Global Money Supply

In this post we look at Global Money Supply (M0 to M3). For a primer look at 'What is money' and 'What is money supply, inflation?'. But first a massive hat tip to Mike Hewitt at DollarDaze.org for his 2008 Global Money Supply update.

First, a table showing global money supply by the top 25 nations. Note that China, Russia, India and Norway did not publish M3, so an average multiple on M1 was used to estimate that data.

There are two very interesting facts in this table. The first is that top 6 countries account for 80% of M3, and the top 9 for 90%. Second, note that the average M3:M1 multiple is 19.4. This means that there is nearly 20 times more money in circulation that the money 'officially' printed by the respective central banks. Welcome to fractional reserve banking. This is consistent with an average 5% reserve requirement. See 'What is reserve banking?' for more information.

The next table looks at money growth for the same 25 nations ranked according to M0 year on year (yoy) growth. The rows shaded green show the top 6 (top 80%) nations according to M3 from above.

What is interesting in this table are the different growth rates for different countries. Since M0 is central bank control money, this is the best indication of what nations are doing. As of July 2008, we see the US and Japan having very slow money expansion, where as developing nations and petro-nations have high money growth. The reason for this high money growth is that these nations seek to maintain currency parity with the US dollar. So as the US dollar falls (becomes worth less for domestic economic weakness), these nations must print and sell their currency to maintain parity.

This excessive money printing is responsible for inflation in these nations. Remember to quote 'inflation is always and everywhere a monetary phenomenon' and you'll sound like an economist!

One last point, M3 can be a misleading money growth indicator as it captures large sums of money in money market accounts and liquid assets. During turning points in the economy, risk-adverse investors may sell assets such as property and equities and place this money in M3 type accounts. Of course this doesn't change the amount of money, just it's composition.

More to follow!