distinction is made as to what form this money is in. In the Republic of Belarus, due to the special social-ec. development preserved demarcation m/d cash. and non-cash. money.

The term “cash” is deciphered as cash balances. signs that have legal force in the hands of the population, at the cash desks of banks and at the cash desks of business entities.

Cash– banknotes, coins issued by the center. emission center, find. at bank cash desks and by contacting outside the bank. spheres.

Cash turnover– part of the total. den. turnover, which is carried out with the help of cash. It is smaller in volume than non-cash turnover. However, his proper organization very important in social-ec. plan, because this turnover is served by relations, communications. with the sphere of personal consumption.

The circulation of cash is an area of ​​the economy that is in contact with all its other aspects. Sphere of money treatment is sensitive to what is happening. change in den. income of the population, on the possibility of converting money into real material benefits, on the distribution of money. income m/d social groups of the population.

Cash turnover is based on principles :

1. Enterprises of all forms of ownership are required to keep their money in bank accounts.

2. The enterprise receives cash for salary payments and other payments from the bank’s cash desks.

3. banks annually set a monetary limit. cash in the cash registers of the enterprise and all receipts. The economic body must transfer the proceeds to the bank account. The economic body must also hand over the amount in excess of the established amount to the bank.

Payment s-ma, her email. Types of payment.sm.

Payment. s-ma- this is a set of mechanisms, rules, norms and tools used to carry out the exchange of finances. values ​​between the parties in the process of fulfilling all their obligations.

Within the framework of the definition The state operates separately. payment.s-ma, cat.name national with its inherent features: legislative base, business practice, communications, infrastructure.

Board development level. s-we resp. level of development of the state.

An effectively working board will contribute to the development of the state, because it reduces settlement terms to a minimum, reduces costs and possible risks.

E-mail us:

participants (commercial banks, National Bank, non-financial institutions)

communication media within the system (BISS network, clearing system)

monetary and other instruments (pl/orders, pl/demand, plastic cards, letters of credit)

legislator base

negotiable relations

To board s-mom presented trace. requirements:

1. payment speed

2. payment terms

3. reliability and security of payments

4. convenience and versatility. isp

5. reasonable cost.

Non-cash calculations, methods of their organization.

Non-cash payments– these are monetary settlements made. by recording the accounts of payers and recipients of funds (beneficiaries).

The state has constantly expanded the scope of non-cash payments. By way of non-cash calculation, payments are made by companies and organizations, by companies and their higher authorities, by companies and financial credits.

Nowadays, the cash base has been reduced.

Advantages of non-cash payments :

· reduce consumption in cash

· reducing distribution costs

· acceleration of turnover

Principles of organizing non-cash payments:

· it is obligatory to store the money of business entities in bank accounts, with the exception of the cash of the day, the expenses of which are allowed in accordance with the bank's regulations.

· payments from accounts must be made by banks at the order of their owners in accordance with the established order of priority of payments and within the limits of the balance on the account.

· freedom of choice by business entities of forms of non-cash payment.

· urgency of payment, i.e. carrying out settlements in accordance with the terms established by the contract.

Forms of non-cash calculations, their classifications.

The form of non-cash settlements is determined by the type of settlement. documents, joint venture payment and document management.

In accordance with the current law, business entities in a non-cash order can pay by themselves with the payment order, payment order, request, checks, payment order, payment card , letters of credit.

In non-cash monetary turnover, various forms of calculation are used:

Credit transfer– this is a bank transfer at the initiative of the payer on the basis of pl/order or pl/required/order;

Debit transfer– this is a bank transfer at the initiative of the beneficiary on the basis of a request or a check. Bank plastic card– this is a payment system for settlements using modern technical systems.

Letter of Credit– this is an agreement between the payer and the payer’s bank, acc. The bank will pay for the supplier's documents, confirming the shipment of the product, according to the terms of the letter of credit.

In the modern economy, the money supply is formed with the participation of: the central bank, commercial banks and economic agents (organizations and the population) who are depositors and borrowers of commercial banks.

The Central Bank creates the main component of the money supply - the monetary base.

Monetary base = Cash in circulation + Reserves and deposits of commercial banks with the Central Bank

The central bank provides the economy with cash. This institution has a monopoly right to issue cash. The central bank is a bank of banks.

If we try to pay for the purchased pies at the buffet with a receipt with our signature, we will not succeed. But the central bank has this right. It issues cash if its experts believe that the economy needs additional money. The central bank of any state can increase the non-cash money supply in the economy by providing a loan to a commercial bank. In this case, the asset of the central bank’s balance sheet will reflect the operation of issuing a loan, for example, for 200 million rubles. In the liability balance sheet of the central bank, this amount will be reflected as the balance in the correspondent account of the commercial bank that received the loan.

The question arises: where did the central bank get the money to provide the loan? He created them! Unlike all other economic agents, the central bank is given by law the right to create money by making digital entries on its balance sheet. Therefore, it is not much of an exaggeration to say that the central bank will create money out of thin air. But it is important to remember that the central bank, firstly, forms only part of the money supply - the monetary base; secondly, it creates money in accordance with the needs of the economy. To understand this process, one must examine the central bank's balance sheet.

An increase in central bank assets simultaneously means an increase in liabilities and, accordingly, an increase in the monetary base. For example, the central bank’s purchase of foreign currency on the foreign exchange market from exporting organizations means an increase in cash balances in correspondent accounts of commercial banks with the central bank. This is due to the fact that exporting organizations have accounts in commercial banks, and the latter make payments among themselves through correspondent accounts opened at the central bank.

