In monetary economics, the currency in circulation in a country is the value of currency or cash that has ever been issued by the country’s monetary authority less the amount that has been removed. More broadly, money in circulation is the total money supply of a country, which can be defined in various ways, but always includes currency and also some types of bank deposits, such as deposits at call. The published amount of currency in circulation tends to be overstated by an unknown amount because it does not take into account money that has been destroyed, or held by individuals as a form of security, or by coin collectors, domestic or foreign, or which is held in reserve within the banking system, including currency held by foreign central banks as a foreign exchange reserve asset.
The currency in circulation in a country is entirely based on the need or demand for cash in the community. Each country’s monetary authority is responsible for ensuring there is sufficient money in circulation to meet thecommercial needs of the economy and releases additional notes and coins when there is a demand for them. Banks would routinely or exceptionally order cash from the monetary authority to meet anticipated demand, and keep it in reserve in the bank. When banks no longer believe they need as much cash in reserve they would return the cash to the monetary authority. Subject to directives from the regulator, banks tend to keep their cash reserves as low as is prudently necessary, as banks do not earn interest on it, and it is a cost to keep secure. The amount of money needed to be at call varies because of a number of factors. For example, there is a higher demand at Christmas time when commercial activity is highest. Also, when workers were paid in cash, there was a higher demand for pay-day. There may also be sudden, unexpected surges in demand for cash by individuals during economic panics, which may result in a “run on the bank” as individuals seek to withdraw money from bank accounts. Cash held by banks is counted as part of the currency in circulation. Cash that is in the hands of individuals and businesses in the community may be needed for routine or exceptional purchases or held in reserve. Nowadays, a large part of every day transactions are effected using electronic funds transfers, without the use of cash. When a business makes a cash sale, it will keep the cash it receives until it itself pays it to someone else or deposits it into a bank account, keeping part of it in its “float”, being the cash needed in order to give a change to customers. A significant part of the cash in circulation is used by and held within the black economy.
Central banks of many countries hold currency of another country in their foreign exchange reserves, which can include banknotes, deposits, bonds, treasury bills and other government securities. The cash component is counted by the issuing central bank as part of its currency in circulation.
History
The American colonies or states governments were able to circulate bills of credit. These state issued and backed money instruments were constitutionally prohibited.
China is not part of the calculation, and may be over a trillion dollars. Over 160 countries are not calculated. The calculation also does not include Cryptocurrencies such as Bitcoin and Ripple, whose total value in circulation exceeds one hundred billion dollars.
