Definition and calculation of this indicator. Velocity of money circulation
One of the main guidelines for monetary policy is the money supply. It is this parameter of monetary circulation that affects the economic growth, price dynamics, employment, smooth functioning of the payment and settlement system.
The money supply is the total amount of cash and non-cash circulation money. As part of money supply distinguish between active and passive money. Active money serves cash and non-cash payments, passive money serves savings, reserves and account balances. Passive money can potentially be used for settlements. There are so-called quasi-money, which include cash on time and savings deposits in commercial banks and special credit institutions. They are a kind of money, since they cannot be directly used as a means of purchase and payment. In countries with developed market economies, quasi-money is the main and most active component of monetary aggregates.
The structure of the money supply in circulation is the ratio of cash and non-cash money, as well as the ratio of banknotes of different denominations in the total money turnover.
To measure the amount of money, special indicators are used - monetary aggregates, which are approved by law.
Monetary aggregate is a specific grouping of liquid assets that serve as a measure of the money supply.
IN different countries various monetary aggregates are used - from the narrowest ("monetary base") in Switzerland to the widest liquidity indicator in the UK and "total credit" in Italy. Taking into account the experience of foreign countries, the Central Bank of the Russian Federation calculates the following monetary aggregates:
М0 - cash in circulation;
М1 = М0 + funds on settlement, current and special accounts of legal entities, funds of insurance companies, demand deposits of the population in banks;
M2 = M1 + term deposits of the population in Sberbank;
М3 = М2 + certificates and government bonds.
Equilibrium occurs when M 2> M 1, strengthens when M 2 + M 3> M 1.
The composition of monetary aggregates differs from country to country. So, in France, 2 monetary aggregates are used, in the USA - 4, in Japan and Germany 3, and in England - five monetary aggregates.
Currently, the monetary base indicator is used to characterize the money supply. It includes the aggregate М0 + cash on hand at commercial banks, the required reserves of banks with the Bank of Russia and funds on correspondent accounts of commercial banks with the Bank of Russia, thus, the monetary base is essentially equal to the aggregate M2.
The money supply depends on two factors: the amount of money and the speed of their turnover
The circulation of money does not happen spontaneously - it obeys certain laws. Their knowledge allows you to react more quickly to or other changes, make appropriate corrective decisions and influence economic development in the most favorable way. These rules of circulation are called the laws of monetary circulation.
The law of money circulation
The basic law of monetary circulation, the formula of which was presented by K. Marx, connects prices, velocity of circulation and the amount of money:
However, it should be remembered that this formula is more valid for gold circulation. The fact is that when gold is circulated as money, due to the limited gold reserves, the ratio between the amount of gold (coins) and goods is established spontaneously, but relatively accurately: the excess money is withdrawn from circulation and goes into the sphere of accumulation (treasures), and with a shortage coins, their withdrawn part is returned to their treasures in circulation.
When credit money appears, as mentioned above, an almost unsecured issue occurs, i.e. the amount of money can be arbitrarily large. In this case, the appearance of inflation is inevitable, i.e. depreciation of money due to their increased amount. In this case, it is necessary to track that part of the monetary obligations that can be mutually repaid without additional emission. The above equation takes the following form:
where KD is the amount of money required as a means of circulation and payment;
SC - the sum of the prices of the goods sold;
K - the amount of goods and services sold on credit, the payment term for which has not come;
P - the amount of payments for debt obligations;
VP - the amount of mutually repayable payments;
О - the average number of turnovers of money as a means of payment and means of circulation.
Unchanging credit money, acquiring traits paper money, are introduced by the state authority, which gives them a compulsory course. Their emission without taking into account the value of goods produced and services rendered 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 is of great importance. According to the classical theory of A. Marshall and I. Fisher, the amount of money is determined by the dependence of the price level on the money supply:
,
where M is the mass of money;
P is the price of the product;
Y is the velocity of money circulation;
Q is the number of products on the market.
