Money and inflation
MINISTRY OF EDUCATION AND SCIENCE OF REPUBLIC OF KAZAKHSTAN
T.RYSKULOV'S KAZAKH ECONOMIC UNIVERSITY
FACULTY OF"INTERNATIONAL EDUCATIONAL PROGRAMS"/ FINANCE
Plan:
Introduction..................
I. The role of money in economics and its influence on inflation processes
1.1 The essence and functions of money.........................
1.2 Types of money.........................
1.3 Quantity theory of money.........................
II. Inflation: the essence, reasons and methods of anti-inflationary regulations
2.1 The essence and reasons of inflation processes.....................
2.2 Money credit politics of National Bank
as a basic instrument of anti-inflationary processes.....................
III. Analysis of inflationary processes in the Republic of Kazakhstan
3.1 Statistical data of inflation dynamics from 2009
to 2011..........................
3.2 Monetary aggregates as indicators of money circulation...................
IV. Problems and ways to improve the mechanisms of money circulation and inflation processes dependence regulation
4.1 Problems......................
4.2 Ways to improve.......................
Conclusion....................
List of used literature
INTRODUCTION
In the course paper we will consider the interaction of such important economic concepts as the theory of money and inflation.
It is generally accepted definition of inflation as a process of devaluation of money, which happens due to the overflow channels of circulation funds and prices increase. However, this definition cannot be considered complete.
From 60-ies to 70-ies the interpretation of inflation as a complex multifactorial phenomenon, which characterizes the violation of the reproduction process, and inherent in the economy, which uses a paper-money circulation, is being approved. Inflation is seen primarily in the form of higher prices, as well as in the form of the relative appreciation of gold and foreign exchange. In the Western theory of inflation begins to penetrate the ideas of the theory of prices, pushing the previously prevailing theory of money.
Inflation - the process of money depreciation, which manifests itself in the form of rising prices for goods and services that is not caused by an increase in their quality.
Inflation is caused, above all, by an overflow of channels of monetary circulation with excess money supply in the absence of an adequate increase in the commodity mass. Inflation causes underestimation of the real value of the property, the risk of accumulation of depreciating money, the prevalence of short-term transactions, impairment income businesses and households. At the same time, inflation is beneficial to exporters, the debtors that return non-indexed debts, banks that pay low interest on deposits, the state, preserving the level of benefits without regard to price increases.
The most common, the traditional definition of inflation - the overflow channels of circulation money supply in excess of the needs of trade, which causes the depreciation of the currency and, accordingly, the increase in commodity prices.
In some cases, the rise of prices regardless inflationary processes is possible. Such situation occurs when general conditions of reproduction are changing, resulting in an increase of production costs. For example, there is a rise in the cost of raw materials due to the worsening conditions of its mining, moreover increase of product quality requires additional labor costs, etc.
The inflationary process is associated with the rise of prices, which is not directly caused by the increase of production costs. Inflation is the result of macroeconomic instability, when aggregate demand exceeds aggregate supply.
The modern interpretation of the price includes a number of elements, each of which seeks to explain the certain factors of pricing formation which are connected with the formation of consumer demand; supply of goods and services; by supply and demand ratio depending on the different forms of markets; the formation of prices of production factors.
Thus, the above implies that the chosen theme of the course work is highly relevant and certain research of problems and ways to improve the mechanisms of money circulation and inflation processes dependence regulation have to be studied.
The object of the course work is inflationary processes in the Republic of Kazakhstan.
The subject of the work is National Bank's activity in the sphere of money-credit politics.
The aim of this paper is to examine the effect of money supply on inflationary processes in the Republic of Kazakhstan.
The objectives of the survey are as follows:
- to define the mechanisms of inflationary processes regulation;
- to consider matters of state anti-inflation policy;
- identify the problems of inflation and improving the anti-inflation policy;
I. The role of money in economics and its influence on inflation processes
1.1 The essence and functions of money
Money - this is the only product that is used exclusively to get rid of him. Money itself does not provide any benefits, they are only a means to get goods and services. Money - is an international language of the entire world market, it drives the whole cycle of resources and goods. Essence, functions and role of money in the global trade have a tremendous impact on the formation and development of the economy as a whole and in individual countries.