The money supply is formed in the modern economy on the basis of the monetary base and is quantitatively measured by monetary aggregates (Table 3.1). Commercial banks and their borrowers participate in the formation of another and the main part of the money supply. Non-cash money is created as a result of credit transactions.

Depositors of commercial banks contribute cash to current accounts and deposits and thereby increase non-cash money. It is non-cash money that is used in credit operations, and these operations lead to the creation of additional non-cash money.

Money supply is the amount of cash and non-cash money circulating in the economy. The non-cash component of the money supply is

money in current accounts and in bank deposits (deposits) on demand, money from which the depositor can receive in hand on any day, and in time bank deposits (deposits), i.e. open for a certain period.

Depending on the bank deposits taken into account, quantitative elements of the money supply - monetary aggregates - are distinguished. IN different countries A different set of such units is calculated, but usually there are four of them: * MO = cash in circulation; Ml = MO plus bank deposits in demand accounts; M2 = Ml plus bank deposits in time accounts; * M3 = M2 plus quasi-singles (short-term treasury securities).

The Bank of Russia currently publishes data on two monetary aggregates - MO and M2. According to the Bank of Russia definition, the monetary aggregate M2 is the sum of cash in circulation and non-cash funds. This indicator includes all funds of non-financial and financial (except credit) organizations and individuals in cash and non-cash form in rubles. Cash in circulation (MO monetary aggregate) is the most liquid part of the money supply, available for immediate use as a means of payment. This unit includes banknotes and coins in circulation. Non-cash funds include balances of non-financial and financial (except credit) organizations and individuals on settlement, current, deposit and other demand accounts (including accounts for payments using bank cards) and time accounts opened with credit institutions in rubles.

Liquidity of money is the relative ease of its use when purchasing goods, services, financial assets (securities). Of course, money in current accounts and demand deposits can be used by the owner immediately, unlike money in time deposits. This means that monetary aggregates have different liquidities. The Ml aggregate is more liquid than the M2 aggregate.

The ratio of the monetary aggregate M2 to GDP is called the monetization coefficient. This coefficient shows the degree of saturation of the economy with money. Currently, the monetization of the Russian economy is significantly lower than that of other developed countries. But the monetization coefficient of the Russian economy has a steady upward trend.

The process of formation of the money supply is directly affected by: - ​​the volume of the monetary base created by the central bank; - the intensity of money multiplication by commercial banks.

Monetary base. The primary and main element of the formation of the money supply is the monetary base (money on the balance sheet of the central bank).

The monetary base is the stable component of the money supply. We can talk about the stability of this component in the sense that it is entirely determined by the actions of the central bank, i.e. is completely controlled by him. The monetary base consists of coins and banknotes issued by the central bank, as well as mandatory reserve requirements - funds that commercial banks, by force of law, hold in special non-interest-bearing accounts at the central bank.

Another component of the money supply - bank accounts and deposits - can be characterized, firstly, as unstable, and secondly, as self-regulating.

Central banks have several methods at their disposal to create the monetary base:

• purchasing foreign currency on the foreign exchange market in order to replenish reserves;
• purchase of government securities;
• accounting of bills of commercial banks;
• loans to commercial banks.

In the USA and European countries, the main method of creating the monetary base is the purchase of government securities open market, and in Russia - the purchase of foreign currency on the foreign exchange market.

The monetary base is the monetary obligations of the central bank to economic agents - organizations and the population. Statistically, this indicator is determined on the basis of the balance sheet of the central bank. In the balance sheet of the central bank, items of sources of the monetary base are balanced by items reflecting its use. Sources of the monetary base include:

• foreign currency reserves;
• loans to commercial banks;
• government securities;
• rediscounted commercial bills;
• gold reserve.

The items of use of the monetary base in the balance sheet of the central bank are: * cash in circulation; * required reserves of commercial banks with the central bank; * balances on correspondent accounts of commercial banks with the central bank; * deposits of commercial banks with the central bank.

Note that the sum of the items of sources of the monetary base coincides with the sum of the items of its use.

If the central bank buys foreign currency or government securities, it pays with newly created money. Initially, this money ends up in correspondent accounts of commercial banks at the central bank and is subsequently distributed throughout the economic system.

The size of the monetary base reflected in the balance sheet of the central bank corresponds to the amount of: - cash in the non-banking sector of the economy; - required reserves of commercial banks in the central bank; - cash in the reserves of commercial banks.

The part of the monetary base that is created in the United States and European countries as a result of the purchase of government securities is more manageable compared to the part that is created as a result of central bank loans. The first is called the unborrowed monetary base.

The monetary base is often characterized by the term “primary liquidity”. To the secondary, i.e. derivative liquidity refers to the total money supply created by the multiplier effect of the expansion of deposits as a result of lending operations by commercial banks. Historically, primary liquidity was created by commercial banks and treasuries (mints). To date, the function of creating primary liquidity has been assigned to central banks.

It is important to compare the effectiveness of methods for creating primary liquidity (sources of the monetary base) and, accordingly, the choice of criteria for comparing them. Two such criteria can be distinguished:

1. effectiveness in achieving monetary policy objectives;
2. efficiency.

As world practice has shown, the purchase and sale of securities, i.e. Carrying out operations on the open market allows you not only to control the amount of money in circulation, but also to change it quite accurately within the required limits. The central bank's purchase of government securities to create an appropriate amount of new money means monetization (transformation into money) of government debt. Government obligations are most suitable for monetization, since they are secured by the economic power of the state - its property, as well as the tax base determined by it.

