Cash ratio held by the public

The coefficient of cash held by the public is the percentage of cash that people have with respect to all the money that exists in an economy. 

The coefficient of cash held by the public also refers to the amount of money that an average person usually has in cash, with respect to all the money he has.

It should be noted that this measure is not accurate. Actually, it is an estimate. Now, it offers us a good estimate of the amount of cash in circulation.

Calculation formula

The coefficient of cash held by the public (e) is equal to cash held by the public (EMP) among all bank deposits (D).

e = EMP / D

This amount is usually around 8% in the EU and is getting lower.

It is increasingly common for us to collect our salary and spend it without even having touched a ticket. Electronic money has allowed that it is not necessary to use cash to make economic transactions.

Types of money

The money that exists today in our societies can be divided into two types:

  • Cash:Cash, which is made up of bills and coins.
  • Electronic bank money:Digital annotations form it. For example, the ones we see in our bank account.

Thanks to the money multiplier effect , when someone deposits their cash in the bank, that money is multiplied. This creates much more digital money than the customer has deposited in his bank. This causes an increase in digital money with respect to cash.

Estimates of economists place 8 percent in cash with respect to all the money that exists on the planet.

by Abdullah Sam
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