The main property of money - the absolute liquidity.
Liquidity - a measure of how quickly an asset can be exchanged for cash.
The monetary system can not exist without money. It covers all financial relationships that develop in a particular society.
The essence of money is revealed in five functions:
- measure of value
- means of circulation
- means of payment
- means of savings and accumulation
- world money
Measure the value generated during the formation of prices, it determines the value of a commodity, which is measured in money.
Medium of exchange. Monetary expression of value of goods does not mean its implementation. Must be exchanged. Money - the intermediaries in the exchange from the beginning of the transaction prior to its completion. During the prevalence of trafficking in money mainly acted as a medium of exchange, after the onset of the credit and economic development to the fore a means of payment function, which includes a medium of exchange function and the function is transformed into a means of payment. This is facilitated by the use of plastic cards and other electronic payment instruments that allow pay by wire transfer from your bank account, as well as the implementation of the wholesale and retail purchases.
Means of payment - the time of payment is not equal to the time of payment, the goods sold on credit with deferred payment
Means of accumulation - a cash reserve (account balances, gold and currency reserves). The money, which function as storage, are involved in the formation, distribution, redistribution of national income, education savings.
World money is used in international payments.
In modern developed economy, there are three functions of money - a measure of value, means of storage and means of payment and medium of exchange is in very small amounts.
1.2 Types of money
Money can be described as a token which is used in our society to settle debts and to pay for the services and commodities which are provided to us. In other words, money is the medium of exchange in our society which has also been accepted by the law.
The main functions of money are distinguished as:
- a medium of exchange,
- a unit of account,
- a store of value and occasionally, a standard of deferred payment.
There are several kinds of money varying in liability and strength. The society has modified the money at different times and in this way several types of money are introduced. When there was ample availability of metals, metal money came into existence later it was substituted by the paper money. At different times, several commodities were used as the medium of exchange.
So, it can be said that according to the needs and availability of means, the kinds of money has changed.
Some of the major types of money are:
Commodity Money:
Whenever any commodity is used for the exchange purpose, the commodity becomes equivalent to the money and is called commodity money. There are certain types of commodity, which are used as the commodity money. Among these, there are several precious metals like gold, silver, copper and many more. Again, in many parts of the world, seashells (also known as cowrie shells), tobacco and many other items were in use as a type of money & medium of exchange.
Fiat Money:
The word fiat means the "command of the sovereign. It is the type of money that is issued by the command of the sovereign. The paper money is generally called as the fiat money. This type of money forms a monetary standard. It has been made mandatory by law to accept the fiat money, as an exchange medium, whenever it is offered to anyone.
Fiduciary Money:
Today's monetary system is highly fiduciary. Whenever, any bank assures the customers to pay in different types of money and when the customer can sell the promise or transfer it to somebody else, it is called the fiduciary money. Fiduciary money is generally paid in gold, silver or paper money. There are cheques and bank notes, which are the examples of fiduciary money because both are some kind of token which are used as money and carry the same value.
Commercial Bank Money:
Commercial Bank money or demand deposits are claims against financial institutions that can be used for the purchase of goods and services. A demand deposit account is an account from which funds can be withdrawn at any time by cheque or cash withdrawal without giving the bank or financial institution any prior notice. Banks have the legal obligation to return funds held in demand deposits immediately upon demand (or 'at call'). Demand deposit withdrawals can be performed in person, via cheques or bank drafts, using automatic teller machines (ATMs), or through online banking.
1.3The quantity theory of money
In carrying out its functions and money to maintain price stability, it is important to match the volume of effective demand supply of goods. Compliance with this rule is motivated by the desire to prevent the delay in the sale of goods and services due to lack of circulation. Therefore, an important task - to provide the necessary economy of money and determine how much money should be in circulation.
