Sunday, January 22, 2012

Money Supply

Money Supply-what is money supply?

Money supply refers to a country or currency area in the banking system into the economy, creation, expansion (or contraction) monetary financial process. Money supply is the purchasing power of different currencies only face value of the money supply, but law and order and the money supply is the quantity of goods money can buy to measure the money supply, or the purchasing power of money is used to measure the money supply. On the functioning of an economy starting point, the monetary authorities or governments need to invest some money, the first impetus to play the role of money, credit money in the existing system, once the economy up and running, is inevitably a large number of endogenous lead to a large number of endogenous money supply. This money supply process, how the development, and is worthy of attention and study a major issue, especially in our economic system has undergone significant changes in the period, to study this problem is not of practical significance, but also has important theoretical significance of the construction .

Money supply - the main content
Shanghai Composite Index and the lack of correlation between the money supply money supply of the main contents include: the division of monetary level; money creation process; determinants of the money supply. In the modern market economy, the scope and form of currency in circulation continues to expand, cash and demand deposits generally considered to be money, time deposits and some can be converted into cash at any time credit instruments (such as bonds, life insurance, credit cards) is also widely that has a monetary nature.

Generally believed that the monetary level can be divided as follows:

M1 = cash + demand deposits;

M2 = M1 + time deposits;

M3 = M2 + Other financial assets.

Money creation (supply) process is the main bank, through its monetary operations and the process of creating money, which includes deposits in commercial banks through the mechanism to derive the supply of currency in circulation and the central bank through the process of regulating the amount of base money to affect the money supply process .

Factors that determine the money supply, including the central bank increase the money, commercial banks, central banks can adjust the amount of use of funds, commercial banks, derivative financial capacity and economic development, businesses and residents of money demand conditions and other factors. Money supply can be divided into the monetary unit expressed in nominal money supply and the circulation of money can buy goods and services that the real money supply and other forms.


Money supply - link
Credit relationship with the central bank base money supply
The central bank base money supply in three ways:
Changes in its reserve assets, foreign exchange or in the foreign exchange market trading precious metals;
Changes on the government's debt, open market operations, the sale of government bonds
Changes in claims on commercial banks, rediscount of commercial banks re-lending business or grant
Commercial banks to create deposit money account


Money supply - the process
As the money supply money supply, including currency and deposits, money, money supply process is broken down into the supply of currency and deposits the money supply two areas.
Currency supply
Usually consists of three steps: ① by the monetary authorities of a country under the printing sector (belonging to or affiliated with the Ministry of Finance Central Bank) printing and casting currency; ② commercial banking needs of its business activities and currency for payment, then press prescribed procedures to inform the Central Bank, out of currency by the central bank and commercial bank account corresponding loan; ③ commercial bank deposits in cash by way of the customer to pay, the currency into circulation, the supply to the hands of non-banking sector.

Features: ① Although currency supply by the central bank, but not directly to the central bank currency to the hands of non-banking sector, but commercial banks as an intermediary, an indirect way by means of cash deposits to the currency in the hands of non-banking sector. ② As the currency supply in the program is through the commercial banks ways to achieve customer cash deposits, and therefore the supply of currency depends entirely on the number of currency held by non-banking sector will. Department reserves the right to non-bank deposits will be honored as the currency held by commercial banks are obliged to meet any non-banking sector deposits, cash needs. If the currency held by non-banking sector will not be met, commercial banks will be unable to perform its statutory obligations to ensure liquidity, forced closure or bankruptcy.

The currency is the expansion process in terms of supply, from the contraction of the currency supply process descriptions, procedures, just the opposite.


Deposit money supply
Deposit liabilities of commercial banks have a variety of types, which are actually deposit money, and money supply should be classified as being inconclusive. However, demand deposits are deposits accepted currency.

In the non-cash credit money system, commercial banks, demand deposits and currency, as completely as the means of circulation and means of payment, the deposit may be purchased, according to checks, payment and debt. Therefore, customers get loans of commercial banks and investment in the future, are generally not immediately mention, but to which the funds deposited in demand deposits as they have business dealings with commercial banks in the order at any time, according to checks. Thus, commercial banks and investment loans to customers, it can be directly credited to the customer's demand deposits. Therefore, commercial banks, once the appropriate reserve, you can make entries through the accounts of their assets (loans and investments) and liabilities (demand deposits) also increased. From the entire commercial banking system, even if the commercial banks can only lend each of the deposits it received as part of all commercial banks are able to expand their lending and investment for its deposits received many times. In other words, the entire commercial banking system from the view, once the central bank base money supply to be injected into the commercial bank, is received as a commercial bank demand deposits, net of the corresponding reserve after, between commercial banks will be in removed to use, and ultimately be enlarged to many times the demand deposits.