51. Necessity and preconditions of Appearance and Applications of Moneys. Evolution of Forms and Types of Moneys.Необходимость и предпосылки появления и применения денег. Эволюция форм и видов денег.

Money is any asset that can be used to purchase goods and services, Money is easily recognized and generally accepted.

Money plays 3 functions:

• medium of exchange (asset for the purpose of trading rather than personal consumption),

• store of value (means of holding purchasing power over time)

• and a unit of account (measure used to make economic calculations).

Forms evolution:

• commodity money (good used as a medium of exchange with intrinsic value, e.g. barter with livestock/wine),

• commodity-backed money (guaranteed by promise that it can be converted in some particular valuable goods, e.g. backed by gold/silver)

• fiat money (value derives from official status as a means of payment; firstly appeared in VIII in China -> coexisted with commodity-backed money till 1971 when Nixon cut the last links to gold -> now reigns in the whole world)

• e-money (end XX-XXI)

Currency in circulation is cash held by the public. Checkable bank deposits are bank accounts on which people can write checks.

Money supply is measured by monetary aggregates: M1 and M2. M1 (most liquid) = C + D + traveler’s checks. M2 = M1 + NEAR MONEY (savings/time deposits and money market funds).

Velocity of money circulation - the rate at which money is exchanged from one transaction to another. Velocity is important for measuring the rate at which money in circulation is used for purchasing goods and services. It is measured as a ratio of GDP to a country's total supply of money. V = PY/M

52. The Problem of Money Supply Measurements in Modern Economy. The Specifics of Russia.Проблемы измерения денежной массы в современной экономике. Особенности России.

There are M1,2,3,4, MZM, etc - the farther you move from M1, the more illiquid components of money supply are included. Problems:

• Variety of measures. There are a number of ways to measure the money supply, thus it's hard to determine which M give the truest picture.

• Absence of unified definition of MS. Economists' views differ on what should be included in these aggregates. For example, some Austrian school economists propose AMS (austrian money supply). For them money supply measures money available on demand, thus savings accounts should not be included in this measure – they are really lending accounts, people can't write checks or claim for reserves, since they have been lent out. It also excludes assets unlike usual broad measure M4, because they need to be liquidated before they can be used for transactions, making them unavailable on demand.

• Applications by counties' differences. Countries differ on their requirements for reporting: in some countries only financial institutions that create money, such as banks, must report to the CB, but in others, like in Germany, also savings banks and mutual loan societies do report. Indeed, counties differ on ways they use to measure MS. For example, Portugal measures its MS on the basis of the both residents' and non-residents' bank deposits, while others only on the former. Or, Germany includes time deposits of up to 4 years in M2, while other countries – only up to 1 or 2 years, etc.

All these problems make it difficult to compare MSs of the countries.

RF. While Europe concerns are MS components denominated in national currency, broader Russian monetary aggregates rather reflect the importance of foreign currency denominated components. The hyperinflation that occurred in the early 1990s and the major depreciation events (most importantly, the currency crisis of 1998) increased the demand for reserve currency. Foreign currency deposits have been serving a store of value function and have been very popular. Thus, analyzing national currency monetary aggregates may be not sufficient since financial dollarization is an important feature of the Russian economy.

M2 (national definition) is the major monetary aggregate for the analysis and policy formulation at the CBR. M2 includes:

• M0 (cash in circulation) = banknotes and coins in circulation - currency holdings (cash vaults) of the Bank of Russia and credit institutions.

• Non-cash funds in national currency = the balances of funds kept by nonfinancial and financial institutions (except credit institutions) and private individuals in settlement, current, deposit and other demand accounts, including plastic card accounts, and time deposits opened with banks in the Russian Federation currency and accrued interest on them.

Broad money (M2X), however, includes foreign currency denominated components (FC) - deposits. This aggregate differs substantially in size and development from the aggregates that include only components denominated in national currency (NC).