The modern theory of demand for money is represented by different concepts. Consider the quantity theory of money. This theory first appeared in the XVI century., When the influx of gold from America to Europe increased by more than 2 times, silver - more than tripled. As a result, prices in Spain increased by 4.5 times, in England - 4 times in France - by 2.5 times, in Italy and Germany - in 2 times. Since that time, the dependence of prices on the amount of money in circulation was the subject of attention economics. Widespread quantitative theory was in the early XX century, when aggravated the problem of handling and purchasing power of paper money.
The quantity theory of money relates the money and commodity markets, establishing a direct link between the growth of money supply and rising commodity prices. All the fluctuations in economic activity are accompanied by changes in the money supply. The best known are two versions of the quantity theory of money: transactional approach, or theory I. Fischer, and the Cambridge version, or theory of cash balances.
Theory of Money of the American economist Irving Fisher (1867-1947) comes from the fact that since the money function as a medium of exchange, then the number needed for treatment in the economy, determined by weight and the price of goods sold. The theory is based on macro-economic equation of exchange:
MV=PQ
where M - quantity of money in circulation; V - velocity of circulation of currency, and P - the average level of prices; Q - quantity of all goods and services.
The right-hand side of equation (heading) shows the volume of goods sold in the market. The left-hand side of (monetary) shows the amount of money paid when purchasing goods.
Cambridge version of the quantity theory of money developed a number of economists. For example, the equation of AC Pigou (1877-1959) as follows:
M=KPT
where M - quantity of money, and K - the proportion of annual income, which entities are willing to bear in the form of money (cash balances), P - the price level and T-physical volume of production.
II. Inflation: the essence, reasons and methods of anti-inflationary regulations
2.1 Essence and causes of inflation
What is inflation? As an economic phenomenon inflation has been around for a long time. Considered that it came almost with the appearance of money to the operation of which is inextricably linked.
The term inflation (from the Latin inflatio - bloating) first began to be used in North America during the Civil War, 1861-1865. and refers to the process of swelling of paper money in circulation. In the nineteenth century this term was used in England and France. Widespread in the economic literature, the concept of inflation was in the twentieth century. after the First World War and the Soviet economic literature - from the mid 20's.
The most common, the traditional definition of inflation - the overflow channels of circulation money supply in excess of the needs of trade, which causes impairment of the monetary unit and thus increase in commodity prices.
However, the definition of inflation as an overflow channel of currency depreciating paper money should not be considered complete. Inflation, although it is manifested in the growth of commodity prices, can not be reduced to a purely monetary phenomenon. This is a complex socio-economic phenomenon, generated by the distortions of reproduction in different areas of the market economy. Inflation is one of the most acute problems of modern economic development in many countries around the world.
Inflation - this increase in the general level of prices for goods and factors of production. Of course this does not mean that necessarily all prices are rising. Even in periods of very rapid inflation, some prices may remain relatively stable, while others fall. One of the major sore points of inflation - is that prices tend to rise very uneven. Some jump, some rising more than a moderate pace while others did not rise.
Necessary to distinguish between internal and external factors (causes) of inflation. Among the internal factors can be identified non-monetary and monetary (monetary).
Non-monetary factors of inflation:
- violation of the imbalances the economy;
- cyclical development of the economy;
- monopolization of production;
- imbalance of investment;
- state-monopoly pricing
Monetary Inflation - a crisis of state finances, which is manifested in the following:
- the budget deficit;
- growth of public debt;
- issuance of money, etc
External factors of inflation are:
- global structural crisis (raw materials, energy, foreign exchange)
- monetary policy of the state aimed at illegal exports of gold and currency.
So inflation is a multifactorial process - is a manifestation of disproportion in the development of social reproduction, which is due to violation of the law of money circulation.
