Tag: t_$$suply

currency_in_circulation

Posted on by tiger40490

This bpost can belong to tanbinvest or the recrec blog. I keep it in tanbinvest for now because it is about SGD currency strength, affecting my long horizon (including retirement) planning.

Currency in circulation .. is explained in [[TheEconomicsOfMoneyBankingAndFinancialMarkets]] P412 (FedReserve). Other central banks may use their own systems to calculate/report their currency in circulation. However, there is some international agreement (or standard?) as the Bank for International Settlements provides detailed statistics of the worth of banknotes and coins for 18 major currencies.

— Q: Does money printing affect currency strength?

A: For USD, [[TheEconomicsOfMoneyBankingAndFinancialMarkets]] has lots of details but I guess the Fed money printing process is equivalent to printing physical money.

Excessive money printing without _additional_ foreign reserve is dangerous, and can lead to currency depreciation.

I guess many central banks actually borrow money (by issuing bonds with legislative approval) to print its own currency.

— Q: how is the total “currency in circulation” affected by electronic banking?
A: [[TheEconomicsOfMoneyBankingAndFinancialMarkets]] has a chapter on money supply, but I haven’t read it. I believe that banks have rigorous (audited and consistent) systems to account for every penny.

Fundamentally, electronic payment is only a record of physical movement of cash and should never take place without “physical”.

(You could be a company, part of a local or central government, or another bank.) A bank would increase your account balance by $1 exactly when you deposit $1 physical cash. Things are more tricky when you deposit foreign currency (as exporter do) or when you receive electronic transfer, but I believe all changes in your account balance is backed by physical movements of physical cash.

The vault (of a central bank or a private bank) holds gold and foreign bank notes. These assets change hands upon an electronic transfer between institutions.

 

your deposit amount=bank’s risk capital #ownership

Posted on by tiger40490

A physical gold transfer from BankA to BankB within the asme vault .. gold bars are physically relocated from one room to another room.

A 9b (or 100k FAST) transfer from SCB to BOC .. I feel there should be some physical movement. With both banks’ written agreement (persisted on immutable storage), some assets should be physically moved. The amount of assets controlled by SCB must reduce by 9b. Which system controls and enforces the amount of assets owned by SCB vs BOC vs other banks? We can’t let SCB control it, so a third-party is needed… how about the central bank?

Opening eg: If you are planning retirement, then ask yourself how soon you need to withdraw your deposit. If some amount might remain indefinitely in the bank, to be passed down the generation, then don’t worry about that amount. If a big amount (say, 700k) would be withdrawn in your lifetime, then you need to assess how soon you need it. If you need 100k fairly soon, then some of the institutions are unsuitable, including hedge funds. You would need something closer to a safe_deposit_box.

(I will use POSB or citibank as the stereotypical bank.)

— simple case: gold necklace stored in a bank’s safe_deposit_box. It’s not “usable” by POSB productively, so POSB pays you no interest.
— bank savings account.. the most common (and important) case.
For a bank, risk capital is any money to be lent out at some prime rate. In another simple example, risk capital can also be invested in stocks. Risk capital can also go into a FX inventory, which is required for a FX dealer desk.

Every 1k deposited in a simple savings account can be withdrawn any time, so by right POSB can’t invest it as risk capital. Based on statistics, most (like 90%) of the deposit amounts “stay” with the bank for a month or longer. Therefore, POSB does invest (bulk of) those deposit amounts as risk capital, but it really doesn’t matter, because there are many layers of buffers/contingencies whenever POSB receives a large withdrawal request — POSB can borrow in the overnight market; POSB can liquidate certain securities; Central bank could step in;;;

These well-developed “resources” basically mean that there’s zero chance that your withdrawal would fail. Given the high confidence everyone has in the system, we can safely assume that your 1k is as liquid as in a safe_deposit_box like gold coins, and available whenever you need it.

When you earn and deposit 1k to POSB, both POSB and you see a 1k increase in available asset. This is one example of how 1k multiplies to 2k
* Whether you add to time deposit or savings account, your net worth increases by 1k. This new 1k is ultimately owned by you but you let POSB use it productively [i.e. lending to people who need it].
* POSB has up to 1k additional risk capital for lending, so its balance sheet increases by (up to) 1k. If the 1k is in a 3Y time deposit, then POSB would be even more confident using this risk capital. This confidence is based on statistics.

Another important example of how 100k multiplies to 200k+… An investor/immigrant earns[1] and deposits 100k into citibank, to set up a company. Her immigration visa basically requires her to keep the money invested in a local business for a few years. Given this commitment, the local economy expands by (at least) 100k. The investor herself is obviously 100k richer due to [1]. citibank balance sheet also expands by 100k.

