January 12th, 2009
This essay analyzes the growth of the money supply for 73 selected currencies from 90 countries. Nineteen of these countries belong to two monetary unions - the Eurozone and the East Caribbean Union. Together, these countries make up 96.7% of the world's Gross Domestic Product (GDP) and 84.1% of the world's population.
There are several different monetary aggregates used to measure a nation's money supply. These monetary aggregates can be thought of as forming a continuum from most liquid (money as a means of exchange) to least liquid (money as a store of value).
The measures, while not completely consistent across different countries, may be generalized as follows:
There are two other monetary measures worthy of mentioning:
M4: A less commonly used monetary aggregate, also known as "extended broad money". Depending on the country, it includes M3 + other types of deposits (such as those held by expatriate citizens or by various governmental agencies). This monetary measure is released by only a few countries.
TMS: ("True Money Supply") is a monetary measure developed by Murray Rothbard and Joseph T. Salerno of Austrian School of Economics fame which defines money as the final means of payment in all transactions. The TMS consists of the following: Currency in Circulation, Total Demand Deposits, Savings Deposits, U.S. Government Demand Deposits and Note Balances, Demand Deposits Due to Foreign Commercial Banks, and Demand Deposits Due to Foreign Official Institutions.
The monetary aggregates compared in this analysis are the widely used M0, M1, M2 and M3. Global money supply data for this analysis was collected from official central bank websites, and the name of each country has been hyperlinked back to the source data for reference purposes.
Monetary Aggregates for Selected Countries
Not every country publishes all four of the common monetary aggregates. The United States ceased publishing M3 on May 23, 2006. However, various independent sources have continued to publish U.S. M3 figures. One such provider of U.S. M3 money supply data can be found here.
In situations where a reliable alternative source was not identified, the lower order monetary aggregate was used, such as for China which does not publish M3, so M2 was used as a substitute.
All money supply figures in this analysis are taken from October 2008 where possible because of the high availability of data for that date. At the time of this publication, many money supply figures for the month of November are not yet available and only a few countries have released those for December.
For each monetary aggregate, the two charts show:
- Annual growth in percentage
- Annual growth in US$ billions
For the first calculation, the volume of currency of each each country was determined over a twelve month period and divided by the country's total outstanding currency in 2007 to provide a percentage increase.
To determine the annual growth in US$ billions, this same volume was converted to USD as per the exchange rates for the last business day of Oct 2008.
The currencies for the Eurozone (EUR), United States (USD), China (CNY), Japan (JPY), United Kingdom (GBP), Russia (RUR), India (INR), Brazil (BRL), Canada (CDN) and Switzerland (CHF) were included in each percentage growth chart because of their global economic and financial significance.
M0 - Currency in Circulation
As of October 2008, the nations used in this study combined had the equivalent of US$ 3,934 billion in public circulating banknotes and coins. The average percentage growth for currency in circulation from the 73 currencies in this analysis was 9.3%, which amounts to an annual increase of US$ 335.9 billion on the US$ 3,598 billion from Oct 2007.
The Euro, Chinese Yuan and US Dollar were responsible for 55.1% of the increase in global M0. Together, these three currencies added the equivalent of US$ 185.1 billion to all banknotes and coins in public circulation.
M1 - Money
As of Oct 2008, there was the equivalent of US$ 19.2 trillion in demand deposits and public circulating banknotes and coins. The average percentage growth for money from the 73 currencies in this analysis was 5.0%, which amounts to an annual increase of US$ 908.7 billion on the US$ 18.2 trillion from Oct 2007.
The Euro, Chinese Yuan and Pound Sterling were responsible for 58.5% of the increase in global M1. These three currencies together added the equivalent of US$ 531.3 billion to the global money supply.
M2 - Money and Close Substitutes
As of Oct 2008, there was the equivalent of US$ 45.2 trillion in money and quasi-money (savings and time deposits). The average percentage growth for money and close substitutes from the 73 currencies in this analysis was 10.0%, which amounts to an annual increase of US$ 4.1 trillion on the US$ 41.1 trillion from Oct 2007.
The Euro, Chinese Yuan and US Dollar were responsible for 58.4% of the increase in global M2. Together, these three currencies added the equivalent of US$ 2.4 trillion of money and money substitutes to the global M2.
M3 - Broad Money
As of Oct 2008, there was the equivalent of US$ 58.9 trillio
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Posted in Monetary Commentary, Mike Hewitt