2.2 Money credit politics of National Bank as a basic instrument of anti-inflationary processes
Monetary Policy of the Republic of Kazakhstan for 2012
Due to unstable developments in foreign markets as well as given a short-term nature of the monetary policy implemented by the National Bank of the Republic of Kazakhstan, the decision was made to formulate the monetary policy of the Republic of Kazakhstan for 2012 only. Key monetary policy and balance of payments indicators including monetary policy measures for the subsequent years will be specified based on the performance in 2012.
Ensuring the price stability i.e. maintaining a low rate of annual inflation adequate to the macroeconomic assumptions will remain as a top-priority area in the activity of the National Bank of the Republic of Kazakhstan in its monetary policy implementation in 2012.
The National Bank of the Republic of Kazakhstan while implementing the monetary policy of the Republic of Kazakhstan will take measures for flexible regulation of money supply in the economy. In the event of short-term liquidity squeeze in the money market, the National Bank of the Republic of Kazakhstan will increase the volume of liquidity operations.
At the same time, the National Bank of the Republic of Kazakhstan will be striving to maintain the monetary component at the optimal level and ensure that it doesn’t put additional inflationary pressure.
Short-term notes and deposits of banks with the National Bank of the Republic of Kazakhstan will remain as the main instruments for sterilization of excessive bank liquidity as well as for interest rate regulation in the financial market.
Measures taken by the National Bank of the Republic of Kazakhstan will be aimed at enhancing the regulatory role of the interest rate policy and maintaining market rates in the market of short-term instruments within the interest rate band of the National Bank of the Republic of Kazakhstan.
Also, the possibility of a more efficient use of open market operations is considered, and optimal parameters (volumes, maturities, types of collateral) of liquidity provided to banks are analyzed. To this end, the National Bank of the Republic of Kazakhstan studies the experience of developed countries to consider using the best foreign practice in future In general, this will allow increasing the efficiency of liquidity management and regulation as well as building the yield curve of financial instruments in the money market.
In 2012 the National Bank of the Republic of Kazakhstan will continue to improve the mechanism of minimum reserve requirements in terms of increasing the efficiency of its application.
Irrespective of the economic development scenario monetary policy measures will be aimed at keeping the annual inflation rate within 6-8%. The increase in excessive money supply that boosts the inflationary pressure will be adequately offset by the growth in sterilization operations of the National Bank of the Republic of Kazakhstan.
The National Bank of the Republic of Kazakhstan will be applying any given monetary policy measures and foreign exchange policy measures taking account of integration processes occurring as part of the Common Economic Space.
FORECAST OF KEY MONETARY POLICY INDICATORS
FOR 2012 - 2014
SCENARIO ONE
2011 |
2012 |
2013 |
2014 | |
actual |
forecast | |||
Inflation, % |
7.4 |
6-8 |
6-8 |
6-8 |
Official Refinancing Rate,% |
7.5 |
6-8 |
6-8 |
6-8 |
Reserve Money, KZT bln. |
2 836 |
2 970 |
3 143 |
3 362 |
Money Supply, KZT bln. |
9 751 |
9 821 |
10 356 |
11 049 |
Deposits of Residents, KZT bln. |
8 385 |
8502 |
8 964 |
9 561 |
Credits to the Economy, KZT bln. |
8 781 |
7 873 |
8 283 |
8 731 |
Monetization of the Economy, % |
35.7 |
36.4 |
39.4 |
39.3 |
Table 1 forecast of key monetary policy indicators
SCENARIO TWO
2011 |
2012 |
2013 |
2014 | |
actual |
forecast | |||
Inflation, % |
7.4 |
6-8 |
6-8 |
6-8 |
Official Refinancing Rate,% |
7.5 |
6-8 |
6-8 |
6-8 |
Reserve Money, KZT bln. |
2 836 |
3 451 |
3 778 |
4 226 |
Money Supply, KZT bln. |
9 751 |
11 525 |
12 633 |
14 149 |
Deposits of Residents, KZT bln. |
8 385 |
9 995 |
10959 |
12 227 |
Credits to the Economy, KZT bln. |
8 781 |
9 233 |
10 082 |
11 283 |
Monetization of the Economy, % |
35.7 |
36.8 |
40.0 |
40.0 |
