Money supply of Russia

Main article: Russian ruble

2024

The growth of the money supply to 104.8 trillion rubles. Share of cash at historical minimum - 16%

The money supply of Russia is growing at a high pace, reaching a record 104.8 trillion rubles in July 2024.

Cash continues to decline by 2.7% YoY, the current volume is 16.8 trillion in July - this is the level of June 2023, which is mainly due to the growth of non-cash payments and the search for high returns in deposits.

The share of cash in the structure of the money supply reached a historic low - 16% vs 20% in 2021, 22.5% 10 years ago and 35% 20 years ago.

The M1 unit is growing by 3.4% y/y, which is associated with the redistribution of liquidity from current, transfer (on demand) and settlement accounts to fixed-term accounts.

Term accounts have almost doubled since the start of the SVO, reaching 53.6 trillion (population and business) in July vs 29.4 trillion in January 2022. For these 53.6 trillion, interest is paid, the weighted average rate on which can be about 12.5-13% and will increase as deposits leave circulation at low interest rates.

Only 7 trillion in term deposits per year is serious and even potentially up to 2.5 trillion in other cash accounts. Over the year, the money supply of M2 increased by 16.5 trillion, where interest could be almost half, next year, taking into account the structure of deposits, interest may exceed 10 trillion rubles.

Household term deposits are growing at a record pace of 48.2% YoY, Spydell Finance wrote.

Also, the budget channel and the credit channel affect the money supply, and the currency factor does not have a significant impact in 2024.

Household deposits in rubles continue to make the main contribution to the annual growth rate of the monetary aggregate M2Kh - as of August 1, 2024, it amounted to 11.4 pp, while the contribution of ruble deposits of organizations amounted to 5.1 pp.

The high growth rate of M2 in July may indicate high credit activity as the main factor in the formation of new money in the economy from 2023.

Since January 22, the money supply has grown by almost 40 trillion rubles - earlier it took more than 9 years to generate 40 trillion, now it has been managed in 2.5 years.

Money supply growth in April to RUB 103.3 trillion

In April 2024, the M2 cash unit grew by 3.74 trillion rubles per month - this is the most significant increase in history, not counting December (seasonally always high growth rates). M2 for the first time exceeded 100 trillion, reaching 103.3 trillion rubles.

Usually in April, the money supply in Russia had a low growth intensity - on average 0.8% m/m from 2017 to 2023 inclusive and only 0.1% m/m in 2022-2023, and in 2024 the growth was 3.8% m/m, i.e. almost 5 times higher than the historical norm, an extraordinary anomaly.

A sharp "release" of money supply in April led to a reversal of annual dynamics, which continuously decreased from June 2023 (25.4% YoY) to March 2024 (17.4%) and increased to 22.1% YoY in April.

The growth rate of the real money supply also increased to 13.3% YoY (maximum since Sen.23) compared to 9% YoY in Mar.23. It is important to note that from 2012 to 2022, the annual growth rate of M2 in real terms never exceeded 12.2%, while the average annual growth rate was only 4.4%.

The Bank of Russia notes that the shift in the execution of April tax payments from April 28 to May 2 greatly influenced.

The acceleration of the growth of the money supply in Russian specifics is almost always a consequence of the work of the credit and/or budget channel at the same time or separately. Now the case when both channels work synchronously with maximum intensity. Operational data do not allow decomposition of M2 formation factors.

The acceleration of real M2 growth is usually followed by an increase in investment and/or consumer activity, which, depending on the proportion, can increase the imbalance in supply and demand and affect future inflation if the accumulation is in the context of households, Spydell Finance wrote.

Although the Bank of Russia refers to the lag in tax settlements, this applies primarily to organizations, while deposits of individuals are growing very strongly - 45.3 trillion in March vs 34.7 trillion in March 23 and 28.4 trillion in March 22, and the total contribution of household deposits to M2 growth has become decisive - 10.8 pp.

M2 growth leads to an increase in imports and a decrease in the ruble exchange rate

Main article: Why the ruble is falling or growing

The chart shows a high correlation between the ruble M2 expressed in dollars and the volume of imports of goods and services for the year.

Source: Spydell Finance

What does it mean? At high rates of growth of the money supply, the ruble exchange rate acts as a natural market limiter of excess demand for imports without the possibility of absorption through exports and investment inflows of currency under the conditions of sanctions of Western countries. The ruble is devalued.

The money supply of Russia reached 99.4 trillion rubles, but the growth rate is slowing down

The peak annual growth rate of M2 was in February 2023 - 26% YoY. By February 2024, growth slowed to 18.3% YoY, but remains high by historical standards (from 2012 to 2022 there was not a single moment when the M2 grew by more than 18% per year).

The growth rate of M2 in real terms slowed down from 21.4% in June 23 to 10%, and again this is high rates - only in the second half of 2020 growth exceeded 10%.

The total volume of M2 is 99.4 trillion, an increase of 15.5 trillion over the year and 32.8 trillion over two years - this is an incredible pace, both in absolute and relative terms, Spydell Finance wrote.

For example, earlier it took more than 25 years to create 33 trillion rubles of money supply (reached 33 trillion M2 2016) since the formation of the Russian banking system in its current form, and now this volume has been issued in two years.

In the structure of growth for two years:

• deposits of non-financial organizations - plus 10.7 trillion,
• deposits of the population - 16.6 trillion,
• deposits of non-bank financial organizations - 2.7 trillion,
• cash - 2.8 trillion.

The main source of growth is the population (the total amount of disposable resources - 44.4 trillion excluding cash) and business (owned by 32.7 trillion deposits).

The strong increase in M2 over two years is mainly due to the credit and budgetary channel. This is a pro-inflationary factor in terms of the formation of domestic demand from the population, which puts pressure on the ruble due to an increase in the purchasing power of imports - a return to the rate of 75 and even 80 rubles per dollar is impossible, given the amount of available money supply, at least within the framework of the existing low current account.

2023: M2 growth of 24% per year amid conflict in Ukraine

According to the results of May 2023, the money supply of Russia (M2) increased by 17 trillion rubles per year or 24.7%, in the first five months of 2023 the growth amounted to 3.6 trillion. The five-month momentum is 4.4%, which corresponds to 2022 (4.2%) for a comparable time period at the beginning of the year.

However, by historical standards, the beginning of 2023 is strong in terms of M2 growth. For example, in 2021 from January to May, M2 increased by 0.9%, in 2020 - plus 2.7%, in 2019 - minus 0.8%, in 2018 - an increase of 1.9%, 2017 - an increase of 2.1%.

At the beginning of 2022, the main driver of M2 growth was the redistribution of foreign currency deposits into rubles, from July 2022 a credit and budget channel was launched at the same time, and the foreign currency channel came to naught.

Over the past 12 months, the budget deficit is 8.2 trillion rubles, and the estimated increase in ruble loans of legal entities from June 1, 2022 to June 1, 2023 is 10 trillion rubles and another 3.7 trillion loans of individuals.

Since mid-2022, there has been a sharp acceleration of ruble lending (the main resource was loans from legal entities, where almost half went to refinance foreign currency debt).

The annual M2 growth rate has not changed since October 2022, i.e. the main growth momentum has passed (the growth peak was in January-February 2023 at the level of 26% YoY).

The real money supply is growing by 21.7% (maximum rates from Q3 2010).

2019

The volume of money supply in circulation (M2) in Russia, billion rubles. Data for mid-2019

The reason for the increase in money circulation may be the accumulation of money. Because of this, it is necessary to issue more funds. The increase in the money supply in the Russian economy is one of the main factors in inflation in Russia.