how much money is there in the world? :: InvestMacro

By Renaud Foucart, Lancaster University 

How much money is there in the world? – Tsubamé, aged ten, London

If we want to add up how much money there is in the world, a good place to start would be counting all the notes and coins out there – in people’s wallets and money boxes and in cash machines.

Let’s start with pounds. There is about £84 billion (or 84,000,000,000) of British money out there in coins and notes. There’s also US$2,236 billion in US money, €1,578 billion in the money of the European Union and ¥9,616 billion in Chinese money – plus money in many other currencies.

As money is not the same in every country, summing up all the coins and notes in the world means that you need to measure how much a US dollar, an Indian rupee, or a Chinese yuan is worth in Great British pounds. If this is done with the latest available data, then added up, you will find a total of £6,113 billion.

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This amount could change very quickly and is probably already outdated at the moment you read this article.

This is partly because countries print more money all the time. But it’s also because the exchange rate – how much a British pound, say, is worth in another currency, like US dollars – is not always the same. Today, £1 is worth around US$1.30 – one dollar and 30 cents in US money. Ten years ago, it was much more: one dollar and 70 cents.

How many US dollars you get for a pound depends on how much people want to use British money. That’s why when some people decide to create their own money, such as cryptocurrencies like bitcoin, they spend so much time trying to convince others to use it.

But counting coins and notes does not tell us everything about how much money there is in the world. For instance, people have money in their bank accounts that do not correspond to any specific coin. In the UK, around 96% of money exists only in electronic form. When you include that, the total is not £84 billion but £2,223 billion. If you add up again the figures available for the entire world – money in coins and notes, plus electronic money in bank accounts – you get roughly £46,557 billion.

Wealth – but not money

What’s more, many things that are worth a lot are not money itself. Very rich people keep only a little part of their fortune in cash. They prefer to also own things like businesses that are likely to make them even richer.

Perhaps a better way to count how much money there is in the world is to look at the value of the things we buy and sell. That is a tricky thing to do, because you don’t want to double count anything. If farmers sell the milk of their cows to a cheese maker, who then sells cheese to a shop, which sells it to people, all the value – the milk, the cheese and the people selling it, is contained in what you pay at the shop: the final sale.

When you sum up all these final sales, you will find that last year, in the entire world, there was around £79,437 billion worth of value created.

But there are also a lot of things that have value and are not exchanged. If you own a bag of diamonds and keep it in your bedroom, you are rich. But this is not money. And you are not exchanging it either. So it does not count in any of the numbers I have given you so far.

And sometimes, things that have value cannot easily be turned into money. Imagine that you own a beautiful forest, with a nice clean river to swim in during the summer, and some very rare birds and old trees. And underneath that forest, there is a lot of oil.

By owning this forest, you are very wealthy. Like the diamonds in your bedroom, owning the land and the forest and the oil makes you rich. But once you decide to turn your wealth into a lot of money, you will need to destroy the forest: cut down the trees for wood to sell, and drill into the earth to get the oil out.

People might have enjoyed spending time with friends walking in the forest, or paddling in the rivers. This has value, and it is lost when the forest is gone. And the wealth you held by owning the forest is gone too.

If we want the money we use to still be worth something in the future, we sometimes need to restrain from destroying what we own to get cash today.

About the Author:

Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster University

This article is republished from The Conversation under a Creative Commons license. Read the original article.