Tuesday, February 21, 2012

M-Pesa linked to rise in inflation - Really?

Business Daily link to the article http://www.businessdailyafrica.com/M+Pesa+linked+to+rise+in+inflation/-/539552/1327538/-/tjjsm9/-/index.html

Whereas I agree M-Pesa increases the VELOCITY of Money... how does it increase the Supply of Money?

Money is 'created' by lending institutions which are typically banks (including CBK) in Kenya. They do so by lending funds they have 'borrowed' from its depositors. There is a circular effect which is well documented.

M-Pesa (Safaricom) is not a deposit-taking institution in the sense of a bank & places those 'deposits' with banks. A lot of the cash would have been in these banks but for M-Pesa convenience i.e. folks/firms are using M-Pesa instead of the (directly) banks to 'hold' the money.

“M-Pesa has increased the cash in circulation impacting on inflation as it results in demand outpacing supply,” said Dr Samuel Nyandemo, an economics lecturer at the University of Nairobi.
Whatever this guy smokes during his interviews must the the best of the best!

Twitter @coldtusker