Ukrainian Academy of Banking of the National Bank of Ukraine Banking Department Money and Credit Lecture 3 Money turnover Anna Serhiivna Lasukova, Assistant at Banking Department

Agenda 1. Money turnover and cash flows. 2. Regulation of money circulation. 3. Money supply

Money turnover and cash flows The process of continuous movement of money between the subjects of economic relations in social reproduction is the money turnover

Cash flow as a macroeconomic phenomenon should be distinguished from the turnover of money in circulation within the single individual capital that is the micro level. There is another role played by money in total money turnover. Here they operate solely as money and are not a functional form of capital. Therefore, their amount in circulation cannot be considered as a part of the country wealth. Money turnover and cash flows

At the micro level money serves the turnover of individual capital. M – G... P... M` – G` M – M` – money turnover at the micro level, the movement of money as capital. P – production. Money turnover and cash flows

Regulation of money circulation Monetary policy is a set of interrelated, coordinated and aimed to achieve predetermined social and economic objectives measures of money market regulation, which provides state through the central bank of the country. There are such types of monetary policy by the guide monetary target: monetary targeting regime; currency targeting regime; inflation targeting regime.

Monetary targeting regime is a set of measures of monetary policy, aimed at supporting a stable demand for money from the society to ensure a predetermined level of the money supply in circulation ; Currency targeting regime is a set of measures of monetary policy, that provides support for the stability of the exchange rate of certain reserve currency or basket of currencies ; Inflation targeting is selection of the most real inflation indicator, which can be achieved within a specified time period, using the tools of monetary policy and communication channels. Regulation of money circulation

Money supply By the 30s of XX century in the foreign literature the money supply was observed as a set of remains of metal money and notes available to business turnover. All other money instruments - unchangeable banknotes, coins, deposits, etc. – belonged to the "means of circulation" and were not included in the total amount of money.

Money supply Money supply is a set of money in all forms, which are in an economic turnover for a specified period of time (end of month or year). To determine the amount and structure of money supply in the banking practice, an appropriate set of monetary aggregates is used - M0, M1, M2, M3 and others. The monetary aggregate is a defined by law in accordance with the degree of liquidity a specific group of liquid assets that can be used as an alternatives indices of money supply.

Money supply To calculate the total money supply in Ukraine the following monetary aggregates are provided: M0 includes cash in circulation outside the depository corporations (banks). M1 = M0 and transferable deposits in national currency (M1-M0). M2 = M1 and transferable deposits in foreign currency and other deposits (M2-M1). M3 = M2 and securities other than shares (M3-M2).

Money supply The monetary base is the money that do not participate in the credit turnover and money circulation, but create a base for their expansion. It includes the monetary aggregate M0, cash in banks and reserves of commercial banks on their accounts in the NBU.

Money supply The velocity of money turnover is a frequency of money transition from one entity to another. The main indicators, which characterize the velocity of money, are: velocity of money in revenues circulation - ratio of gross national product (GNP) or national income to the money supply; rate of money turnover in payments, i.e. the ratio of funds transferred to bank current accounts to the mean value of money supply.

To analyze the degree of economy`s supply of money the indicator of monetization is also used. It is calculated as the ratio of the average value of the money supply to the nominal value of GDP. Thus, the rate of monetization is the reverse value to the velocity of money. The dollarization ratio is also used; it is measured as the share of foreign exchange in the money supply. Money supply