— CPF .. your “deposit” is held long term at the cpfBoard, similar to a time deposit. Therefore, your 1k is invested by cpfBoard as risk capital in risky assets. Thanks to similar “resources”, there’s zero chance your withdrawal would fail. Therefore, you can safely assume a time-restricted safe_deposit_box

Beside individuals, a family can be owner of an asset. A company can be owner of an asset.  A government can be owner of an asset. Some may argue that the GIC or Temasek assets are ultimately owned by citizens, but I would say “not so simple”. There are constitutions governing the ownership and control of these collective assets.
— tenant deposit .. landlord is supposed to keep it in a safe_deposit_box, but I don’t think any country’s tenancy law has that requirement. Landlord can and do use the deposit as risk capital. At move-out, if the withdrawal amount is large, then this “bank” can fail.

“Ownership” is important concept here — the deposit is tenant’s asset.

— hedge fund .. as client, your money (not “deposit”) is risk capital, and there is a contractual understanding that you could lose most or all of your risk capital, esp. if you withdraw too early. If you commit for 5Y, then there is often contractual promise (not “guarantee”) of a minimum return. If there is a promise, then you can assume a safe_deposit_box, similar to the CPF scenario.

When you earn and invest 1M with a hedge fund, both you and the fund see a 1M increase in asset.
* your net worth increases by 1M. This 1M is ultimately owned by you, but you give control to the hedge fund for a few years.
* the hedge fund’s AUM increases by 1M
— Mufu .. your 1k buys, say, 88 units of the fund. Those 88 units are held in a digital safe_deposit_box bearing your name. However, the unit value fluctuates, so you can lose all your money.

every SGD dollar=backed by hard asset #ownership

Posted on by tiger40490

 

As of 2020, the total currency in circulation was S$57 billion.[6] This figure was 29 billion in 2012. All issued Singapore currency in circulation (notes and coins) are fully backed by external assets in its Currency_Fund to maintain public confidence. Such external assets consists of all or any of the following:[9] (a) gold; (b) foreign exchange in the form of time deposits; Treasury Bills; (c) securities of (or guaranteed by) foreign governments or international financial institutions; (d) equities; (e) corporate bonds; (f) futures; (g) other asset.

As at 31 March 2017, MAS’s assets (S$395 billion) were more than seven times larger than the assets of the Currency_Fund (S$55 billion).

Official Foreign Reserves (mas.gov.sg) shows similar history levels for end of 2017. By the way, the end-2019 level was below end-2018, possibly due to covid19 preparation

As part of the MAS total assets, Singapore’s foreign reserves officially stood at over US$288.2 billion, as of July 2022 according to the MAS.[11] This is confirmed by the monthly query result on MAS Monthly Statistical Bulletin – IV.7 Official Foreign Reserves

2022 Q1 gold.org/IMF data shows similar numbers:

  • SG total reserve [sum of the below] = USD 434.4 billion
  • SG FX reserve = USD 424.8 billion
  • SG gold reserve = 153.74 tonne = USD 9.6 billion, or 2.2% of total reserve

MAS assets including OFR+gold add up to S$580b as of Feb 2022, but excludes assets managed by GIC and Temasek. All of them are owned by the the SG gov, operated by the PAP administration. See “oil money” below. Comprable to the Nobel memorial fund, or the Harvard endowment fund, it is not owned by any SG citizen. The private money held by SG citizens would add up to a separate amount. In contrast, the assets in CPF is 100% owned by individual citizens (simplest case), not owned by SG gov; the assets of IBM is 100% owned by shareholders. One shareholder could be Intel, another could be SG MAS.

Each (portion) of the SGD 29b was created exclusively by MAS, either physically or (presumably) electronically. Electronically means deposite into a bank account. Every physical note has a serial number. Either physical or electronic, a new SGD 1 represents a kind of “claim” on the $55b CurrencyFund.

— owernship of CPF money

Backgrounder: In general, every amount has an owner. (A central bank and a government is also a kind of owner.) MLP managed 40b but each dollar has a known owner. When Intel invests $100m free cash, that 100m is “owned” by Intel, but Intel stocks are owned by millions of investors including institutional investors. Ownership is complicated by holding companies and investment trusts.

1. CPF money belongs to individual Singaporeans, and not government’s money. This ownership difference must be understood first. If $200m CPF money (including my money) is managed by GIC, then this $200m is not “government’s money”. See MOF | Is our CPF money safe? Can the Government pay all its debt obligations?

2. CPF money is invested with a fund manager — GIC. GIC also invests “government’s money.” The dual mandate of GIC is extremely confusing until you understand the ownership. Similar to GIC,

  • GSAM, was managing client’s money, employee’s money and Goldman’s house money.
  • MLP was managing client’s money and founder Izzy’s family money

— oil money .. when oil appreciates, many gulf countries became richer. Basically, the central banks and treasuries became richer with a bigger OFR.

Q: Who have the ultimate ownership of the oil assets (+ the derived cash)? Some say the king, some say the citizens, but I would say “not so simple”. The government is the proper owner, as stipulated in the constitution.