This is how to count all the money in the country
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
27 April 2008
A few months ago, a reader asked me a question that went like this: “What is the total value of all the money in the country?” But I deleted the email by mistake and forgot about it.
To answer this question, we must first understand the meaning of “money”. Economists define it as anything that can be used to settle a debt. An interesting scenario then arises: suppose you go to the kiosk and hand over Sh30. At that moment, before you say what you wish to buy, the trader owes you a debt Sh30.
Then you tell him to give you a loaf of bread (to settle the debt) and he does so. In that transaction, the bread is the “money” – it is no wonder then that in some slang, money is called “bread”...
In ordinary speech, take it for granted, but when you think about it, money is just a number written on a piece of paper (most of the time) or a metal plate. It can be security printed (as in currency notes) or typed with an ordinary printer (as in a bank statement) or even written by hand (as in a cheque).
So, when someone asks for the total value of all the money in the country, we might reply with the question: “Which money?” Most people might be thinking about the total value of all currency notes and coins circulating in the country. This is actually the most basic measure of “money supply” in a country.
The latest available data from the Central Bank of Kenya (Monthly Economic Review of February 2008) indicates that as of 31st January this year, there was Sh90.6 billion of currency outside the banking system (i.e., in our wallets, handbags, under mattresses, etc). Now that seems quite little especially considering that this is a country with an annual budget of over Sh400 billion.
But the figure becomes a more realistic Sh378 billion when we include the currency held by the banks to service short-term deposits (mainly current and savings accounts). Note that this is not the actual balances in the accounts but the cash held by the banks to pay out when customers make withdrawals.
When the short-term account balances are included, the money supply comes to Sh682 billion. This figure does not include Local authority and central government deposits, and foreign currency accounts.
If foreign currency accounts in local banks are added, the total money supply comes to Sh807 billion and when government deposits are included the total comes to Sh998 billion – Sh2 billion short of a trillion.
This final figure can be said to be “all the money in
 |
 |