Have you ever paused to consider the sheer amount of money circulating around the globe? It’s a question that might seem simple on the surface, but as listener Elizabeth Masten from Norfolk, Virginia, posed to Marketplace, it quickly delves into the complexities of economics and finance: “I’m curious as to how much money is out there in the world? Does anybody keep records as to how much money the world has?”
The answer, as experts explain, isn’t as straightforward as a single number. It depends largely on what we define as “money.”
Defining Money: Physical Cash vs. Broad Money
Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, points to a narrow definition of money, focusing on physical currency. This is captured by a metric known as M0, which essentially counts all the banknotes and coins in circulation.
“It’s a number called M0, which is essentially the number of notes and coins in circulation. For the United States, that number on the Federal Reserve website is somewhere in the vicinity of $1.5 trillion,” Kirkegaard noted. Globally, tracking similar physical currency in circulation, the Bank for International Settlements estimates around $5 trillion.
Global banknotes and coins representing physical currency, a component of the world's money supply
However, this figure drastically underestimates the total money in the world when we consider a broader definition. Jeff Desjardins from Visual Capitalist, a financial media website, explains that “that amount goes much, much higher” when we include other forms of readily accessible funds.
This broader view of money, often referred to as broad money, encompasses not just physical cash but also funds held in checking accounts, savings accounts, and money market accounts. These forms of money, while not tangible banknotes, are easily accessible for transactions in our increasingly digital economy.
“Add in checking accounts, savings accounts, money-market accounts — not quite physical money, but you can make a bank transaction digitally and use that as money,” Desjardins clarifies. By this measure, the global money supply expands significantly. According to data from the CIA World Factbook, the total broad money in the world economy exceeds $80 trillion.
The Digital Reality of Most Money
It’s crucial to understand that the vast majority of this “broad money” isn’t sitting as stacks of cash in bank vaults. As Karen Petrou, managing partner at Federal Financial Analytics, highlights, most of it exists as digital balances in bank ledgers. This money represents deposits made by individuals and businesses, which banks then lend out to fuel economic activity.
“Banks always have your money out working in the economy,” Petrou explains. This system is designed to keep money flowing, facilitating investments, loans, and everyday transactions. However, it also reveals a crucial point: the system relies on trust. “If everybody lined up and suddenly went to the bank to get cash, you’d have a classic banking run,” Petrou cautions, illustrating the fractional reserve nature of modern banking.
The U.S. Dollar’s Dominance in the Global Financial System
Petrou further points out the significant role of the U.S. dollar in the global financial landscape. The dollar isn’t just the currency of the United States; it’s the world’s most popular currency. It is held as reserves by central banks of various countries, used by wealthy individuals for cash holdings, and even employed in international criminal activities due to its widespread acceptance and liquidity.
“Because of the stability of the United States, it’s the most liquid currency,” Petrou states. This stability and liquidity make the U.S. dollar a highly sought-after asset globally. “As a global store of value and safety, it’s one of the most important assets this country has,” she concludes, underlining the dollar’s crucial position in the world’s financial system.
In conclusion, the answer to “how much money is in the world” is multifaceted. Depending on whether we consider only physical cash or include digital forms of money, the figures vary dramatically, from around $5 trillion to over $80 trillion. The global money supply is a complex and dynamic system, largely existing in digital form and heavily influenced by the role of major currencies like the U.S. dollar.