The volume of government bond issues in the United States and European countries is determined by the budget's borrowing needs. Bonds are distributed in the banking and non-banking sectors, as well as among the population. The Central Bank is interested in purchasing only part of the volume of bonds issued by the government for the purpose of monetization. If the central bank were to purchase the entire government bond issue equal to the budget's borrowing needs, it would create a monetary base that would lead to a surplus money supply.

But if the state, represented by the government, issued only such a volume of bonds that the central bank needed to monetize public debt (i.e., to organize money circulation), then open market operations to regulate the money supply in circulation would become impossible. Their essence is as a method of regulating the quantity of money - in the exchange of bonds for money or money for bonds (depending on the current goal of the central bank's monetary policy). The interest income paid by the government on the bonds is distributed between the central bank and economic agents. At first glance, it appears that the state is transferring money from pocket to pocket - the Ministry of Finance pays a percentage to the central bank, and the latter then transfers part of its net profit back to the budget. In turn, economic agents receive income on their investments. But in practice it turns out to be more a difficult situation. The use of government bonds as assets of the central bank determines a specific policy regarding their exchange rate. When conducting open market operations, the central bank must determine the bond rate at which economic agents would be interested in either buying them or, conversely, selling them, depending on the goals of monetary policy.

Significant funds in in this case are spent on servicing the bond market. In fact, there is a loss of large volumes of share premiums (seigniorage). Methods of expanding the monetary base, such as discounting commercial bank bills and loans to commercial banks, allow the central bank to fully accumulate share premium. However, they do not make it possible to quickly manage the money supply and ensure its change within strictly specified limits.

The Bank of Russia calculates the monetary base in narrow and broad definitions.

The monetary base in a narrow definition includes cash issued by the Central Bank of the Russian Federation (taking into account balances in the cash desks of credit institutions, i.e. commercial banks) and balances in the accounts of required reserves for funds raised by credit institutions in national currency deposited with the Bank of Russia.

The monetary base in a broad definition includes: cash in circulation, taking into account balances in the cash registers of credit institutions; correspondent accounts of credit institutions with the Bank of Russia; required reserves; deposits of credit institutions in the Bank of Russia; Bank of Russia bonds from credit institutions.

Before the global economic crisis of 2008, the Central Bank of the Russian Federation created the monetary base mainly through the purchase of foreign currency on the Russian foreign exchange market. This foreign currency comes to Russia as export earnings from the sale of goods and services on the world market. Russian exporters sell proceeds in foreign currency because they need rubles to pay taxes, wages, and purchase equipment. The Bank of Russia is buying foreign currency both to replenish its reserves and to prevent the strengthening of the ruble. Excessive strengthening of the ruble has a negative impact on Russian exports of industrial products, and also leads to an increase in imports and, accordingly, a weakening of the competitiveness of domestic producers in the national market. With the onset of the 2008 crisis and the reduction in export revenues from energy exports, the Bank of Russia began to use such a tool as increasing the monetary base as lending to commercial banks.

Money creation by the banking system. Let's imagine the following situation: the volume of money supply in the economy is N; besides, you have Bank deposit(deposit) in the amount of 1000 rubles. A commercial bank issues a loan to its client in the amount of 800 rubles using this deposit. This money is transferred to another bank as payment for purchased goods. Consequently, before the loan was granted, the money supply in the economy was N + 1000, and after the credit operation it was N + 1000 + 800. Thus, the banking system creates the money supply as a result of credit operations. This phenomenon is called the money multiplier.

Not only economists, but also politicians participated in the recognition of the fact that commercial banks increase their liabilities by issuing credits (loans). In 1859, during hearings on the problem of banking policy in the House of Commons, English parliamentarians drew attention to the growth of loans provided by banks, which occurred against the backdrop of a stable amount of money in circulation. One of the parliamentarians asked a question in this regard, the meaning of which boiled down to the following: it turns out that banks create their own liabilities by issuing loans? This is what actually happens.

The concept of expanding bank deposits was put forward by K. Pixel in 1907. Around the same time, practicing economists began to develop ideas about the special importance of bank reserves for expanding the money supply. But the very concept of a money multiplier appeared much later, in the 1960s.

The money multiplier effect is the process of creating non-cash money in bank (deposit) accounts as a result of lending operations by commercial banks. In economic literature, along with the concept of “money multiplier,” the concepts of banking, credit, deposit, and reserve multipliers are used. All these concepts characterize a single mechanism and in this sense are synonymous. They emphasize specific aspects of money multiplication.

When using the term “bank multiplier,” attention is focused on the subjects of the process - commercial banks. When using the term “credit multiplier,” the emphasis shifts to driving force process - credit operations. When using the term “deposit multiplier”, the result of the process is noted - an increase in money in deposit accounts in commercial banks.

When using the term “reserve multiplier”, emphasis is placed on the main condition for the multiplication of money - the presence of free reserves in commercial banks. Money multiplier = money supply: money base or Money supply = money multiplier x monetary base

From the above formula it follows that the formation of the money supply occurs on the basis of the monetary base created by the central bank. Thus, the amount of deposits exceeds the volume of the monetary base by the value of the money multiplier.

The monetary base is completely controlled by the central bank. The value of the money multiplier is influenced by the central bank, commercial banks, their depositors and borrowers.

The central bank influences the money multiplier if it sets reserve requirements for commercial banks. When determining such requirements, each commercial bank is obliged to transfer to a special account at the central bank a certain part of its demand accounts and time deposits of clients. This portion of deposits deposited by commercial banks with the central bank is called the reserve requirement. For example, with a mandatory reserve requirement of 6%, a commercial bank will have to transfer 6 kopecks to the central bank. from every ruble of deposits opened with him. Mandatory reserve requirements are applied in the banking systems of Russia, the USA, and the EU. They are not available in the UK, Canada, Switzerland.

