SHOW ME THE MONEY!

One of the interesting aftereffects of an MBA (I will tell you about the hangover later) is that your brain’s appetite increases (sometimes exponentially). It’s good and bad. It makes boring times interesting but at the same time makes simple things complicated. So one of these days, in my little devil’s workshop (err.. my brain), I got this weird thought! What would happen if everyone in this world went up to their banks to withdraw all their deposited money? Well, the answer is obvious: The banks that are yet to be insolvent would also go down under!    

But, that lead me to another interesting question? How much money is there actually in this whole world? Now this looked like fun as I decided to dust my economics fundamentals before they diffuse out of my brain into oblivion. What was that term that made Phil Powell jump in the air. Ahhh.. Money Supply! Driven by curiosity and nostalgia, I decided to dig deeper into this line of thought and in the process discovered some cool facts and interesting resources in the web.

Let us start from scratch here. The economic term for readily available liquid currency is M0 Money Supply. That would be all the money in your wallet, shirt pocket or your wife’s purse. That would also be the money hidden under your pillow or secured carefully in your bank vault. It also includes deposits held by commercial banks with the Fed. Well, I was curious to know how much would that number come out to be? Obviously I was a little lazy. So I simplified things a little here by choosing the dollar as data is quite easily gettable. And in my quick and dirty search, I could find the 2009 numbers and guess what I got: $909 billion. Lot of money, eh! Not really.

The population numbers show a figure of 307 million Americans in 2009. Now if you do the math, you would get about $3000 per head. Now that looks extremely small, doesn’t it? But don’t worry too much. At any given time a lot of M0 US money is held overseas. Okay.. that is useful information. But what happened to my bank accounts again? Precisely! It is now time to move on to other money types. For lack of imagination, Fed tracks its funds under 3 different values: M1, M2 and M3 money supplies. Well, to be accurate, it does not track M3 anymore. Well, here is a summary of what they stand for!

M1 – All of currency in M0 money supply + Money held in checking accounts + Money in Traveler’s checks

M2 – M1 Money supply + Money held in Small Money Market Funds + Money in Savings Accounts + Money in small CDs

M3 -  M2 Money supply + Money held in large CDs + Institutional Money Market Funds

The table below indicates how much U.S dollars are floating around this world. Pretty cool right! So with all this knowledge, we can conclude that we can at least 10 Trillion US dollars (just using M2) in the world today.

Money Supply (Billions of Dollars)
Type	Description	Value	As of
M1	Currency, traveler's checks, demand deposits	2006.1	July 2011
M2	M1 plus savings and small CDs	9313.6	July 2011
M3	M2 plus large CDs	Not Tracked Could be around $12 Trillion

But wait a minute: That is only US dollars. My question is still unanswered: “How much money is there in the world?” Now it gets murky! The US dollar is a currency that has been well established and is in demand (well let us say was until a few years ago). And the Fed does a good job of tracking how much US dollars exist in the world even though they cannot precisely determine where exactly they are! But not every nation has a well established central bank and hence it becomes exceedingly difficult to track other currencies at such a detailed level.

Hang on, that is not the only problem here. I am sure you would have heard about the Trillion Dollar note! Yes. Zimbabwe takes that honors. Plagued by hyper-inflation, the Government in an attempt to fight fire with fire, once printed a $100 Trillion Zimbabwean Dollar note! Whoaa.. And make a guess as to what its exchange rate value was: 30 US Dollars. Obviously the country’s currency was eventually abandoned and US dollar and South African Rand were adopted as official currencies. You may be wondering where I am going with this. My point here is that such Federal Government actions make tracking money even more difficult. Now how do you track those priceless (literally!) Trillion dollar bills now? It becomes very tricky in such situations and there are plenty of them on offer.

But yet, there are smart people who still don’t stop trying. As far as I could research, the closest estimate to how much money exists in the world was released in January 2009 by Mike Hewitt, editor of the economics blog DollarDaze.com. Hewitt tracked the reporting of 73 currencies from central banks and financial ministries in 90 countries, which cover the money used by 84.1 percent of the world's population. The countries tracked represent 96.7 percent of the world GDP - the market value of the world's economies combined.

Are you ready for the big number? Here you go! Hewitt found that in October 2008, these countries had notes and coins equaling $3.94 trillion in U.S. dollars in circulation! Now that is just liquid money (M0)! Total money (hidden in every corner of this earth) goes as high as $60 trillion US dollars. That's indeed a lot of moolah! Now I am sure you are curious to know the gory details of this analysis. Well, for that, you will have to wait until next time!

But as a parting thought, I will leave you with a very interesting statistic about the current US debt: If you get enough dollar bills equal to the current US debt and lay them end to end, they would measure 1,760,216,577 km. This is apparently longer than the distance between Sun and Saturn! Well, truly the US debt is ASTRONOMICAL!

References: http://dollardaze.org/blog/ (It has some really interesting articles)