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!

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bankelele said...

I thought it was an African development Bank Prof who made that claim on m-pesa & inflation.

brokenkey said...

AfDB appeared to assume that when e-money is created on M-Pesa, it's done so in a way that increases the total money supply. This is incorrect.

Also, Kenya Central Bank's own numbers for velocity of money are completely different from the data AfDB have shown, so the whole M-Pesa linkage is flawed.

Uzimalife said...

I think what he meant is, when this money hits the mwananchi, inflation effects happen faster than when money is allowed to take the traditional route hence faster transmission effect.

Anonymous said...

Dr Nyandemo did not say it increases the supply of money, he said the DEMAND outpaces the supply. In other words, inflation is tracking the historical channels for the flow of cash/funds. It is not yet taking into account updated, faster channels for the flow of cash, such as M-Pesa, and this is what is causing the EFFECT of demand outstripping supply.

Kauka said...

What load of baloney from an economics professor! MPESA can not increase demand - the fact that I have 10 ngwanyes in my MPESA account doesn't make me buy more sacks of beans at wakulima market than if the same money was in my Co-op bank wakulima branch account. I would still have walked across to the ATM and withdrawn the money. MPESA is an advancement of an ATM only that it eliminates distance significantly.

I am collecting 1m signatures to petition UON to strip Nyandemo off his advanced academic credentials. That's what happens when people progress in academia to doctorate without having practiced the skill in a real world. Your thoughts and application of knowledge is restricted to Bookville and journalville!