Such requirements have a double meaning. Firstly, the withdrawal of part of the deposits placed in them from commercial banks means a decrease in their ability to provide credits (loans) and thereby create additional non-cash money. Consequently, an increase in the required reserve ratio leads to a decrease in the money multiplier, and a decrease, on the contrary, leads to an increase. Therefore, mandatory reserve requirements play the role of a tool for regulating the money supply.

Secondly, required reserves are credited to the balance sheet of the central bank and can be used to pay off the debts of a commercial bank in the event of its bankruptcy. Commercial banks make decisions about granting loans and can refuse such transactions if they consider them to be unnecessarily risky, for example, in case of poor market conditions. In this case, commercial banks will prefer to hold excess reserves. The larger the amount of excess reserves, the fewer loans will be issued and the smaller the volume of newly created non-cash money will be. Consequently, the ratio of excess reserves to the sum of accounts and deposits affects the value of the money multiplier.

Borrowers are able to influence the value of the money multiplier if, under certain conditions, for example, when interest rates on loans are high, they find it impossible to resort to widespread use of bank lending.

Savers influence the value of the money multiplier by their decisions to change the amount of money they hold in cash and, therefore, to deposit money into a commercial bank account. If the depositor decides to deposit money, the commercial bank will receive additional funds and will be able to use them to provide loans. As a result of the credit operation, the amount of non-cash money in circulation will increase.

Thus, we have identified four indicators that affect the value of the money multiplier: the required reserve ratio of the central bank; the amount of reserves of commercial banks not used for lending; interest rate on loans issued by a commercial bank to its borrowers; the ratio between the cash of economic agents and their money in deposit accounts and debit cards.

It is important to consider that increasing the monetary base by issuing cash does not lead to a multiplication of money if it remains in the hands of the population. This is due to the fact that the money multiplier effect is associated only with non-cash money.

The scheme for the manifestation of the money multiplier effect is as follows: the excess reserve of a commercial bank turns into a loan; loan - to a new deposit; the latter again turns into a loan, minus the amount subject to mandatory reservation. The chain is repeated every time until the amount of accumulated required reserves is equal to the amount of the initial reserve of the banking system. It turns out that the total amount of expansion of deposits is equal to the increase in reserves of the banking system divided by the required reserve ratio. So, if the increase in reserves is equal to 100 rubles, and the mandatory reserve requirement is 10%, then total deposits will increase by 1000 rubles. The growth of banking system reserves occurs when the central bank increases the monetary base.

The transition from commodity money (precious metals) to credit money meant that the banking system acquired the ability to create a money supply. By attracting deposits, i.e. By expanding their liabilities (liabilities), commercial banks simultaneously create the opportunity for themselves to form new assets by providing loans. The newly issued loan is transferred to the account of the recipient - the bank's client. If he leaves a given bank, he still remains in the banking system except for the amount that takes the form of cash. The chain “loans - deposits - loans” turns into the process of creating new money.

A prerequisite for predicting the effect of the money multiplier is the correct calculation of the monetary base. As noted, the sources of the monetary base are reflected in the assets of the balance sheet of the central bank, and the directions of its use are reflected in the liabilities. However, its different components play different roles in money multiplication. In particular, the required reserves of commercial banks represent a “frozen” part of the monetary base. The multiplier effect is directly affected by changes in the volume of these reserves, since the withdrawal of funds into mandatory reserve funds reduces the resource base of commercial banks. But required reserves held in accounts at the central bank do not participate in the creation of money and, therefore, should not be included in the monetary base when calculating the value of the multiplier. It should be taken into account that the expansion of the multiplier effect through the impact on commercial bank reserves is completely under the control of the central bank.

In the liabilities of the balance sheets of the central banks of many countries, a significant amount consists of deposits of the public sector - treasury funds (i.e., budgetary resources). Therefore, the monetary base includes “central bank money” (the monetary base minus treasury funds). Budgetary resources accumulated in central banks are formed at the expense of taxpayers. This reduces the volume of deposits and, accordingly, the scale of multiplication of monetary aggregates. Conversely, spending budget resources increases funds on deposits and leads to an increase in the money multiplier. In this case, decisions on the use of resources are made by the treasury and are outside the control of the central bank.

The money multiplier can be calculated using both the Ml and M2 aggregates. But in reality, only the funds used for lending are multiplied, or more precisely, the balances on demand accounts. For example, company “A” has a demand deposit in the bank in the amount of 1000 rubles. (taken into account as part of the Ml aggregate) and places it in a fixed-term deposit (M2). As a result, Ml is reduced, and the value (M2 - Ml) increases. At the same time, company “B” receives a loan from the same bank in the amount of 1000 rubles, credited to the account on demand. As a result, (M2 - Ml) remains unchanged, and Ml increases by 1000 rubles. Consequently, M2 increases due to the multiplicative expansion of Ml.

When the economy is in crisis, the money multiplier decreases. In conditions of low business activity, an increase in the monetary base has little effect on the Ml aggregate. This situation was typical during the Great Depression in the United States. It was also observed during the economic crisis of the early 1990s. in Russia.

A net withdrawal of money from circulation occurs only during hoarding, when part of the money supply remains in the hands of the population and does not enter the banking system in the form of demand or term deposits. But if money is in accounts with credit institutions and is not used by its owner, it automatically turns into credit resources. Narrow aggregate Ml “workers” converting money; they provide economic turnover. The value (M2 - Ml) can be interpreted as money capital. The Ml unit is closely related to the dynamics of the transaction amount; the value (M2 - Ml) depends on the volume of GDP, since it reflects the increase in income. According to Ml, it is also related to GDP to the extent that the latter indicator is determined by the volume of transactions.

