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In this article we take a look at South Africa's money supply data and ask how much money is in circulation in South Africa's economy, in particular what is the value of notes and coins in circulation in South Africa's economy? In addition to this we compare the total value of notes and coins in circulation to the total value of South Africa's economy.
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So just what is the value of all notes and coins currently in South Africa?
The chart below shows South Africa's M1, M3 money supply as well as South Africa's GDP (at basic prices) in current prices. M1 money supply is the cold hard cash we as consumers know, its notes and coins in circulation and cash immediately accessible to consuners. M3 is the broader money supply and this includes money in short term savings accounts, money market accounts and other savings that is accessible to consumers within a reasonable time period.
So for the first quarter of 2018, the total value of notes, coins and immediately accessible funds in South Africa amounted to R1.7trillion. While the broader definition of money, the M3 amounted to double that, with it sitting at R3.4trillion (basically implying R1.7 trillion is laying in longer term savings accounts and money market accounts and similar products). While the South African economy as a whole was measured at being worth R4.3trillion (note this is current prices and this value has not been adjusted for inflation).
Early economic theory suggested that the increase in the money supply would lead to higher levels of inflation, as consumers have more cash available to them, they will spend more, which will push up demand for goods and therefore push up the prices of goods and retailers and businesses look to maximize profits. The graphic below shows the annual increase in M1 money supply and the annual rate of inflation.
Early economic theory suggested that the increase in the money supply would lead to higher levels of inflation, as consumers have more cash available to them, they will spend more, which will push up demand for goods and therefore push up the prices of goods and retailers and businesses look to maximize profits. The graphic below shows the annual increase in M1 money supply and the annual rate of inflation.
The graphic below shows that while the trends are similar (and there is a correlation between the two series measured at 0.4, which shows 40% of movements in the one series can be explained by movements in the other) the M1 money supply is far more volatile than that of the CPI. The average growth in M1 over the period was 9.9% while CPI averaged 5.5%. The standard deviation taken of both time series also shows that M1 as a percentage is far more volatile with its coefficient of variation averaging 25.1%, while the CPI's coefficient of variation averaged 14.7%.
What the coefficient of variation shows that on average each data point differs a particular percentage from the average measured over the time period. So in the case of M1, one average each data point differs roughly 25.1% from the average value of 9.9%, and for the CPI, each data point differs only 14.7% from the average of 5.5%
So while the trends in M1 and CPI is similar the feed through of the growth in M1 is not that strong as growth in CPI is far lower than that of M1.
What the coefficient of variation shows that on average each data point differs a particular percentage from the average measured over the time period. So in the case of M1, one average each data point differs roughly 25.1% from the average value of 9.9%, and for the CPI, each data point differs only 14.7% from the average of 5.5%
So while the trends in M1 and CPI is similar the feed through of the growth in M1 is not that strong as growth in CPI is far lower than that of M1.