Money in circulation grows by Shs2 trillion
Growth. Money in circulation has grown from Shs2.2 trillion to Shs4.2 trillion in the last seven years. PHOTO BY EDGAR R BATTE
What you need to know:
- Mr Gideon Badagawa, the Private Sector Foundation Uganda executive director, said whereas there has been growth in money, it is not responding to productivity.
Kampala. Money in circulation has increased by Shs2 trillion in the last seven years due to expansion in the size of the economy.
According to Dr Adam Mugume, the Bank of Uganda executive director for research, money in circulation as of December 2018 stood at Shs4.2 trillion compared to Shs2.2 trillion in December 2011.
“The interpretation of this is again to look at cumulative growth in nominal GDP. In 2011, GDP was about Shs53 trillion. In 2018, it increased to Shs101 trillion. This shows that growth in currency and nominal GDP are proportional,” he said.
The growth, which is also referred to as monetary aggregate, measures a country’s money stocks. Data at the Central Bank indicates that growth in monetary aggregate has been steady but slackened in February 2017.
Dr Mugume said monetary growth largely reflects the expansion of value of transactions in an economy, explaining that because GDP growth stood at about 9 per cent in 2018, monetary aggregate could have been at an average of 8 per cent.
Money in circulation includes M1 (coins and notes), M2 (M1 and short-term deposits) and M3 (M2, longer-term deposits and market funds with more than 24-hour maturity).
The amount of money created in the economy depends on the Central Bank monetary policy, which is usually controlled through interest rates.
According to the Central Bank financial stability report of June 2018, retail deposits remain the main source of funding, comprising 84.8 per cent of total liabilities in the year to June 2018.
Deposits grew by 12.5 per cent as of June 2018, compared to 10.3 per cent as of June 2017.
The growth was driven by shilling-dominated deposits, which grew by 15.2 per cent up from 1.2 per cent as of June 2017.
Dr Chris N Mukiza, the Uganda Bureau of Statistics director macroeconomic statistics, said the size of Uganda’s economy has increased, expanding to Shs100.5 trillion as of June 2018.
Money vs productivity
Mr Gideon Badagawa, the Private Sector Foundation Uganda executive director, said whereas there has been growth in money, it is not responding to productivity.
This, he said, could be a result of distribution of money by political players to youth and women groups, which has not been a result of productivity.
For instance, he said many Ugandans complain about the scarcity because the current money is not responding to productivity.