Monetary multiplication mechanism. Theoretical understanding of the process of creating deposits by the banking system took almost the entire 19th century. First, the attention of economists was attracted by the activities of clearing houses. By studying their operations, researchers took note of the increased capabilities of commercial banks in creating credit instruments of circulation. An important step in the development of monetary theory was the recognition of the difference between the credit expansion carried out by each bank individually and the credit expansion of the banking system as a whole. In addition, theorists gradually developed an understanding of the role of bank reserves in the formation of the money supply.

The transition from commodity money (gold) to credit money predetermined the special role of the banking system in the creation of means of payment. First, banks began to issue banknotes in a certain proportion to their gold reserves. Secondly, through the “loans - deposits - loans” mechanism, the banking system was able to create additional money supply.

A change in the form of part of banking assets leads to an increase in liabilities. The fact is that when the bank's funds are converted into a loan, this loan goes to the borrower's current account and thereby increases the bank's liabilities.

Changes in the monetary base can play a more significant role in the dynamics of the money supply than the dynamics of the multiplier. In the long term, the decline in the multiplier may be offset by an increase in the monetary base. In the short term (month, quarter), the value of the money multiplier can fluctuate significantly and have a significant impact on the money supply.

Among the determinants of the money multiplier, the ratio of time deposits to demand deposits, as well as the volume of required reserves of commercial banks, is of particular importance. But the action of these determinants can be multidirectional. They are able to mutually balance each other. A factor reducing the multiplier effect is the increase in cash in the hands of the population.

To increase the money supply, it is necessary that the effect of increasing the monetary base and reducing reserve requirements exceeds the counter-effect produced by an increase in the ratios “cash - deposits” and “term money - demand deposits”.

Money multiplier in modern economics. The deposit expansion process begins:

1. from the appearance of excess reserves at a commercial bank after the sale by it or its client of foreign currency or government bonds to the central bank;
2. a commercial bank obtaining a loan from the central bank;
3. opening by an economic agent of a deposit in a commercial bank by depositing cash.

In other words, the impetus for the expansion of deposits is an increase in excess reserves of the banking system. For the subsequent expansion of deposits, it is fundamentally important that the first deposit is not immediately converted into cash or transferred to another bank. Otherwise, the process of creating secondary liquidity will not be able to begin. Therefore, the multiplier effect is based on the fact that banks are able to decide to use excess reserves arising from the appearance of a deposit faster than the owner of the deposit decides to use it.

The money multiplier effect is created by balances in deposit accounts. The larger they are, the greater this effect. Banks consider a certain proportion of these balances to be a relatively stable value and use them to issue loans. In other words, any slowdown in turnover on customer accounts is used by banks to increase loans issued. If the interest rate is at a level at which the real sector can profitably use bank loans, the greatest multiplier effect of expanding the money supply is observed.

If the interest rate exceeds the level beyond which the profitable use of bank loans in the real world becomes impossible, the money multiplier decreases. A similar situation is possible when there is a lack of liquidity (money) in the economy.

The intensity of money multiplication is determined by the lending activity of commercial banks. In turn, this activity is determined by the interest of potential borrowers in attracting additional credit resources.

The interest of the real sector of the economy in credit resources depends on the ratio of four indicators:

1. profitability of production in a specific area;
2. interest rates on attracted loans (loan rates);
3. interest rates paid by banks on deposits (deposit rates);
4. net profitability entrepreneurial activity(hereinafter in this chapter - NHPD) - the difference between the profitability of production and the interest rate on attracted loans.

The main role in the multiplication of money is played by the intensity of the lending process, determined by the ratio of the loan rate, deposit rate and profitability in the real sector of the economy. In the mechanism of their interaction, the NPV is of particular importance. If business activity is carried out without attracting bank loans, NPV coincides with profitability. However, if loans are attracted to develop production, the NPV will be less than the profitability by the amount of the interest rate. The NPV indicator determines the “supply of entrepreneurial activity.” An increase in the difference between profitability and interest rates increases the use of credit and leads to an increase in the money multiplier. A decrease in NPV, on the contrary, predetermines the curtailment of business activity.

The profitability of the real sector and the interest rate on loans are determined by a different set of variables. The first is ultimately determined by the technological level of the economy, its ability to produce competitive products. The second depends on the volume of money supply, as well as on the institutional framework economic system, in particular its ability to ensure repayment of borrowed funds.

An entrepreneur will want to use credit resources to expand production if his expected NPV turns out to be high enough. This is possible either with an increase in profitability in conditions of improving market conditions, or with a decrease in loan rates.

The deposit rate can be considered as a lower bound on the supply of business activity. Once this is achieved, it becomes more profitable to place money in bank deposits. The demand for loans from entrepreneurs will be stable when the NPV significantly exceeds the deposit rate. Conversely, the demand for loans will fall when the NPV is below this value.

The convergence of profitability in the real sector with the deposit rate means stagnation of production and the flow of monetary resources from the manufacturing sector to the banking sector, where they are used to finance speculative transactions with financial instruments or trade and purchasing activities. Therefore, the ratio of NPV and deposit rates connects the real and monetary sectors of the economy.

