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Thndr Claps » Thndr Thinkers💭 » Hany Genena » Liquidity in the Economy

Liquidity in the Economy

by Thndr Thinker
September 8, 2022

In economics, liquidity has 5 synonyms:
1. Bank reserves
2. Reserve money
3. Monetary base
4. High-powered money
5. Liquidity

Liquidity is comprised of two parts:

Part 1: Banknotes printed outside the Central Bank, meaning in bank vaults, with individuals, companies, shops, supermarkets, and so on.

Part 2: Demand deposits at the CBE

Part 1 + Part 2 = liquidity = EGP 1.25 trillion at the end of July 2022 compared to about EGP 1 trillion at the end of March 2022, which amounts to a quarter of a trillion EGP increase in 4 months.

The above amount is what is available to deal. In addition to this amount, the CBE has a surplus that was withdrawn through weekly bids of approximately = EGP 700 billion. The EGP 100 billion weekly that raised questions recently is part of this balance.

The most important thing .and something that may be a little difficult for non-specialists is:

The only source of liquidity is the CBE in all countries of the world through 3 main methods:

1. Buying USD from banks to build reserves and financing this purchase by printing a banknote.
2. Lending to banks liquidity to meet short-term requirements
3. Lending the government liquidity to meet urgent expenses and to a maximum limit determined by the CBE Law No. 194 of 2020.

These three methods are the main methods in Egypt and the world for pumping liquidity, whether in the form of banknotes or in the form of current bank deposits with the Central Bank.

Based on the prior points, it is absolutely not true that the increase in liquidity at any time can be attributed to the increase in individuals’ deposits in banks.

It is impossible for an individual, company, or anything else to supply the banknotes because the printing press is based in the CBE.

All we do is exchange liquidity from hand to hand or from account to account, but only the CBE can change the total amount of liquidity.

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