Commercial paper (CP) is a short-term financial instrument comprising unsecured promissory notes with fixed maturity ranging from seven days to three months, issued in bearer form and on discount basis. Commercial paper is a form of securitisation. That is, it assists firms to raise funds between themselves. Banks act as managers of the CP issue, advising the issuing firms but do not act as intermediaries for them. This means banks raise funds for customers by hoarding and selling their customers’ securities without lending to them.There is a primary market for the issue of CP and a secondary market for trading in them.
Other bills such as the mineral bills, cocoa bills and the Bank of Ghana bills among others are operated like the Treasury bills.
Gilt-edged securities are government stocks and are of long-term duration. These securities carry a minimum of risk as regards regular payment of interest on due dates and the redemption of the stock on maturity. Gilts, as these securities are simply called, are classified as liquid only if they are nearing maturity. They are generally regarded as non-monetary assets because their maturity is long-dated while others are undated.
Loan stocks are also called bonds or debentures. They are borrowings that increase the capital of issuing companies. They are generally issued by reputable firms. Holders of loan stocks are creditors of the issuing companies.Loan stocks rank ahead of all types of shares for payment and of interest on them. The interest due loan stocks is fixed, usually a little lower than that on preference shares. They are redeemable at par. However, we could have irredeemable loan stocks. Therefore, like gilts, loan stocks are classified as liquid only when they are close to maturity. Irredeemable stock can be traded on the Stock Exchange.
Company shares are expected to be withdrawn and represent capital participation in a company. Companies are presumed to have perpetual existence. To this end, company shares are considered as perpetual debts. Like stocks, functions of the Stock Exchange allow for shares ownership to be shifted from one person to another. It is worth-emphasising shares are not convertible into cash in their own rights.Therefore, they are non-monetary assets.
Liquidity and money in a modern economy
In Ghana, some financial assets are identified as highly liquid. However, only the Ghanaian bank notes, coins and sight deposits are classified as cash. Thus, the basic tenet of money in a modern economy is a matter of degree. Therefore, liquidity is the degree of moneyness of financial assets.Sometimes, the dividing line between money and quasi-money tends to be blurred because money performs four functions not one. The functions can be met in different degrees by different financial assets but they must be combined together with the relative advantages to impart to an object the quality of generalised purchasing power.
Technical definition of money
Technical definition of money involves the use of monetary aggregates in the process. Monetary aggregates relate to official statistics used to classify the volume of money in the economy. Generally, financial assets may be classified under any of the following monetary aggregates: M0, M1, M2, M3, and so on.M0 is defined as the wide monetary base, including currency in circulation, till money, and bankers’ operational deposits with the central bank.Till money is money kept by a bank on its premises to meet day-to-day cash requirements.Monetary measures vary from one country to another. The following monetary aggregates are published by Ghana:
M1 as a monetary aggregate is described by the Bank of Ghana as the money supply or narrow money. It consists of currency with the public that is, currency outside the banking system; and demand deposits. Definition of M1 includes time deposits in Kenya and many other countries.
M2 is termed by the Bank of Ghana as the total liquidity or broad money. It includes M1 plus quasi-money which comprises savings deposit, time deposits, and certificates of deposit with the deposit-money banks (DMBs).
M2+ is the broader definition of money; it comprises M2 plus foreign currency. Foreign currency is denoted by (+).
Ghana uses M1, M2, and M2+ to target its macro-economic objectives. The Ghanaian economy has witnessed steady decline in inflation in recent years (from 15.4% in December 2016 to 11.6% in October 2017). Quite a significant amount of money in circulation in the Ghanaian economy is outside the banking system.
However, the amount of money in circulation through mobile devices such mobile money has increased considerably in recent years. For instance, statistics released by PWC in its 2016 Banking Survey revealed in 2014, about 140 million volumes of mobile money transactions were recorded in Ghana.
In monetary terms, these transactions translated into about GH¢17 billion. In 2015, the volumes of mobile money transactions were over 250 million with a corresponding monetary value of about GH¢36 billion.
In percentage terms, one observes about 78.57 per cent ((250 million – 140 million) ÷ 140 million) × 100% = 78.5714%) increase in transaction volumes between 2014 and 2015. Monetary transactions during the same period increased by about 111.77 per cent ((GH¢36billion – GH¢17billion) ÷ GH¢17 billion) × 100% = 111.7647%).
The computations reveal growth (111.77%) in monetary value of mobile money transactions between 2014 and 2015 exceeded growth (78.57%) in volumes of mobile money transactions during the same period.