The rate of circulation of money is an indicator of the intensification of the movement of money when it functions as a medium of circulation and a means of payment and represents the number of turnovers of the money supply per year, where each turnover serves the expenditure of income.
This indicator is difficult to quantify, therefore, indirect data are used to calculate it.
In most foreign countries, two indicators are usually calculated:
indicator of speed in the circulation of income: it is calculated as the ratio of the gross national product (GNP) or national income to the aggregates M1 or M2. the dynamics of the calculated value shows the relationship between money circulation and the processes of economic development;
the indicator of the turnover of money in the payment turnover is defined as the ratio of the amount of money in bank accounts to the average annual value of the money supply in circulation. This indicator determines the speed of cashless payments.
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 connections and belonging to physical 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 have undergone significant changes. At the beginning of the XX 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 departure 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), acting in cash and non-cash forms.
In economically developed countries, and later in our country in financial statistics, to analyze changes in the money supply at a certain date and for a certain period, they began to use monetary aggregates:
To determine the money supply, countries use a different number of aggregates (USA - four, France - two). In Russia, three aggregates are used to calculate the total money supply - m about , M 1 , M 2 .
Currently, the indicator is used to characterize the money supply monetary base. It includes the unit m about plus cash in the cash desks of commercial banks, the required reserves of banks with the Bank of Russia and funds on correspondent accounts of commercial banks with 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 rate of their turnover.
The law of money circulation. The amount of money required to perform their functions is established by the economic law of monetary circulation, discovered by K. Marx.
The law of money circulation determines: the amount of money for circulation is directly proportional to the number of goods and services sold on the market (direct connection), as well as the level of prices of goods and tariffs (direct connection) and is inversely proportional to the velocity of money circulation (reverse connection).
All factors are determined by the conditions of production. 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 credit relations the function of money as a means of payment arises, goods are sold on credit under debentures... Credit leads to contraction the total money in circulation, since a certain part of the debt obligations are mutually repaid.
The law determining the amount of money in circulation with a medium of two functions - a medium of circulation and a means of payment, is somewhat modified and takes the following form:
During the functioning of real money (gold), their amount was maintained at the required level spontaneously, since the function of the treasure acted as a regulator. The ratio between the mass of the commodity and the mass of money was kept relatively accurate. This ensured the stability of monetary circulation.
In the absence of a gold standard, the law of paper money circulation began to operate, in accordance with which the number of signs of value was equal 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 gold demonetization, i.e. they lose their monetary functions, the law of monetary circulation has undergone a modification. Now it is no longer possible to estimate the amount of money from the point of view of even their approximate calculation through gold. It has gone out of circulation and does not function not only as a medium of circulation and means of payment, but also as a measure of value.
A measure of the value of goods and services became money capital, which measures the value not in the market in exchange (as it was before), but in the process of production - a commodity for a commodity. Any commodity, exchanging for irredeemable credit money, expresses its value through equating it to a multitude of commodities. In this regard, a commodity transaction valued at a certain amount of non-exchangeable credit money, must provide the entrepreneur with such an amount of use value that will allow him, after realizing the use value, to start a new production cycle. By virtue of this, money acquires the ability of a universal equivalent. Although there is no spontaneous regulator of the total amount of money under the dominance of signs of value, this role of regulating money circulation is transferred to the state.
Irredeemable credit money, acquiring the features of paper money, is introduced by the state power, which endows it with a compulsory rate. Their emission without taking into account the value of goods produced and services rendered 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 is of great importance. According to the classical theory A. Marshall and I. Fisher, the amount of money is determined by the dependence of the price level on the money supply:
From the formula, the amount of money required for the circulation of a certain mass of goods is equal to:
and the price of the goods
The price level changes in proportion to the change in the mass of money in circulation.
