The ratio of cash in the hands of the public is the percentage of cash that people have with respect to all the money that exists in an economy.
The coefficient of cash in the hands of the public, also refers to the amount of money that an average person usually has in cash, with respect to all the money he has.
It should be noted that this measurement is not exact. This is actually an estimate. Now, it gives us a good estimate of the amount of cash in circulation.
The ratio of cash held by the public (e) is equal to the cash held by the public (EMP) among all bank deposits (D).
e = EMP / D
This amount is usually around 8% in the EU and it is getting lower and lower.
It is becoming more and more common for us to collect our salary and spend it without even having touched a bill. Electronic money has made it unnecessary to use cash for economic transactions.
Types of money
The money that exists today in our societies can be divided into two types:
- Cash: Cash, which is made up of bills and coins.
- Electronic banking money: It is made up of digital annotations. For example, the ones we see in our bank account.
Thanks to the multiplier effect of money, when someone deposits their cash in the bank, that money multiplies. In this way, much more digital money is created than the customer has deposited in their bank. This causes an increase in digital money compared to cash.
Economists' estimates put cash at 8 percent of all money on the planet.