Tuesday, June 21, 2016

Saudi Money Supply Growth Continues Collapse

Sticking with the money supply theme that seems to be developing.*
From Professor Hanke writing for Cato@Liberty:

That Saudi Sinking Feeling
The rate of growth in a country’s money supply, broadly measured, will determine the rate of growth in its nominal GDP. For Saudi Arabia, the following table presents a snapshot of the relationship between the growth in the money supply (M3) and nominal GDP.
The chart below shows the course of M3. Following the oil price plunge of September 2014, the growth in M3 has slowed. The rate of nominal GDP growth will follow.
Why is the money supply growth rate declining? Since the plunge in oil prices, the Saudis’ current account has dipped into negative territory. This has to be financed, and the Saudis have used their stash of foreign reserves to do the financing. 
When the Saudi Arabian Monetary Agency (SAMA) sells foreign currency to finance the current account deficit (and maintain the Riyal/USD peg), it debits the reserve accounts (in Riyals) of the Saudi banks at the SAMA. This causes the domestic money markets to tighten, which works its way through the banking system. Not surprisingly then, there has been a marked slowdown in the growth of broad money since the oil price plunge and associated current account deficit....

*Dear Fed, We May Have A Problem: Base Money Supply Trend Remains Negative Through May
Japan: "Abenomics as epic fantasy"

See also Sunday's:
U.S. Officials Fear Saudi Collapse If New Prince Fails