In Russia, the main reason for the increase in the money supply is a huge deficit federal budget, which for 2000 is stipulated in the amount of 57.87 billion rubles, or 1.08% of GDP. During the first half of the 90s, it was redeemed by an additional issue of money in circulation, at the same time, the commodity turnover actually decreased due to a decrease in production.
The growth of the money supply is facilitated money multiplier(from Lat. 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 expansion credit operations banks with their clients by receiving funds from the centralized reserve of the Bank of Russia, formed from mandatory contributions banks. Theoretical multiplication factor is equal to the reverse rate of required reserves established by the Bank of Russia for the banks of the country. 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.
Money turnover rate. This is the second factor in the change in the money supply. To calculate the velocity of circulation of money, i.e. their heavy traffic when they perform 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 testifies to the connection between monetary circulation and the processes of economic development.
2. The turnover of money in the payment turnover:
This indicator indicates the speed of cashless payments. Other indicators of the rate of turnover of money are also applied. The speed of money circulation is influenced by:
- 1) general economic factors - cyclical development of production; the rate of its growth; price movement.
- 2) monetary (monetary) factors - the structure of payment turnover (the ratio of cash and non-cash money); development of credit operations and mutual settlements; level interest rates for a loan for money market; introduction of computers for operations in credit institutions; using electronic money in calculations
The rate changes depending on the frequency of income payments, the uniformity of spending by the population of their funds, the level of savings and accumulation.
To calculate the velocity of circulation of money, two indicators are used:
The speed of movement of money in the circulation of the value of a social product or the circulation of income:
О = GDP or (ND) / Money supply (M 2 ).
This indicator characterizes the relationship of monetary circulation with the processes of economic development.
Money turnover in payment circulation:
Amount of money in bank accounts / Average annual value of money supply in circulation
This indicator characterizes the speed of cashless payments.
The speed of money circulation is influenced by:
general economic factors:
cyclical development of production;
the rate of its growth;
price movement.
monetary (monetary) factors:
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 in the money market;
introduction of computers for operations in credit institutions;
the use of electronic money in payments.
In addition, the rate changes depending on the frequency of income payments, the uniformity of spending by the population of their funds, the level of savings and accumulation.
Because the velocity of money circulation is inversely proportional to the amount of money in circulation, then the acceleration of their turnover means an increase in the money supply ... An increase in the money supply with the same volume of goods and services on the market leads to a depreciation of money, i.e. ultimately is one of the factors of the inflationary process.
Emission of cash and non-cash money.
The concepts of “money issue” and “money issue” are not equivalent.
Under issuing money understand constant flow of money into circulation .
The release of money into circulation occurs constantly.
Non-cash money issued into circulation when commercial banks provide loans to their clients.
Cash issued into circulation when banks, in the process of carrying out cash transactions, issue them to customers from their operating cash desks.
But issue of money into circulation can do not mean an increase in money in turnover , since simultaneously with the release of money, bank clients repay bank loans and deposit cash in the operating cash desks of banks. At the same time, the amount of money in circulation may not increase.
Under emission is understood to be such a release of money into circulation, which leads to the general increase in the money supply in circulation.
There is emission of cash and non-cash money.
In the USSR, both issues were carried out by the State Bank.
In a market economy the emission function is split:
- issue of non-cash money produced by the system of commercial banks;
- issue of cash - the state central bank.
Issue of non-cash money is an primary , since before cash appears in circulation, it must be reflected in the form of entries in the deposit accounts of commercial banks.
The purpose of issuing non-cash money into circulation - to satisfy additional need enterprises in working capital , this goal is achieved by providing businesses from commercial banks credits .
However, banks can issue loans only within the limits of their available resources (the bank's own capital and attracted - funds in the deposit accounts of clients). This can satisfy only the usual need of enterprises for circulating assets, and not an additional one.
And with the growth of production and turnover, and with the rise in prices for goods, there is constantly additional need for money .
A special mechanism for issuing non-cash money.
In conditions administrative and economic system such a need was satisfied issue of non-cash money based credit plans , by expanding the loans provided in accordance with them.