The required reserve ratio is an administrative limiter on the multiplier effect. But the very fact of the presence of excess reserves, in particular in the form of balances on correspondent accounts of commercial banks with the central bank, indicates that the manifested effect of money multiplication is less than potential. Thus, in the modern economy, monetary aggregates are formed by commercial banks on the basis of the monetary base created the central bank. Consequently, the issue of non-cash money is carried out both by a state institution and by private credit institutions. It is important to note that the basis of the emission system is the monetary base - central bank money.

Multiplying reserve currencies in the global money market. Rapid development in the late 1950s the global money market attracted the attention of researchers to the study of the multiplication of reserve currencies when they circulate on the world market. Three main factors led to the emergence of US dollars on the world money market:

1. the transfer of dollar deposits of Soviet banks from the United States to Europe, dictated by political reasons;
2. the introduction in 1957 by Great Britain of a ban on the use of pounds sterling for lending to transactions with non-residents;
3. legal limitation in the United States on interest rates on deposits.

Therefore, European banks, primarily London ones, began opening deposit accounts in American currency. These funds were widely used for interbank lending. The significant expansion of the world dollar market was led by central banks placing part of their reserves on it. The sharp increase in oil prices in the early 1970s played a significant role in the further development of the market. and the emergence of petrodollars for high export earnings of oil-producing countries.

The next stage of expansion of the global dollar market is associated with the creation of offshore banking business centers, as well as the opening of international banking zones (International financial facilities) in the United States. The latter allowed American banks to conduct operations that are not subject to national legislation.

Early explorers of the global dollar market recognized its ability to operate on the same principle as the national banking system: the provision of loans led to the emergence of new deposits.

At the same time, the processes of credit creation in the world dollar market and in the national banking system differ significantly.

Firstly, the world dollar market, especially during its formation, was dominated by time interbank deposits. Their placement did not lead to the multiplication of money. Balances in the current accounts of bank clients began to increase only later, with the development of offshore business and the growth of settlements between account holders. Secondly, mandatory reserve requirements were never established for banks participating in the world dollar market.

Thirdly, the world dollar market is closely connected with the American money market. Deposits transferred outside the United States play the same role in the process of multiplying dollars on the world market as the monetary base does in the domestic economy. A rise in US interest rates leads to an outflow of funds from the world dollar market, and a fall in them leads to an inflow. The world dollar market receives not only deposits created by the American banking system, but also funds that were previously multiplied in the world banking system, entered the US monetary system and returned back. The multiplier effect in the global dollar market is closely intertwined with the creation of money in the domestic US economy. This also applies to other world currencies: euro, pound sterling, yen, Swiss franc. In the case of non-cash ruble circulation in the CIS countries and of Eastern Europe there will be a multiplying effect of the Russian currency outside the borders of Russia.

An important factor in the development of the world dollar market is the policy of national central banks. When they purchase world currencies for their reserves, the possibility of the continuation of the multiplier effect depends on how these resources are used. If the central bank purchases US Treasuries with them, the process of multiplying dollars will be interrupted. This process will continue if the central bank places its reserves on the world dollar market. There is no doubt that this market has a huge impact on the money supply in the world economy, interest rates, and the ratio of reserve currency rates.

Calculating the value of the money multiplier on the world reserve currency market is associated with difficulties that have not been resolved to date. The fact is that the amount of liabilities of participating banks minus interbank deposits can be used as an indicator of market volume. However, it is unknown how the funds raised by banks are placed. They can be withdrawn from the world market, i.e. transferred to US bank accounts, or deposited in the same market. In addition, the amount of reserves created by offshore banks is unknown. A number of researchers note that the predominance of time deposits in dollars means that this market mainly performs redistributive functions, accumulating and placing resources. However, this interpretation does not explain fast growth operations in this market. To assess the multiplication of dollars on the world market, data on the volume of demand deposits is required. However, such statistics are missing, primarily due to the closed nature of the offshore banking business.

Ssnyorazh. Seigniorage (seigniorage) refers to the income of the issuer of money, appropriated to them by right of ownership.

Seignorage is defined as an increase in the monetary base, i.e. money high efficiency(line 14 “Reserve money” in the IMF statistical collections). In developed countries, seigniorage ranges from 0.75% to 1% of GDP; in developing countries with moderate inflation - up to 5% of GDP. The faster the rate of economic growth, the greater the demand for money and, accordingly, seigniorage.

When governments issued paper money, this revenue was the difference between the denomination of the bill and the cost of making it, including paper, ink, and printing. When the central bank issues money, the nature of seigniorage changes. The Central Bank issues cash in exchange for previously issued non-cash money in circulation. In developed countries, this money appears in circulation when central banks purchase government securities and foreign currency. Central banks usually return to treasuries, i.e. to governments, the interest income they receive on government securities.

Significant features of the formation of seigniorage are observed in countries with high export potential, including oil-producing countries. In particular, currently the basis of the Bank of Russia's assets is foreign currency. The source of its acquisition is the issue of non-cash rubles. The convertibility of the ruble involves one hundred exchanges into foreign currency. Consequently, the central bank's reserves must ensure the exchange rate of the ruble. But characteristic feature The modern monetary system is freedom of exchange rate setting. The choice of exchange rate regime is within the competence of central banks. They determine the rate at which national currency is converted into foreign currency. Central banks are not required to spend all their reserves to support exchange rates. This means that the amount of foreign currency purchased through the issuance of national money represents a type of seigniorage for the central bank. Assets in foreign currency may be lost by the central bank during operations to support the exchange rate of the national currency, especially if the level of such support is chosen incorrectly.

Central banks' foreign currency reserves are placed on the global financial market, including in US securities, and generate interest income, which, in its economic content, also refers to seigniorage.

