Circulation (currency)
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In monetary economics, the currency in circulation in a country is the value of
currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general def ...
or
cash In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-imm ...
(banknotes and coins) that has ever been issued by the country’s
monetary authority In finance and economics, a monetary authority is the entity that manages a country’s currency and money supply, often with the objective of controlling inflation, interest rates, real GDP or unemployment rate. With its monetary tools, a moneta ...
less the amount that has been removed. More broadly, money in circulation is the total
money supply In macroeconomics, the money supply (or money stock) refers to the total volume of currency held by the public at a particular point in time. There are several ways to define "money", but standard measures usually include Circulation (curren ...
of a country, which can be defined in various ways, but always includes currency and also some types of
bank deposits A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, current accounts or any of several other types of accounts explained below. ...
, such as deposits at call. The published amount of currency in circulation tends to be overstated by an unknown amount because it does not take into account money that has been destroyed, or held by individuals as a form of security (the proverbial “money under the mattress”), or by
coin collectors Coin collecting is the collecting of coins or other forms of minted legal tender. Coins of interest to collectors often include those that were in circulation for only a brief time, coins with mint errors, and especially beautiful or historic ...
, domestic or foreign, or which is held in reserve within the banking system, including currency held by foreign
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...
s as a
foreign exchange reserve Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence ...
asset.


Domestic demand for currency

The currency in circulation in a country is based on the need or demand for cash in the community. The monetary authority of each country (or currency zone) is responsible for ensuring there is enough money in circulation to meet the commercial needs of the economy, and releases additional notes and coins when there is a demand for them. Banks would routinely or exceptionally order cash from the monetary authority to meet anticipated demand, and keep it in reserve in the bank. (The banking regulator would typically determine the banks’
reserve requirement Reserve requirements are central bank regulations that set the minimum amount that a commercial bank must hold in liquid assets. This minimum amount, commonly referred to as the commercial bank's reserve, is generally determined by the centra ...
s, including the minimum proportion of a bank’s assets that banks must hold in cash.) When banks no longer believe they need as much cash in reserve they would return the cash to the monetary authority. Subject to directives from the regulator, banks tend to keep their cash reserves as low as is prudently necessary, as banks do not earn interest on it, and incur a cost to keep it securely. (The amount taken out of reserve is available for lending, at interest.) The amount of money needed to be at call varies because of a number of factors. For example, in many countries there is a higher demand at Christmas time when
commercial Commercial may refer to: * a dose of advertising conveyed through media (such as - for example - radio or television) ** Radio advertisement ** Television advertisement * (adjective for:) commerce, a system of voluntary exchange of products and s ...
activity is highest. Also, when workers were paid in cash, there was a higher demand for pay-day. There may also be sudden, unexpected surges in demand for cash by individuals during economic panics, which may result in a "
run on the bank A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system (where banks no ...
" as individuals seek to withdraw money from bank accounts. Cash held by banks is counted as part of the currency in circulation. Cash that is in the hands of individuals and businesses in the community may be needed for routine or exceptional purchases or held in reserve. Nowadays, a large part of everyday transactions is effected using
electronic funds transfer Electronic funds transfer (EFT) is the electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems, without the direct intervention of b ...
s, without the use of cash. When a business makes a cash sale, it will keep the cash it receives until it pays it to someone else or deposits it into a bank account, keeping part of it in its "float", in order to give change to customers. A significant part of the cash in circulation is used by and held within the
black economy A black market, underground economy, or shadow economy is a clandestine market or series of transactions that has some aspect of illegality or is characterized by noncompliance with an institutional set of rules. If the rule defines the ...
.


Foreign currency reserves

Central banks of many countries hold currency of another country in their
foreign exchange reserves Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence ...
, which can include banknotes, deposits, bonds, treasury bills and other government securities. The cash component is counted by the issuing central bank as part of its currency in circulation.


History


Total currency in circulation

In 1990, total currency in circulation in the world passed the equivalent of one trillion
United States dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
s. After 12 years, in 2002 this figure was two trillion USD, and in 2008 it had increased to four trillion USD.Mike Hewitt (25 June 2009)
Fiat Currency in Circulation, How Much Money is There?
The Market Oracle.
(These figures do not make allowance for inflation or population changes.) The
Bank for International Settlements The Bank for International Settlements (BIS) is an international financial institution owned by central banks that "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work thr ...
provides detailed statistics of the worth of banknotes and coins for 18 major currencies used by the member states of the Committee on Payments and Market Infrastructures (CPMI). The table below shows the statistics as of 31 December 2016 in billions of US dollars using the exchange rate at the end of the year. The total value is $4,687 billion.


See also

*
Business strike A circulation issue or circulation coin,_ (1988). ''The American Coin Redesign Act'', Volume 4, by United States Congress Senate Committee on Banking, Housing, and Urban Affairs. sometimes called a business strike (US), is a coin minted and issued f ...
- coins intended for circulation (as opposed to commemorative and bullion coins) * Coining *
Counterfeit money Counterfeit money is currency produced without the legal sanction of a state or government, usually in a deliberate attempt to imitate that currency and so as to deceive its recipient. Producing or using counterfeit money is a form of fraud or fo ...
*
List of circulating currencies There are 180 currency, currencies recognized as legal tender in United Nations (UN) Member states of the United Nations, member states, United Nations General Assembly observers, UN General Assembly non-member observer states, List of states w ...
*
Velocity of money image:M3 Velocity in the US.png, 300px, Similar chart showing the logged velocity (green) of a broader measure of money M3 that covers M2 plus large institutional deposits. The US no longer publishes official M3 measures, so the chart only runs thr ...


References

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