In conditions market economy acts another mechanism.
The director of the company, who has before his eyes only the indicators of profit and overall profitability, can not always understand how to adjust them in the right direction. In order to have all the control levers in your hands, it is absolutely necessary to also calculate the turnover of working capital.
The picture of the use of working capital consists of four main indicators:
- Turnover duration (determined in days);
- How many times current assets make a turnover in the reporting period;
- How much working capital falls on a unit of products sold;
- The coefficient of loading funds in circulation.
Let us consider the calculation of these data using the example of an ordinary enterprise, as well as the calculation of a number of important coefficients for understanding the value of turnover indicators in the overall picture of the company's success.
Turnover ratio
The main formula that determines the rate of turnover of working capital looks like this:
Cob is the turnover rate. It shows how many turnovers of working capital were made in a specific period of time. Other designations in this formula: Vp - sales volume for the reporting period;
Оср, - the average balance of working capital for the reporting period.
Most often, the indicator is calculated for a year, but absolutely any period necessary for analysis can be selected. This coefficient is the rate of turnover of circulating assets. For example, the annual turnover of a mini-store of mobile phones was 4,800,000 rubles. The average balance in circulation was 357,600 rubles. We get the turnover ratio:
4,800,000 / 357,600 = 13.4 revolutions.
Turnover duration
It also matters how many days one revolution lasts. This is one of the most important indicators that shows in how many days the company will see the funds invested in turnover in the form of cash proceeds and will be able to use them. Based on this, it is possible to plan both making payments and expanding the turnover. The duration is calculated as follows:
T is the number of days in the analyzed period.
Let's calculate this figure for the above digital example. Since the company is a trading company, it has a minimum number of days off - 5 days a year, for the calculation we use the figure of 360 working days.
Let's calculate how many days the company could see the money invested in turnover in the form of revenue:
357,600 x 360 / 4,800,000 = 27 days.
As you can see, the turnover of funds is short, the management of the enterprise can plan payments and use of funds to expand trade almost every month.
To calculate the turnover of working capital, the profitability indicator is also important. To calculate it, you need to calculate the ratio of profit to the average annual balance of working capital.
The profit of the enterprise for the analyzed year amounted to 1,640,000 rubles, the average annual balance of 34,080,000 rubles. Accordingly, the profitability of working capital in this example is only 5%.
Load ratio of funds in circulation
And one more indicator that is necessary to assess the rate of turnover of working capital is the coefficient of loading of funds in circulation. The coefficient shows how much working capital is advanced by 1 ruble. proceeds. This is the working capital ratio, which shows how much working capital must be spent in order for the company to receive 1 ruble of revenue. It is calculated as follows:
Where Kz is the coefficient of loading funds in circulation, kopecks;
100 - translation of rubles into kopecks.
This is the opposite of the turnover rate. The smaller it is, the better the circulating assets are used. In our case, this coefficient is equal to:
(357,600 / 4,800,000) x 100 = 7.45 kopecks.
This indicator is an important confirmation that working capital is used very rationally. The calculation of all these indicators is mandatory for the enterprise, which seeks to influence the efficiency of work using all possible economic levers.
Forecast NOW! can be calculated
- Turnover in monetary and natural units both for a specific product and for a group of products, as well as for a cut - for example, for suppliers
- The dynamics of changes in turnover in any required sections
An example of calculating the turnover indicator by product groups:
Evaluation of the dynamics of changes in turnover for goods / groups of goods is also very important. At the same time, it is important to correlate the turnover schedule with the service level schedule (how much we satisfied the demand of consumers in the previous period).
For example, if the turnover and the level of service decrease, then this is an unhealthy situation - you need to take a closer look at this group of goods.
If the turnover grows, but at the same time the level of service decreases, then the increase in turnover is most likely provided by lower purchases and an increase in deficit. The opposite situation is also possible - turnover decreases, but at the same time the level of service is calculated - customer demand is ensured by large purchases of goods.