Velocity of money circulation. Velocity of money circulation (VMV) is one of the most important indicators of money circulation. The Swiss mathematician and astronomer S. Newcombe in 1885 stated the equality between the money supply and SOD, on the one hand, and the realized commodity supply, on the other. Thus, the importance of SOD for understanding the functioning of money circulation was revealed.

The stability of SOD in the short and medium term is determined by the relative stability of the economic structure and the organization of money circulation. In the long term, SOD depends on the action of two main factors: 1) an increase in the number of economic agents; 2) strengthening the division of labor and increasing the number of intermediate links through which goods pass from the manufacturer to the final consumer. In other words, the long-term dynamics of SOD is determined by an increase in the volume of transactions in the economy. The dynamics of SOD reflects the cyclical fluctuations of the economy. A slowdown in cash flow occurs when cash balances in bank accounts increase. The increase in this indicator is associated with a general improvement in the economic situation. A significant increase in SOD is observed in case of a monetary disorder and is explained by the “flight” from a depreciating monetary unit.

SOD is traditionally calculated as the ratio of GDP to the value of monetary aggregates (Ml or M2). Therefore, its change is the result of a discrepancy in the growth rates of GDP and money supply. An increase in SOD means that GDP is growing faster than M2 (or Ml). Conversely, a decrease in SOD is a consequence of a faster rate of change in M2 (or Ml) compared to the rate of GDP.

The monetary aggregate Ml serves the turnover of not only GDP, but also the total social product (ASP), which is the sum of intermediate and final products. The dynamics of SOP affects money demand. Therefore, SOD is influenced by the relationship between GDP and SOP.

Note that this relationship cannot be stable over time. In particular, it depends on the deepening of the process of specialization of production. At certain stages of this process, an increase in the efficiency of social production can lead to GDP growth rates exceeding the SOP rates. In this case, the demand for money and, accordingly, the aggregate Ml will grow slower than GDP, and the SOD calculated using the aggregate Ml will increase.

In recent years, the growth rate of transactions with financial assets and real estate in developed countries has significantly outpaced the growth rate of GDP and Ml. This means that the dynamics of these transactions can compensate for the impact that changes in the ratio between GDP and SOP have on SOD.

Interest rate. One of the most important indicators of money circulation is the interest rate. It reflects balance money demand and offers of money. The interest rate is the “price” of money.

In addition to the relationship between money supply and demand, the interest rate is affected by profitability in the economy. High profitability of activities in any industry or sector of the economy allows you to pay for attracting additional financial resources. This may lead to an increase in the interest rate. There is a distinction between the interest rate on deposits and the interest rate on loans.

The interest rate on deposits is paid to the owners of money when they are placed on deposit with a commercial bank. Consequently, this rate is the “price” at which the owner of money (primary credit resources) sells it to a commercial bank. The interest rate on the loan is paid by the borrower to the commercial bank. Therefore, this rate is the “price” at which the borrower buys money (secondary credit resources) from the bank.

Depending on the duration of the period of use of money for deposit and credit operations, short-term (for a period of up to one year), medium-term (for a period of one to three years) and long-term (for a period of more than three years) interest rates differ.

The interest rate represents the price (i.e. cost) of capital and therefore affects the volume of investment, and through it - the indicators of aggregate demand and aggregate supply in the national economy, which determine the price level. There are differences between nominal and real interest rates:

where rn is the nominal interest rate; rr - real interest rate; p - inflation rate

As can be seen from the above formula, the nominal rate takes into account the rate of inflation (depreciation of money).

When the owner of money receives income in the form of a percentage of their placement, the money turns into money capital.

In the modern monetary system, the interest rate set by the central bank plays a special role. In Russia and the EU it is called the refinancing rate, in the USA - the discount rate. This rate is a benchmark for commercial banks. Central banks may use this rate when providing loans to commercial banks. But they carry out such operations only in cases where they consider it appropriate to increase the monetary base or increase the liquidity of the banking system, for example, in a financial crisis.

Regulation of money circulation. It refers to a system of measures carried out by central banks and aimed at balancing monetary demand and supply and ensuring the stability of the national monetary unit. Regulation of monetary circulation is carried out in each country by its central bank. The object of regulation is the monetary base and monetary aggregates.

By regulating money circulation, the central bank determines effective demand in the economy. This ensures state regulation of the economy. However, a number of economists suggest that the economic and, in particular, monetary systems are capable of functioning on the basis of market self-regulation. Therefore, Nobel laureate in economics F. von Hayek expressed the idea of ​​​​transitioning from monetary circulation based on fiat, state money to the circulation of exclusively private money. This proposal was supported by M. Friedman. The transition to private money would mean allowing the issuance of their own money by all economic agents without exception and the subsequent victory in the competition of money from specific issuers.

But every system, including the economy, is based on certain restrictions. Thus, viruses should not enter the computer system. In human civilization, marriages between close relatives are impossible, since such marriages lead to hemophilia in the offspring. The most important limitation of the economic system is the inability of economic agents to repay their obligations by issuing their own obligations. Imagine the situation: you live in conditions where private money operates and you paid for a pie at a buffet by writing “one hundred rubles” on a piece of paper and putting your signature. The next day, the dissatisfied barmaid informs you that she was unable to convert the money you issued into any other money and asks you to repay the obligation. If in the economic system it was possible for economic agents to repay their obligations by issuing their own obligations, then you would take a new piece of paper, write “two hundred rubles” and hand it to the barmaid. But thanks, among other things, to her prudence, we are not in danger of switching to issuing private money.

