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Global growth in Money Supply – How much money is circulating?

The number of billionaires emerging in the last decade is just astounding and as most of the world markets are reaching an all time high on inflation, there is definitely a noted growth in the money supply around the world.

Some of the eye catching money supply growth charts come from the ever developing Chinese economy which has seen a 20% increment in the money supply in the last decade whereas Russia has shown a 30% increase. In fact the most alarming aspect is that there is an 8 to 9% growth in the overall money supply globally as compared to the approximately 1.4% increase in the production of Gold. This is a clear indicator that paper money is losing its worthiness and the increased money supply lacks any fundamental value. Even though an increased money supply is considered to be a sign of prosperity, with its current trends, the signs are more alarming than ever.

Understanding Money Supply

The answer is possibly the most complex mathematical puzzle ever. There are various types of monies in the economy; here we are not referring to the different currencies but the different forms in which money is present. Money supply is usually classified as M0, M1, M2, MB, MZM and M3.

M0 is the money that is currently in circulation. It means the currency that is being exchanged for goods/services or other currencies.
MB or Money Base is the total value of all the money that is held by the banks and reserves as well as the public. It is also referred to as vault cash.

M1 aggregates all the M0 money along with the amounts in the various checking accounts and any other forms of checkable account. It also includes the money that is carried around as travellers’ checks.

M2 = M1 + money held in markets and funds + money in savings accounts + Small Certificates of Deposits

M3 = M2 + Large Certificates of Deposits

MZM or Money Zero Maturity refers to all the available cash in an economy. It is calculated by deducting the time deposits from M2.

All these factors come into the equation when you are looking for the actual money supply. Now, calculating the money supply for individual countries is a big task in itself. Hence the exact money supply globally cannot be accurately estimated. Here, we are discounting the black money in supply which can be an astounding figure in itself. There are a lot of countries that are known to have a parallel black economy that is substantial.

The Governments are Issuing Bonds, Printing Currency and Flushing Liquidity

After the economic crisis in 2009, a lot of countries were running tight on liquidity. Governments across the globe found an easy solution in issuing bonds, collecting money from the public as well as printing more and more currency in order to restore liquidity. This did provide a short term solution but in the long-term resulted in adding to the woes of the public. Increased liquidity led to higher prices and inflation jumping out of the roof.

A classic case was with the Zimbabwean government; inflation broke all records and the government had to devalue its currency. It led to a situation where 100 trillion Zimbabwean dollars were equivalent to just $30. It all ended with the government abandoning its currency and adopting USD and South African Rand as the official currency.

This means that countries with fiat currency can definitely flood their markets with money by printing more notes but the exchange value will definitely drop, hence it becomes very difficult, almost impossible, to determine the actual amount of money supply in the global economy.

Is there a Ball Park Figure?

Unfortunately, there are a lot of estimations and approximations, however there is no verifiable data that is available regarding the amount of money circulation in the global economy. There are a lot of currencies and with ever fluctuating exchange rates, estimations are virtually impossible.

Growth of Money Supply and Decreasing Value of Currency

The growth of money supply in recent times has definitely had an adverse effect on the value of the currency. This has also led to a few major issues globally, with countries going bankrupt and economies struggling to survive. The debt figures across the globe have reached a new high and some of the published amounts are just too staggering.

The Euro crisis has raised a few eyebrows and there have been a lot of calls to estimate the true value of money. There is a need for a fundamental that can help to determine the true value of a currency. The world might have to switch back to the reserve currency mode, the model that existed prior to 1971, in order to restore the worth of money. It might lead to a stringent money supply but at least it will give an estimate of the amount of money that exists in the markets as compared to the current economy. As for now, the rich get richer and the prices keep inflating as more and more money is introduced into the system as a method to fight economic crisis.

In fact the situation is such that even investors are confused about what currency will prevail in the long run.

What Can Investors Do?

Investors are not sure about the worth of holding onto a currency based investment. Where an investor has $100,000, he cannot be confident that the worth of that amount will remain as much as it is, a few years down the line. The interest components and the returns on such investments are also not very secure.

With so much money being circulated and most fiat currencies depreciating or being debased, there is definitely a chaotic situation for an investor. While investors want to feel secure about the money that they invest, precious metals offer a comparatively safer bet. With Gold and Silver trading being a lot easier these days, investors are able to get good value and keep their money secure in the form of Gold & Silver Bullions.