Trillion is Not Enough

In answering the above question, the mention of seasonal dynamics of the main monetary aggregates and the money base is quite apparent. Seasonal factors traditionally ensure a discernible surge of the money supply at the end of the year, which situation is caused minimum by the following two factors. Firstly, it is unevenness of financing of state expenditures within a year due to which budget expenditures in December normally amount to not 1/12 of the annual volume as in case of regular spendings, but to 1/5–1/6 of the annual volume of state expenditures. Secondly, as the first few days of January are holidays, the December wages and salaries are paid not at the beginning of the next month as it is done in other months, but late in December. In addition to the above, both households and banks traditionally stock up with cash before long New Year holidays, so, as of 1 January of any year the volumes of cash funds in circulation (the M0 monetary aggregate) and cash at banks are much higher than those as of the nearest reporting dates.

So, large volumes of cash emission at the end of the year are an ordinary thing for the Russian economy.

It is to be noted that as regards the current year the assessment of the need of the economy in cash funds in November-December in the amount of Rb 1 trillion is sooner a “lower estimate”. Comparison of the dynamics of cash supply (the money base in a broader definition) in 2015 and previous years shows that within the first 10 months of 2015 considerable constriction both of the broader money base as a whole and cash beyond the Central Bank of Russia took place. Within ten months of 2015, the money base and cash fell by Rb 1.56 trillion or 13.7% and Rb 1.11 trillion or 12.5%, respectively. The above values of the money supply constriction are the record ones as regards both the growth rates and absolute volumes. As a result, growth of cash in the amount of Rb 1 trillion planned by the Central Bank of Russia will fail to restore the volume achieved early this year, while the negative dynamics of cash on the basis of the results of the year was not observed even in the crisis 2008.

Also, a survey on the basis of correlation of growth in cash funds and consumer spendings of the final months of the year points to the fact that demand in cash may happen to be much higher. In the 2010–2013 period, growth in cash funds in November-December amounted to 15%–16% of the volume of consumer spendiongs in the same period. An exception was the year 2014 when that correlation amounted only to 12.3% which situation can be explained by a dramatic depreciation of the ruble at the end of 2014. Due to the above, there was dramatic growth in households’ expenditures and a drop in demand in cash rubles. In final months of 2015, if no shocks on the foreign exchange market occur it can be expected that demand on cash funds will be at the level of the previous years, that is, the lower estimate of growth in cash is equal to Rb 1.1 trillion – Rb 1.2 trillion.

Mikhail Khromov, Director of Structural Research Center