In recent years, the creation of local currency systems, i.e., has been actively discussed in the world economic literature. money used in small communities of people. One of the varieties of such money is used for settlements for mutual services between residents settlements; the second - mediates the exchange of goods between groups of enterprises. In the first case, the creation of local money is the work of enthusiasts and will forever remain so; in the second, we are talking about streamlining the barter exchange of non-competitive products. Neither one nor the other can significantly influence the main trends in the development of monetary circulation.

It is important to take into account that the property of modern money is that it is accepted by the state to pay off tax obligations.

Money supply and monetary aggregates These are interconnected and interdependent concepts.

money supply is the totality of payment, purchasing and accumulated funds belonging to individuals, as well as legal entities and the state itself, involved in the process of servicing economic relations. The money supply characterizes the movement of money according to a quantitative indicator.

The mass of money refers to both cash and non-cash funds. According to its structure, it is divided into the active part (those cash, which serve the household) and the passive part (savings and balances in bank accounts, which are potential settlement funds).

The mass of money is not simple and does not coincide with cash. In fact, the share of cash in the mass of money is not so large, since all business entities make transactions with each other through bank accounts.

The level of development of a country determines the stability of monetary circulation and the share of cash in the total amount of money. For example, in the USA this figure does not exceed 5-10%, in the CIS countries - 30%. The more money a country has in its total stock, the less flexible the monetary system itself is. The money supply and monetary aggregates must be in the correct proportions to ensure normal functioning

As part of the mass of money, there are components that cannot be directly used as means of payment and purchasing. These are funds in time savings deposits, stocks, etc. They are called “quasi-money” (from the Latin “almost”). This part of the money in the overall structure is a very significant and significant part.

Structure of the mass of money and its composition constantly changing. It was different at different stages of development of commodity exchange and payment relations. During gold circulation at the beginning of the last century, the structure of the mass of money in developed countries was approximately as follows: 40% were gold coins, 40% banknotes, 10% account balances of various types of credit institutions. Immediately before the 1st World War, these figures changed accordingly: 15%, 22%, 67%.

To analyze the movement of money and changes in this process over a certain period, money supply and monetary aggregates various categories.

Monetary aggregates are indicators of the amount of money or financial assets that make up the mass of money.

The money supply and monetary aggregates in this sense are mutually intertwined. The so-called aggregates represent a stepwise hierarchical structure, in which each subsequent aggregate includes the previous ones. Each subsequent indicator includes less liquid assets. They are expressed by such concepts as monetary aggregates m1 m2 m3, m4, and also m0.

Unit M0 - cash in circulation (coins, banknotes, treasury notes).

Aggregate Ml includes aggregate M0 and funds in current accounts used for

Aggregate M2 includes Ml and deposits in commercial banks, short-term government securities that can become cash or checking accounts.

The MH aggregate includes M2 and savings deposits at lending institutions, as well as money market securities.

The M4 aggregate includes M3 and deposits in credit institutions.

Monetary aggregates in Russia are used in the following order to calculate the money supply: these are M0, Ml, M2 and MZ. Russia's money supply is characterized by a high share of cash, and this trend shows no sign of abating. For a more promising development of the monetary system, the money supply and monetary aggregates of Russia must move towards the greater weight of non-cash payments.

The money supply includes cash (banknotes, coins) and non-cash (deposits, settlement checks) funds.

Tracking changes in the supply of money that affect the price level, exchange rate, and business activity of the country makes it possible to determine policies for increasing or decreasing the money supply.

Money supply structure

The money supply consists of four categories of financial assets - monetary aggregates M0, M1, M2, M3. These groups are calculated on an accrual basis and are arranged in descending order of their liquidity, i.e., the rate of conversion into cash:

M0 - currency in circulation (coins, banknotes), money in foreign exchange and depository accounts (reserves) of the central bank;

• M1 = M0 + traveler's checks, demand deposits in the non-banking private sector;
• M2 = M1 + savings accounts, short-term bank deposits, foreign exchange market mutual funds;
• M3 = M2 + long-term bank deposits, institutional funds of the foreign exchange market.

In international statistics, central bank funds are M0, and commercial bank funds are divided into M1-M3. The M1 monetary aggregate contains the most liquid assets that are closely related to commodity turnover, which affects market conditions. The structure of the money supply is set individually by each country. Data on the money supply, based on the aggregates used, are published by the government or central bank of a country.

Regulation of the money supply

The money supply is controlled by the central bank and government apparatus of the country, which regulate the supply of means of payment through monetary and fiscal policies. State decisions regarding changes in the volume of funds in circulation depend on the state of the economy and are implemented in two directions:

• decrease in money supply — withdrawal of currency from circulation when its volume is greater than necessary. It is usually used to combat budget deficits and inflation. This process can be carried out through increasing taxes, reducing budget expenditures, increasing the bank discount rate, reducing lending, increasing investment, etc. A decrease in the money supply leads to a decrease in GDP;
• increase in money supply — additional issue of money. It is used in the event of an economic downturn and recession to increase consumer demand for products, stimulate production, ensure full employment, and increase GDP. Governments increase the money supply through credit expansion, militarization, and higher foreign exchange rates to boost economic activity.

Money supply and inflation

According to the theory of monetarism, there is a direct connection between the supply of money and inflation. If the money supply grows faster than production expands, prices rise as demand for goods and services exceeds supply. This causes inflation.

Countries regulate the release of funds into circulation to stabilize the economy. Zimbabwe experienced hyperinflation in 2015 due to an extremely rapid expansion of the money supply to avert a financial crisis. The domestic currency (Zimbabwean dollar) depreciated and was replaced by a stable global currency (US dollar) to combat hyperinflation.