Writers' Opinions on Issues of Money Supply in Pakistan

Pakistan is wider developed country and it tries its best to develop it while money supply and inflation both are most important aspects of its economy and require deepest attentions from authorities. Different writers give their views regarding these Important issues of a country’s economy in different periods of time. Mostly they are agreed about these issues of a country’s economy in different periods of time. Mostly they are agreed about the issues of money supply is that amount of money which circulates in an economy while inflation is describe as a persistent rise in price level in a country. They both are correlated with each other in such a way that any change in money supply bring change in inflation rate and vice versa. We have different views regarding these issues of money supply and inflation given by different writers in different periods of the time.

Meenai

In 1966 meenai observed that money supply in Pakistan consist of currency in circulation and deposit of money. The factors which bring changes in money supply are divided in to various sectors. Among them domestic private sectors is one which bring change in supply when there are changes in loans and investment in private sectors. Money supply changes when loans from state bank and commercial bank i.e decrease or increase. Thus another factor that bring changes in money supply through cement sector. Another sector which is also regarded an important or is foreign sector which include state bank holding of gold and gin assets. Any change it will bring changes in money supply can be trolled by controlling foreign exchange reserves, controlling of credit to government sector and controlling of credit to private sector.

Lindauer

In 1968 noted about inflation that is an increase in general level of an economy’s price which changes him distribution of an economy’s level of production by reducing purchasing power of individuals and other economic unit with fixed money incomes. It effect nature of production in the sense that it become a cause of an increase in the purchase of production of production of those things whose price raise the inflation. It reduced the purchase of financial assets i.e bonds, inflation also reduces saving level. More over inflation also changes the nature of production of one economy become more expensive for the person in that economy while it is available in some other economics at low prices and less expensive obviously they will move to other economies.

Harberler

In 1975 Harberler agreed that the theory of money and inflation is based on the assumption of closed economy where inflation is not only monetary phenomena but also there are various factors that cause inflation which are wage pressure by labor unions, government finance, and monopoly pricing are most important factors. In such a situations those believe the main cause of inflation as wage pressure by labor union, there we can use supporting fiscal policies which give pressure on monetary authorities and thus get non- inflationary equilibrium and restrain wage pressure by power full labor unions. As a whole according to Harberler major causes of inflation are monopolist and labor unions whose policy affect price level and thus inflation. Monopolist by exploiting consumers raise the price of their specific product while labor unions are increasing wage level while production or supply of product remain same. Flow of money supply increase raise the level of inflation rate but in this way if fiscal policy are used properly the evil can be controlled.

Carin Cross

Carin Cross in 1975 noted that the relationship between money supply and action. He explained the inflation in words is ‘undue expansion’ or ‘nod proper limits’. Historically inflation is represent as something is due to badly governed or subjected to debasement of currency or the situation after war. There is always a doubt that whether it is thing that happens due to money supply that happens due to prices and money income. However in reality money supply, prices and money is always move together. Sometime if to with draw purchasing power using taxes create possibilities of both inflation and deflation. Also of the oil is same. Government give blame to it as the rise in prices of oil Orting country of oil creates the danger of inflation. It is the fall in the money due to increase in prices which rise due to different reasons vest failure, increase in indirect taxes, war and so on. Therefore there is a long term relationship prices and money supply and also in inflation where money supply is a villain of prices and an increase in money supply cause increase in prices which results in the evil of inflation and vice versa.

Stats

In 1982 Stats developed the idea about money supply that concept of money as the stock or supply is important to individuals, to businessman, to business firms and to the economy as a whole. The rate with which money supply through economyis also important because they may affect the peace of gnomic activity in any given period of time but still there is no permanent function of money supply. So define it different types of financial assets i.e come to be accepted as part of definition. The assets are of types which includes checking accounts at banks and saving and load association. MI is the most important measure of money supply consist of checking money deposits at commercial banks. Therefore regarding money supply of any notion we can’t ignore the importance of business of banking.

Coghlan

Coghlan 1983 explained the money stock has become demand determined regardless of its definition because monetary authorities have originated with in itself the reserve supply process. Although there has been a developed towards the controlling money supply still money supply is operated through interest rate instead of variation in reserve assets.

