Finance

Home page

Finance

Cash money supply reaches undesirable level

23 September 2008 13:40 (UTC +04:00)

As at August 1, 2008, cash outside the central bank (M0) made AZN 3 488.3 million, accounting for 66.9% of M2 money supply.
M2 money supply includes total cash in circulation (outside banks) (M0), the amount in demand accounts, current accounts, term deposits in national currency.
M0/M2 ratio is the indicator of monetary liquidity in the country. This ratio ranges between 10% and 40% in most countries, but this ratio is not at the normal in Azerbaijan.
Cash circulation remaining more than normal level shows the level of transactions outside the bank or indirectly the shadow economy.

M3 money supply includes M2 plus bank deposits in hard currency.
M0/M3 ratio shows that foreign exchange deposits takes important part in the financial sector of Azerbaijan.
Over the recent years, M0/M2 ratio moved down a bit and M0/M3 came closer to M0/M2.
This shows the balancing of cash and cashless transactions.
However, cash dealing still prevails in the country.
To compare, it is interesting to know that M0/M2 ratio went close to 42% in Russian financial crisis August, 1998 and this was seen as a disaster then.
Some instruments and methods in cash payment are not used in Azerbaijan, these includes checks, cashless payment through bank accounts, debt securities, e-payment etc. Plastic cards are only used to cash money.
The higher level of cash supply also shows the situation in all fields of the financial sector, including tax, customs and budget systems.