table 2 forecast of key monetary policy indicators
SCENARIO THREE
2011 |
2012 |
2013 |
2014 | |
actual |
forecast | |||
Inflation, % |
7.4 |
6-8 |
6-8 |
6-8 |
Official Refinancing Rate,% |
7.5 |
6-8 |
6-8 |
6-8 |
Reserve Money, KZT bln. |
2 836 |
3 559 |
3 968 |
4 464 |
Money Supply, KZT bln. |
9 751 |
11 891 |
13 326 |
15 014 |
Deposits of Residents, KZT bln. |
8 385 |
10 316 |
11 571 |
13 045 |
Credits to the Economy, KZT bln. |
8 781 |
9 212 |
10 263 |
11 532 |
Monetization of the Economy, % |
35.7 |
39.9 |
40.1 |
40.2 |
table 3 forecast of key monetary policy indicators
III. Analysis of inflationary processes in the Republic of Kazakhstan
3.1 Statistical data of inflation dynamics from 2009 to 2011
Inflation report for 2009
In 2009, the inflation rates in Kazakhstan were steadily decreasing. Based on 2009, the inflation was at 6.2%. This inflation rate is 1.5 times lower as compared to the inflation in 2008 .
Low business activity, stagnation in the lending activity of banks, low growth rates of real cash income of the population, limited consumer demand were the major factors for a decrease in the inflationary background in the economy.
Nonetheless, it should be mentioned that the macroeconomic situation in Kazakhstan in 2009 is characterized by a greater stability as compared to the situation in 2007-2008. At the same time, if in the first half of the year the output volume in the most sectors of the economy (manufacturing industry, construction, cargo turnover, retail sales), decreased, in the second half of 2009 a break point outlined. According to the tentative estimates, the real GDP growth was 1% based on 2009.
A minimal inflationary background allowed the National Bank to implement the monetary policy aimed at ensuring the stability of the exchange rate of the Tenge and the stability of the country’s financial sector. In particular, the National Bank continued providing refinancing loans to the banking sector.
The need to retain gold and foreign currency reserves and maintain the competitiveness of the domestic producers urged the National Bank to revise its approaches to the foreign exchange policy. In February 2009, a new exchange rate band was fixed at KZT 150/1US$ +/-3%. This allowed significantly reduce devaluation expectations in the market.
Diagram 1. Forecast and actual inflation rates in 2009
Inflation report for 2010
At end-December 2010 the annual inflation was at 7,8%(in December 2009 - 6,2%) This inflation rate is in full compliance with the target band of 6-8% established by the National Bank for 2010.
The inflationary processes in Kazakhstan in 2010 were building up against the backdrop of minimal impact of monetary factors. So, the growth in money supply in 2010 was 14.1%, the reserve money expanded by 5.0% only.
The main factors of acceleration of the inflation in 2010 were related to the imbalance between demand and supply in the economy. Alongside with that, one of the main reasons for the expansion of absorption in the economy was the growth in cash income of the population, which in 2010 was supported not only by revived business activity but also by the increase in wages, social benefits and retirement benefits paid from the budget by 25% in April 2010.
In 2010 the Kazakh economy demonstrated quite high growth rates. Thus, the GDP growth during 9 months of 2010 accounted for 7.5%. Alongside with that, the growth in production was observed virtually in all industries including mining and manufacturing
industry, trade, transport, communications and construction.
Another reason for non-decreasing inflation background in the economy in 2010 was the realization of external factors. The increase of world prices in the commodity markets, including the price for oil and metals, contributed to the growth in prices for industrial output of the Kazakh producers. Moreover, unfavorable weather conditions (drought, wildfires) in some countries resulted to the decreased production of certain food items including grains. This situation was conductive to the increase in inflationary expectations within Kazakhstan.
However, the anti-inflation policy implemented in 2010 by the joint efforts of the Government , National Bank local governments allowed maintaining a stable situation in the consumer market.
