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FOLLOW THE MONEY
Investments
10/03/2014
WHAT DO WE KNOW ABOUT...
AND ABOUT THIS?
WHAT ABOUT THIS?
BASIC QUESTIONS ON MONEY
How much cash is outstanding now?
What percentage is in bank notes?
Which denomination is the most frequent?
What percentage is denominated in Ft 20,000 bills?
What percentage of the yearly GDP is the total outstanding
cash?
• How much cash is outstanding in USD & EUR?
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BASIC ANSWERS ON MONEY
• How much cash is outstanding now? 1 ,401 billion USD ( S e p t 2 0 1 6 )
• What percentage is in bank notes? 98.27 %
• Which denomination is the most frequent? The smallest! In
Hungary, 5 Ft coin!! 427 million pieces
• What percentage is denominated in the largest bills? 55.5 %
• What percentage of the yearly GDP is the total outstanding
cash?
• GDP (2012): 28 276 billion HUF -> ~ 10%
• USA: 16770 b USD 8.3%
• How much cash is outstanding in USD & EUR? See next slides
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USD CURRENCY
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EUROPE – CURRENCY IN CIRCULATION
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MONEY CREATION
• Let’s do it!
• Central banks, commercial banks + individuals
1.
2.
3.
4.
5.
Individuals put their money to bank accounts
Banks deposit some in the central bank as reserves
Banks lend the rest, thus creating new money (the money does not
disappear from the depositors bank account)
Individuals spend their loans and the money ends up in someone
else’s bank account again
The process continues... (see next slide)
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MONEY CREATION II.
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CASE-STUDY: HUNGARY BORROWS IN
USD
If borrowing in
HUF:
(HCB:
Hungarian
Central Bank)
Borrowing in USD:
Borrowing in HUF:
Central bank balance sheet
•Govt. account ↑
•HCB bond ↓
Central bank balance sheet
•Govt. account ↓
•HCB bond
↑
In the end, liability structure changes temporary, but
remains the same on the long run.
Govt. spending:
Borrowing in USD:
Central bank balance sheet
•Foreign reserves↑ •Govt. account ↑
HCB bonds
outstanding
grows
Forrás: MNB
Govt. spending:
Central bank balance sheet
•Govt. account ↓
•HCB bond
↑
Central bank’s balance sheet expands, both the foreign
reserves and the outstanding HCB bonds increase.
Costs of borrowing in USD
• The Central Bank bears some of the costs of borrowing, this
will translate to losses
• In the end, the government will pay this anyway
Treasury costs Costs realized by HCB
Costs of funding the
goverment
Cost of
USD
debt
Source: HCB
Interest on reserves