I was thinking about money the other day (being employed does strange things to one…) and reflecting on that innocent age when I believed a bank account was literally a box in which your bank balance sat in the form of currency notes.
Now, with electronic transactions being far more common, is there any way of estimating how much currency there actually is in the world, and how that relates to, say, global GDP?
Pointless speculation perhaps, but intriguing to me.
What you’re looking for is something like the Fed’s “M0”, the most restricted measure of the money supply. Those figures should be fairly easy to find for the US and maybe England, but finding an estimate of M0 for the entire world is more than I can pull out in thirty seconds.
Currency represents a tiny fraction of wealth. U.S. currency in circulation as of Dec 31 2006 was $783.5 billion.
Microsoft has 9.355 billion shares outstanding and it is currently selling for $34 a share, so the equity value of Microsoft is $318 billion or 40% of the value of the outstanding currency. Microsoft is about 2.9% of the S&P 500 index so the value of the equity in this index is $11 trillion or 14 times as much as all the currency. The S&P 500 Index is about 70% of the value of all listed stock. So the latter is about $15.5 trillion or 20 times the value of the currency.
And we haven’t even begun to talk about bonds – not to mention real estate. I know that corporate bonds and all real estate in the U.S. are roughly comparable in size to the value of equity. Unfortunately, a lot of real estate is owned by corporations, so we can’t simply triple $15.5 trillion or we’d be double counting the real estate values. But it’s certainly safe to say the value of currency is less than 3% of total value of “stuff” in the U.S.
This doesn’t count human capital at all, of course.
It isn’t terribly helpful to compare currency, which is an asset, to GDP, which is an income measure. Within the United States, for what it’s worth, the relevant figures are $765 billion in currency versus about $13.2 trillion in GDP. The former equals about 5.8% of the latter.
The more interesting comparison, however, is currency versus total assets. Based on the most recent triennial Federal Reserve Survey of Consumer Finances, total assets held by Americans are about $50 trillion (448,200 mean asset value * about 100 million families * growth since 2004). Ergo we see that currency represents about 1.5% of total assets. Some of this currency is held directly by households, some by businesses, and some by banks as backing for checking and saving accounts.
(Some also circulates in foreign countries, and by rights I should subtract it here. The true figure would be somewhat lower than 1.5%)
I have no reason to think the results for the rest of the world would be significantly different. I imagine that cash as a percentage of assets is higher in very poor countries, but they don’t contribute much to world-wide totals.
In fact, over half of the US currency stock is held abroad, maybe as much as 80%. To get a good idea of world currency, I would think you could add, Dollars, Euros, Pounds, and Yen, which you could find pretty easily and maybe double or tripple it for a world wide total. That’s a pure off the cuff back of the envelope deal though.
According to Cecil, this figure was $246 billion in 1991, which gives something like an 8% per year increase:
How much money is there? With the U.S. borrowing so much, why aren’t we broke?