The National Bank took actions in line with the Monetary Policy Guidelines for 2010 intended to ensure the price stability, stability of the Tenge exchange rate and stability of the country’s financial sector.
During 2010 the versus to the US Dollar remained
in the middle of exchange rate band of KZT 150/US$ (+)10% or KZT 15,
(-)15% or KZT 22.5 with a minor involvement of the National Bank
in the domestic foreign exchange market. At the same time, there was
a tendency for the appreciation of the domestic currency.
The short-term liquidity in the money market was regulated by the National Bank
through the issue of short-term notes and attraction of deposits from banks. The National Bank provided refinancing loans to support their current liquidity.
Diagram 2. Forecast and actual inflation rates in 2010
Inflation report for 2011
At end-2011, according to the official data provided by the Agency of Statistics of the Republic of Kazakhstan, annual inflation was at 7.4% (in 2010 – 7.8%), i.e. it remained within the boundaries of the target band of 6-8% established by the National Bank for 2011.
The main factors for the inflation growth in 2011 were associated with unstable
situation in the global commodity markets , persistent trend of price growth including for the major items of the Kazakhstani exports.
A significant role in the inflation growth was played by the expansion of aggregate
demand in the economy as a result of steady growth in the income of the population, particularly the thirty percent increase in retirement benefit payouts and student fellowships from January 1, 2011 as well as the increase in wages to the public sector employees by 30% from July 1, 2011.
High growth rates of the Kazakh economy in 2011 were also conductive to persisting inflationary pressure. At the end of 9 months the country’s real GDP growth accounted for 7.2%; with the positive dynamics in virtually all sectors, agriculture, communication and trade should be mentioned specifically.
The actual inflation rate (1.1%) in the 4th quarter of 2011 was lower than the forecast (1.5-1.7%) published in the previous issue of the Inflation Report. The inflation has been lower than the forecast throughout the 4 thquarter of 2011. In the 4th quarter of 2011 there was an even price growth in all group of goods. In their
structure, the increased prices for meat products, eggs, education services and utility services should be pointed out. When analyzing the dynamics of the past years, one may note that the growth in prices for such goods and services is typical for such period of the year.
As a whole in 2011, the buildup of inflation process in Kazakhstan was influenced by the increase in prices for foodstuffs and paid services to the population. The growth rates of prices for non-food items were moderate in 2011.
The highest growth rates were observed in prices for such goods and services as
cereals (buckwheat, millet), meat and meat products, fuel and lubricants, education and communication services.
The actual annual inflation rate at end-2011 (7.4%) was within the target band of 6-8% established by the National Bank (Diagram 3).
Diagram 3. Forecast and actual inflation rates in 2011
Diagram 4 Inflation over the past 11 years
3.2 Monetary aggregates as indicators of money circulation
Monetary aggregates for 2009
Reserve money has contracted over Q4 2009 by 10.8% and amounted to KZT 2451.2 bln. Narrow money also contracted in Q4 2009 by 10.9% to KZT 1962.1 bln.
In December 2009 , as compared to December 2008, reserve money expanded by
60.7% . Such expansion was mainly ensured due to crediting of money of the NWF “ Samruk- Kazyna ” to correspondent accounts of some banks with the National Bank denominated in the Tenge .
Money Supply
During Q4 2009 , money supply increased by 1.8% to KZT 7386.5 bln. In December 2009 as compared to December 2008, its growth accounted for 17.9% mainly as a result of the increase in net foreign assets of the banking system
Cash in Circulation
The volume of cash in circulation in Q4 2009 increased by 12.8% to KZT 913.5 bln . The main reason for the increase was the growth in net pay outs of wages, which at the same time was partially offset by the growth in net proceeds from the sale of goods, services and performed works , net foreign exchange proceeds, net proceeds from loans to natural persons and legal entities.