Burstein

Burstein in 1986 while discussing about money supply and inflation said that money should not be confused with credit. He said that under the principle of debt payment money supply and its growth is function of demand for credit sudden rise in credit demand leads to one in money growth but sudden and temporary increase in money supply may be removed by debt payment while talking about inflation he said that both are correlated i.e money supply and inflation and this correlation among money supply and inflation is important thing. In close economy in sum of real rate of interest and uniform inflation rate of inflation is equal to the rate of stock of money and equilibrium rate of inflation is rained. Purchasing power of a unit of money must yield some rest rate otherwise it will be not guaranteed. Monetary equilibrium thus contain some sort of quantity theory of money or better prices if growth rate is less then inflation rate the real stock of money decline until it don’t exists longer.

Shapire

In 1992 noted economic effects of inflation that some members of society gain from inflation and some people get hurt from inflation has the amount of income and wealth is taken away from them. When due to inflation price level changes and it will affects economic growth and the rate at which it grow. It makes rich person more rich and poor person poorer. Especially lower income or poorer lose greatly but sometime due to unknown facts some people with high level of incomes have adversely affected. Author not only noticed its affects but also explains the different ways to control it by the use of fiscal monetary policies. These Policies are weapons use to control it. Because if investment spending foreign purchases increase the rate of inflation then by the use of fiscal monetary units it can be controlled but in such a case there is a great need of care in using these policies because different kind of inflation like demand side inflation and supply side inflation both are different from each other and the monetary and fiscal policies are not much suitable for controlling supply side inflation but if we are careful while using fiscal policies by increasing sales tax, excise duties and payroll increase taxon employers will affect little and clear sign reduced inflation soon.

Fisher

According to 1993 results fisher indicate that inflation reduced by growth by reducing investment and productivity growth. He further noticed that low inflation and small fiscal deficits are not necessary for high growth even over long periods, like wise high inflation is not consistent sustained economic growth.

Bruno and Easterly

In 1996 no evidence find relationship between inflation and growth at annual inflation rate less then 40%. They find a negative shorter to medium relationship between high inflation more then 40% and growth, furthermore that there was no lasting damage to growth from discrete high inflation crise, as countries trend to recover backwards their pre-crises growth rate.

Ohash and phillips

Ohash and phillips in 1998 using large panel data set covering IMF countries over 1960 to 1996 found that a very low inflation rates i.e less than 2-3 % inflation and growth positively correlated.

Nasir and Haider

In 2000 concluded that unstable macro economy is due to inflation which occurs mostly due to budget deficit. When to settle down budget deficit notes are pprinted and foreign and domestic borrowings are taken in to accounts but in those efforts there is a high rate of inflation and unstable economy, therefore great care is required from the side of government authorties in the way that money is supplied in any economy proper import and export policy control on the supply of commodities. Allocating scare resources properly fiscal policies. Especially monetary policy is to be adopted.

Malik and Chaudhary

In 2001 Malik and Chaudhary conducted co integrated analysis if inflation on economic growth for four south Asian countries i.e. Pakistan, Bangladesh, srilanka and India and the report was on two interest points. First inflation and economic growth are positively related. 2ndly the sensitivity of inflation to changes on growth rates is larger then the growth to changes the inflation rates.

Shahid

In 2004 shahid discussed that money supply is determined by commercial banks, central banks and public. To know About the money supply we will have to consider to joint behavior of public, central banks and commercial banks. Shahid said that commercial banks borrow from from public and central banks lend to investors and government. But when commercial banks lend they don’t advance all of their resources. They keep a certain percentage of time demand deposit. The percentage play an important role in the calculation of supply money.

Jhinghan

In 2005 jhinghan gives different view regarding money supply which are M1, M2 And M3 associated with Keynesian is a narrow definition of money supply. M2 i.e associated with friedman is more wider than M1 while M3 which is associated with Gurly and shows where M2 plus deposits saving banks, builidings, stores, loans associated and deposits of other credit and financial institution but it is unsatisfactory as it don’t serve the function of money which is the medium of exchange.

According to him, neo classical inflation is a monetary phenomenon but mostly economist don’t agree that money supply alone is a cause of money supply. Economist define that inflation in terms of continuous rise in prices where most important cause of this ignoble is the supply of money along with an increase in public expenditure. Efforts to overcome the deficit financing, expansion of private sector, presence of blank market and flood etc. it can be controlled by increasing the supply and reducing the money supply in ordered to controlled aggregate demand.