Africa-Press – Eswatini. The total money circulating in the economy has shown signs of declining.
According to the latest monthly statistical report from the Central Bank of Eswatini, broad money supply (M2) closed the review month (June) at E21.0 billion, posting a reduction of 0.9 per cent relative to the previous month where it was standing at E21.1 billion.
Broad money supply refers to the total amount of money circulating in an economy, including both physical currency and other types of money, such as demand deposits, savings accounts and other time deposits. It is also known as M2 money supply and is a key economic indicator used by central banks to monitor and control the supply of money in an economy.
The broader the money supply, the more liquidity there is in the economy, making it easier for businesses and individuals to borrow and spend.
The report suggested that month-on-month contraction was underpinned by quasi money supply while narrow money supply (M1) increased.
According to economists, the drop in broad money supply, is not good news for the economy of the country as there are several disadvantages of reduced money circulating in the economy.
They said when there was less money circulating in the economy, businesses and consumers may have limited access to credit and reduced purchasing power and as a result, economic activity may slow down, leading to reduced output and employment opportunities.
“When there is reduced money circulating in the economy, it can lead to deflationary pressures, where the price level falls due to decreased demand. Deflation can have negative consequences, such as discouraging investment and spending and increasing debt burdens,” the economist stated.
With reduced money supply, credit may become harder to obtain, leading to an increase in loan defaults, which could impact the stability of the financial system. The economist said there could also be decreased government revenue because when there is reduced money supply, it could lead to lower tax revenues for the government, which can negatively impact government spending on social programs and infrastructure development.
“Overall, reduced money circulating in the economy can have negative economic and social consequences, making it crucial for central banks to carefully monitor and regulate money supply to avoid such issues,” the economist stated.
The report from Central Bank highlighted that quasi money supply stood at E12.6 billion at the end of May reflecting a contraction of 1.9 per cent month-on-month and 2.2 per cent year-on-year. It was stated that the reduction was registered in both components; time and savings deposits, which fell by 1.9 per cent to E10.6 billion and 1.4 per cent to E1.9 billion, respectively.
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