In December 2009 as compared to December 2008, cash in circulation increased by 6.5%. This shows that the impact of factors contributing to the growth in cash (payout and the increase in wages, retirement benefits and allowances) was dominating over the impact of factors which contributed to its decrease (increased volumes of foreign cash sold by the exchange offices, increased deposit balances, proceeds from sales of goods, works and services, etc.).
In Q4 2009 as compared to Q4 2008, payouts of cash from bank cashier departments increased by 1.4% to KZT 2877.6 bln., cash receipts to bank cashier departments decreased by 3.6% to KZT 2613.8 bln. As a result, net payouts from bank cashier departments amounted to KZT 263.7 bln.
Q1 |
Q2 |
Q3 |
Q4 | |
RM (Reserve Money) |
2 032 438 |
2 193 334 |
2 577 690 |
2 450 836 |
Currency in Circulation |
714 096 |
747225 |
807 062 |
913 443 |
Broad money |
5 970 359 |
6 556 048 |
7 064 482 |
7 487 306 |
Table 4
Diagram 5
Monetary aggregates for 2010
Reserve Money
Reserve money in Q4 2010 expanded by 1.7% and amounted to KZT 2572.9 bln. at end-December 2010. Narrow reserve money contracted by 0.9% to KZT 2143.7 bln.
In 2010 reserve money expanded by 5.0% as compared to December 2009.
Net international reserves of the National Bank increased by 23.0% to US$ 27.7 bln. in December 2010 as compared to the respective period of 2009. Within their structure , despite operations on the servicing of the Government’s external debt and decrease in foreign currency balances with the correspondent accounts of the second-tier banks at the National Bank, net currency reserves increased as a result of foreign exchange purchase in the domestic foreign exchange market and currency proceeds to the Government’s accounts at the National Bank. Assets denominated in gold also increased.
Money Supply
During Q4 2010 money supply increased by 1.6% to KZT 8546.4 bln . In December 2010 as compared to December 2009 its growth accounted for 14.1% as a result of increase in net foreign assets of the banking system
Cash in Circulation
The volume of cash in circulation in Q4 2010 increased by 5.7% to KZT 1148.5 bln . The main reasons for the increase in the cash in circulation were the growth in net payouts on wages, net payoffs on individuals’ time deposits and payouts for retirement benefits and allowances. At the same time, the impact of these factors was not neutralized by the growth in net proceeds from the sale of goods, services and performed works, net proceeds from the foreign exchange sales, and net proceeds from loans to individuals and legal entities recorded in Q4 2010.
In December 2010 as compared to December 2009 cash in circulation increased by 25.7%. This shows that the impact of factors contributing to the growth in cash (the increase in wages, retirement benefits and allowances) was dominating over the impact of factors which contributed to its decrease (increased volumes of foreign cash sold by the exchange offices, increased deposit balances, proceeds from sales of goods, works and services, etc.).
Q 1 |
Q 2 |
Q 3 |
Q 4 | |
RM (Reserve Money) |
2 657 970 |
2 635 829 |
2 551 113 |
2 563 056 |
Currency in Circulation |
885 089 |
994 050 |
1 076 197 |
1 106 455 |
Broad money |
7 634 902 |
8 115 818 |
8 412 755 |
8 556 353 |
table 5
Diagram 6
Monetary aggregates for 2011
Reserve Money
In the 4 quarter of 2011 reserve money contracted by 1.6% and amounted to KZT
2836.1 bln. at end-December 2011. Narrow reserve money expanded by 4.5% to KZT 2739.3 bln. During 2011 (December 2011 versus December 2010) reserve money expanded by 10.3%.
During 2011 net international reserves of the National Bank increased by 3.8% and amounted to US$ 28.8 bln . The growth in the foreign currency balances with correspondent accounts of banks at the National Bank and foreign currency proceeds to the Government’s accounts with the National Bank were partially neutralized by foreign exchange sales in the domestic foreign exchange market, operations on the servicing of the Government’s external debt and replenishment of assets of the National Fund from gold and foreign currency reserve accounts. As a result, during 2011 net currency reserves (NCR) decreased by 0.2%, and assets denominated in gold increased by 36.0% as a result of transactions and the growth of price for gold in the global markets.