In these two situations, it is necessary to assess the dynamics of profit and profitability - if these indicators grow, then the changes that occur are beneficial for the company, they fall - it is necessary to take measures.
Forecast NOW! It is easy to assess the dynamics of turnover, service level, profit and profitability - it is enough to carry out the necessary analysis.
Example:
Since August, there has been an increase in turnover with a decrease in the level of service - it is necessary to assess the dynamics of profitability and profit:
Profitability and profit have been falling since August, it can be concluded that the dynamics of changes
The main characteristics inherent in the money supply
Definition 1
The money supply is the amount of money that the economic entities of the country have available.
The money supply includes:
- cash (banknotes, banknotes);
- cashless payment (money in bank accounts).
Cash circulation of money is possible due to the presence of special banknotes. On the territory of the Russian Federation there are such forms of banknotes as banknotes and metal coins. Issuing banknotes and coins Central bank Russian Federation.
Cashless money turnover Is the movement of money between accounts without the participation of cash. Cashless payments are made by checks, credit cards etc.
The constituent elements of the money supply are its aggregates. Among the monetary aggregates that are currently operating on the territory of the Russian Federation are:
- $ M_0 $, or cash in circulation. It includes cash that the Bank of Russia has issued into circulation on the territory of the state. However, they do not include cash that is in the cash desks of the branches of the Bank of Russia and other credit institutions.
- $ M_1 $, or money. It includes cash that is in circulation, with the exception of banking system(in other words, this is the $ M_0 $ aggregate), as well as money that is in various types of accounts on demand by residents of the Russian Federation (population, as well as financial (except for credit) and non-financial organizations).
- $ M_2 $, or money supply in the national definition. It includes the $ M_1 $ monetary aggregate, and, consequently, the $ M_0 $ aggregate, as well as funds that were attracted through time deposits from residents of the Russian Federation.
- $ M_2X $ or money supply according to the monetary survey methodology. Includes $ M_2 $ aggregate and foreign currency deposits.
Calculation of the velocity of circulation of the money supply
Definition 2
The velocity of circulation of money is the movement of money masses, both cash and non-cash, in the process of performing its functions.
The circulation speed depends on two indicators: the number of turnovers of the money supply; the duration of the money supply turnover.
The number of money supply turnovers is a value that shows how many times the same currency unit used in the domestic market for a certain time interval (often a year). You can calculate this indicator using the formula:
- where GDP is gross domestic product, rub.;
- $ M $ - money supply in circulation, rubles.
The duration of the money supply turnover is an indicator that demonstrates after what period of time the same monetary unit will be used for the second time during the reporting period. In the form of a formula, it is written in the following form:
- where D is the number of days in the reporting period;
- $ V $ - the number of money supply turnovers for the reporting period.
Let's look at the application of these two indicators using an example.
Example 1
According to statistics, the GDP of the state of Albania in 2015 amounted to 3590 million den. units, in 2016 - 3870 million den. units It is also known that the volume of money supply in circulation is respectively 910 and 955 million den. units Calculate the amount and duration of money supply turnover in state A.
It is known that the rate of money turnover is influenced by the number of turnover of the money supply and the duration of the turnover of the money supply.
The number of money supply turnovers is calculated by the formula:
We substitute the data from the condition into the formula and get:
$ V2015 = 3590/910 = $ 3.95
$ V2016 = 3870/955 = $ 4.05
Considering these data, as well as the fact that the reporting period is 1 year, i.e. 365 calendar days in 2015 and 366 days in 2016 (since the year is a leap year), you can calculate the turnover duration:
Substituting the required values, we get:
$ t2015 = 365 / 3.95≈92 $
$ t2016 = 366 / 4.05≈90 $
Leap years are often not used. Instead, the standard number of calendar days is taken - 365. Also, depending on the situation, a certain period of the reporting period can be set, for example, a quarter - 90 days, etc.