HomeBusinessMoney supply on upward trend

Money supply on upward trend

MONEY supply (M3) growth continued on an upward trend increasing to a new record of 51 768,8% in November last year from 24 463,6% the previous month as government continues to print money to fund operations.

Money supply is the total supply of money in circulation in a given country’s economy at a given time. It is considered an important instrument for controlling inflation.
“Annual broad money growth recorded a 51 768,8% growth during the month of November 2007. Largely contributing to the increase in broad money growth were increases in credit to the private sector of 125 348,4% and credit to public enterprises 12 425,3%,” said the Reserve Bank this week.
The continuous rise in money supply would further trigger inflation upward, which is currently at 100 580,2%.
Analysts estimate that the figure would be over 100 000% for January. The figure could increase further for February and March when the amount printed for the civil servants salaries is included in the calculations
More money has also been printed to buy foreign currency on the black market to buy buses for the campaign and equipment for the mechanisation programme. 
“All major sectors of the economy have not been performing but government continues to invest in inflation,” Independent economic consultant John Robertson said. “The Reserve bank cannot print money faster than the rate at which it is devaluing. All this is being done for short term gains instead of production. This will neutralise government’s attempts to stimulate the economy.”
Business has over the past two years accused the government of heavily relying on printing money instead of generating enough revenue from taxes to fund its operations.
This had rendered futile any attempt to deal with inflation.
The central bank in January introduced higher bearer cheque denominations of $1 million, $5 million and $10 million.
The previous month the bank had introduced new $250 000, $500 000 and $750 000 notes to ease cash shortages that the country had experienced between October and January.
“The main cause of hyperinflation in the country is the massive and rapid increase in the amount of money which is not supported by growth in the output of goods and services,” a bank economist said yesterday.
“This results in an imbalance between supply and demand for the money including currency and bank deposits, accompanied by a complete loss of confidence in the money,” the economist said.
This week the Reserve Bank said government domestic debt was now $1,6 quadrillion as at March 7. The bank advanced $680 trillion to government during the period under review, money which bank sources said was being printed to finance elections, import maize, fuel, farm mechanisation equipment and electricity. 
The bank said net credit to government increased from 16 585,8% in October last year to 509,16% in November.
“Domestic credit also rose by 96 232% to $49 trillion in November compared to $590 billion recorded in November 2006. Narrow money growth increased to 57 871% quasi-money also increased to 40 418,7% in November from 20 321,1% recorded in October 2007,” the bank said.

Paul Nyakazeya

Recent Posts

Stories you will enjoy

Recommended reading