Money Supply
During the 4 quarter of 2011 money supply decreased by 0.7% to KZT 9751.1 bln.
During 2011 its growth accounted for 15.0% as a result of increase in both net foreign assets and domestic assets of the banking system
Cash in Circulation
The volume of cash in circulation grew during the 4th quarter of 2011 by 8.3% to KZT 1365.7 bln.
During 2011 cash in circulation increased by 18.9% . Cash payouts from the bank cashier departments increased by 20.9% to KZT 1.5 trln., and the receipts to the bank cashier departments also increased by 20.9% to KZT 1.3 trln.
The growth of cash in 2011 was associated with the growth in payouts of wages, retirement benefits and allowances and as a result of the growth in payouts to support ATMs.
Also, the increased payouts on demand deposits and checking accounts of individuals were conductive to the growth of cash in circulation. The effect of these factors was not neutralized by the growth in proceeds from the sale of goods, services and delivered works and the increased proceeds from foreign exchange sales observed in 2011.
Q 1 |
Q 2 |
Q 3 |
Q 4 | |
RM (Reserve Money) |
2 693 956 |
2 879 033 |
2 988 107 |
2 954806 |
Currency in Circulation |
1 093 561 |
1 153 046 |
1 254 224 |
1 286 891 |
Broad money |
8 712 236 |
9 114 763 |
9 691 856 |
9 725 342 |
IV. Problems and ways to improve the mechanisms of money circulation and inflation processes dependence regulation
4.1 The main challenges of money circulation and inflation rate regulation mechanisms
One of the main problems of effective anti-inflationary monetary policy is the definition of its targets.
The importance of correct identification of intermediate monetary targets due to the following circumstances:
1) the monetary authorities can not directly control the achievement of the ultimate goals of monetary policy (these are usually related to economic growth, high employment, stable prices, balance of payments, etc.);
2) it is difficult to assess the effectiveness of monetary authorities on the basis of observations only ultimate objectives as they impact on monetary policy occurs with a lag time. In addition, the interim targets are usually target to reduce inflationary expectations of economic agents to adjust their decisions regarding the prices of goods and services.
In conducting monetary policy and anti inflationary regulations are mainly used in the following milestones:
- Indicators of money supply (depending on the country - the monetary base, M1, M2, M3, or other indicators);
- Market interest rates;
- The exchange rate.
In the last decade as a benchmark of monetary policy in several countries, mostly developed, began to use domestic price level. Refusal of the application of the intermediate benchmark, and the transition to direct inflation targeting was due to the fact that globalization and liberalization of financial markets, including foreign exchange, have led to increasing the impact of external factors on the domestic currency. In these circumstances, to use as targets of the monetary policy of various monetary aggregates or the exchange rate was not effective, does not guarantee the ultimate objective of monetary regulation - price stability.
The benefits of inflation targeting are: clarity of purpose and clarity of monetary public and market participants the opportunity to pursue a more flexible monetary policy that is free from obligation of choice and the achievement of intermediate objectives. The National Bank is focusing its efforts on achieving price stability as the primary objective of monetary policy (priority with respect to its ultimate goals such as economic growth, high employment, etc.). To do this, he can use all the instruments of monetary regulation depending on the macroeconomic situation.
- Money_turnover
- Mp-3 плееры
- MRP (Material Requirements Planning)
- MRP ситемы
- MS Access
- MS Access
- MS access-ті үйренуде компьютерлiк оқыту жүйесiн жасау негiздерi
- Middle english written records
- Mixed-integer linear programming collision avoidance method in unmanned aerial vehicles trajectory planning
- Moderno ierīču izveidošana izmantojot pjezoelektriskos materiālus
- Modifications of english vowels in connected speech
- Mokesčių sistema lietuvoje
- Monetary and credit policy of National Bank of Kazakhstan
- Monetary system of Ukraine
