There's a flood of cash on the market. Salary rises and the ever-increasing amounts of foreign currency sent home by Romanians working abroad are beginning to show in the strong growth in the amount of cash circulating on the market outside the banking system. For their part, savings also continued to grow.
By the middle of this year, the amount of cash circulating outside the banking system amounted 68,904bn ROL (1.7bn euros), up over 31% from the same time last year. Four months later, at the end of October, this amount had reached the equivalent of 1.9bn euros.
As NBR statistics show, growth in the amount of cash in circulation in the first half of the year was the highest over the period in 15 years at 14.6%. In real terms, the growth for the first half of 2003 was only 9%.
One important stream of cash entering the market came from foreign exchange operations by individuals, who were selling the increasingly higher amounts of foreign currency they got from abroad.
The increased use of cash had a negative impact on the value of transactions in ROL conducted with cards, which was slower to rise than a year ago (22.6% in real terms, calculated based on the balance).
The value of the cash in circulation continued to increase rapidly throughout the third quarter and even saw a momentary leap of 6.4% in July, when it reached 73,312bn ROL (1.8bn euros).
Two months afterwards, at the end of September, central bank statistics pointed to a total amount of cash on the market of 76,697bn ROL (1.9bn euros), 32% higher than at the same time in 2003.
The demand for cash in the first three months of the year received a boost from seasonal factors, budgetary payments and public expenditure, as well as increased sales of foreign currency by individuals at exchange booths.
This strong growth of cash took place at a time when the speed of money rotation (the number of transactions in which a monetary unit is used) accelerated from a minimum of 4 rotations in December 2002 to nearly 4.5 in mid 2004.
This acts against the maintaining of the inflation curbing trend and the consolidation of trust in the national currency. In practice, this shopping spree encourages people to no longer feel the need to keep the money for what it is worth, but rush out and spend it the moment they get it.
In economic theory, the sum total of all goods exchanged for currency within a given period of time should equal the quantity of money in circulation multiplied by its rotation speed.
This means that when the amount of cash in circulation increases, there must be an increase in the volume of goods sold, or that prices must increase in order to restore a monetary balance. Therefore, imbalances in the equation threaten an inflationary backlash.
In effect, acceleration of the rotation speed should lead to a reduction in the amount of money in circulation because the same amounts are used for a higher number of transactions.
NBR needs to monitor constantly the achievement of a balance between the increasing volumes of cash in circulation and the value of the production and services available on the market.
razvan.voican@zf.ro
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