How Much Actual Money Is There In The World?
By Josh Clark and Kathryn Whitbourne
To make this question answerable in a finite amount of time, let's simplify things and ask, "How much money is there in actual United States dollars?" Since the statistics for the U.S. are easy to come by, we can examine this question in a couple of different ways.
The first way to look at it might be, "How much cash is there in U.S. currency?" If you took all the bills and coins floating around today in the world and added them all up, how much money would you have? All of that hard and easily liquidated currency is known as the M0 money supply.
This includes the bills and coins in people's pockets and mattresses, the money on hand in bank vaults and all of the deposits those banks have at reserve banks [source: Hamilton].
Obviously, there's some money missing, but there's an easy explanation for that: The Federal Reserve says that at any given time, between one-half and two-thirds of the M0 money stock of U.S. dollars is held overseas [source: Federal Reserve].
The rest of the money is in bankaccounts of various types, and the Federal Reserve has tracked these funds in three different values known as the M1, M2 and M3 money supplies. (M3 has since been dropped. More on that below.)
M1 represents all of the currency in the M0 money supply, plus all of the money held in checking accounts and other checkable accounts, as well as all of the money in travelers' checks. In June 2013, the M1 money supply for U.S. dollars equaled about $2.5 trillion [source: Federal Reserve].
M2 is the M1 supply, plus all of the money held in money market funds, savings accounts and CDs under $100,000. In June 2013, the M2 money supply was about $10.5 trillion [source: Federal Reserve].
M3 is M2 plus larger CDs. As of March 2006, the Fed stopped tracking the M3 money stock as an economic indicator because it felt it did not add any information on economic activity that was not already available from M2 [sources: Federal Reserve, Federal Reserve Bank of New York].
All told, anyone looking for all of the U.S. dollars in the world in July 2013 could expect to find approximately $10.5 trillion in existence, using the M2 money supply definition. If you just want to count actual notes and coins, there are about U.S. $1.2 trillion floating around the globe.
Even though the Fed can't say precisely where all the U.S. dollars are in the world, it does try to keep track of how much exists. Find out why it's so difficult to track exactly how much money exists in the world on the next page.
In 2000, an exodus of much of Zimbabwe's labor pool led to a collapse of the country's financial system. To support public project spending, the government finance ministry printed surplus Zimdollars -- too many, in fact. Economically speaking, money is like any other commodity: It loses its value when there's an abundance of it.
A surplus of readily available money in circulation leads to inflation, where money has less purchasing power. In the first decade of the 21st century, Zimbabwe's economy entered hyperinflation.
Economists watching the startling loss of value of the Zimbabwe dollar estimated that it was losing value so quickly that its decline was equivalent to prices doubling in stores every 1.3 days.
This puts the annual inflation rate Zimbabwe experienced by the end of 2008 at 516,000,000,000,000,000,000 (quintillion) percent, the highest in the world [source: Berger].
The Zimbabwean government decided to fight fire with fire and printed even more money in higher denominations. Eventually, the country would produce a $100 trillion Zimbabwean dollar note -- which had an exchange rate of about 30 U.S. dollars (USD) in January 2009 [source: BBC].
The government would go on to abandon its currency entirely, opting instead to adopt the U.S. dollar and South African rand as official currencies.
But what about all those trillion-dollar notes that the country's finance ministry produced in 2008?
The government never collected the bills or let people exchange them, so no one knows the final tally in circulation.
Indeed, the bills have become something of collectors' items and traders have stockpiled many, as they can fetch higher prices than what they were officially worth [source: McGroarty and Mutsaka].
Zimbabwe has shown how difficult it can be to keep track of how much money a single nation has in the global markets, let alone how much money there is in the world. However, this inherent difficulty hasn't stopped some from trying.
Perhaps the closest estimate to how much money exists in the world was released by Mike Hewitt, editor of the economics blog DollarDaze.com. Hewitt tracked the reporting of 135 currencies from central banks and financial ministries in 167 countries.
He found that in December 2010, these countries had notes and coins (M0) equaling $5.2 trillion in U.S. dollars in circulation [source: Hewitt]. The M2 figure was about U.S. $55 trillion. That's a lot of moolah.
In October 2008, the M0 figure was $3.94 trillion, so you can see the amount of money in circulation is increasingly very rapidly. Wrote Hewitt, "Every increase to the existing money supply dilutes the value of the currency already in existence. In other words, those people holding paper money lose purchasing power to create value for the new money."
Things would be a lot easier on Mike Hewitt and foreign exchange market analysts if there was only a single currency used by every country on the planet. So why don't we?
Pros and Cons of a Universal Currency
The concept of a single worldwide currency has been suggested since the 16th century, and came close to being instituted after World War II -- yet the idea remains little more than that. Proponents argue that a universal currency would mean an end to currency crises like Zimbabwe's.
A single currency wouldn't be subject to exchange rate fluctuations because there would be no competing currencies to exchange against. In other words, a universal currency would lose its value as a commodity bought and sold on open markets and would have value only for its worth in buying other commodities.
To put it plainly, money would become just money. Its purchasing power would be the result of the adjustment of interest rates and other monetary policy tools in response to inflation or deflation.
Who would be responsible for adjusting those interest rates, though?
One of the chief fears among opponents of a universal currency is the creation of a central body formed to oversee the monetary policy for a single world currency.
An extant international body, the United Nations(U.N.), provides an example of the potential pitfalls and strength a central global monetary body could expect. Successes like peace-building missions in nations as disparate as El Salvador, Mozambique and the former Yugoslavia attest to the power a unified international body can have to resolve conflict.
On the other side of the coin, the U.N.'s Intergovernmental Panel on Climate Change (IPCC) is widely accused of replacing science with diplomacy, as nations responsible for contributing to climate change aren't openly taken to task in IPCC reports.
These reasons and others continue to prevent the adoption of a universal currency. Perhaps closer on the horizon is the integration of separate currencies within regions into unified currencies. This has already occurred in some areas. The most famous example is the euro.
As of 2013, 17 countries in Europe use the euro instead of their local currencies. Some the benefits touted include stimulation in trade activities and a reduction in transaction costs and fluctuation risks as member countries no longer need to exchange currencies when doing business with each other.
Tourists also don't have to switch currencies when they travel either [sources: Currency Solutions, European Commission]. At the same time, there are significant disadvantages. For instance, a debt-laden country is no longer able to devalue its own currency to make its goods more attractive to buyers from other countries.
The financial troubles of countries like Greece and Spain in the 2010s have been exacerbated, some experts say, by the fact that they use the euro [sources:Schoen, Currency Solutions].
The euro is not the only example of a shared currency. Eight West African nations share a common currency, the West African CFA franc (CFA stands for Communauté Financière d'Afrique or African Financial Community), which was introduced in 1945.
A further six Central African countries use the Central African CFA franc, though the two currencies are interchangeable [source: Miller and Bouhan]. In 2008, Central American nations agreed to create a single currency for the region, but as of 2013 it has not happened [source: Central America Data].
Meanwhile, the Union of South American Countries put the brakes on their own common currency project in 2011, citing the experiences it observed with the European Union and the euro [source: MercoPress].
So while the debate over regional and universal currencies continues, people like Mike Hewitt will have to count money the old-fashioned way.