6 Reasons Behind Increased Money Circulation In The Economy

March 9, 2021 | DWAIPAYAN REGMI

As per the recent statistical figure published by the Bankers Association, a deposit of 30 Arba and a loan of 26 Arba has been collected by 27 commercial banks between Magh 2 and Falgun 14. This data makes reflection about the fact that money circulation has been increasing in the Nepalese economy recently – because the banks can buy money and sell them too – increased deposit and increased lending reflects the same fact.

One important reason why the economy was at a halt was because of COVID 19, which created a larger impact on the economy, leading to huge loss and unexpected circumstances – shutters had to shut down forever, businesses had to suffer, paying debts had gone tougher, etc. However, with gradual recovery and vaccination phase happening around – it can be traced out that the issue is being handled gradually which has been the major reason for the fund circulation.


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Here are the major reasons why money circulation has been gaining hype in all these recent days :

Refinancing And Support From Regulatory Body

Nepal Rastra Bank flowed 84 Arba and decreased CRR by 1 percent which helped the banks to gather 42 Arba, helping to provide liquidity of 126 arba within the period – all intending to balance liquidity. This contribution of the regulatory body has made impressive achievements in helping banks to manage liquidity. There have been efforts and supportive moves made by the regulatory body for the promotion of the cash circle in the economy which counts as one crucial reason for the growth of funds flow in the economy around.

Increase In Business Activity

After the pandemic, business-related activities are gradually gaining hype. The shutters of shops around Thamel are opening back, restaurants are reopening and investments are again being seen as an opportunistic deal. This has helped the flow of physical cash gradually around. Be its tourism sector, or other sectors that had been affected because of Covid19, is gradually getting back to normal, which has helped in further promotion of business activities.

Increment Of International Trade

With business easing up, there have been increased international trade-based transactions. From, import activities to export-related activities – they are all easing up and making various sorts of transactions. This has led to increased use of various Trust Receipt loans, and another business form of loans – leading to rising demand over bank loans. These increased transactions related to non-funded activities have ultimately contributed to the circulation of money within the country.

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Increase In Foreign Remittance

Although the trend of Nepali immigrants flying abroad for the job has drastically dropped down in all these months; with gradual recovery happening it seems that they are gaining jobs in the market there and have been sending that sum to Nepal from one way or the next, which has been helping economy’s revival hereby, helping their family to sustain. Although it seems that formal remittance sources are not being used hereby, there certainly exists a wide range of informal means like Hundi through which funds are entering into Nepal.

The Flow Of Black Money

With all the political disturbances, there has been a large sum of black money that has been brought into the market. From every Power-Presentation (Shakti Pradarshan) to party-based campaigns, huge sum of funds is being flowed. It can be clearly stated that they are all outcomes of black money stored somewhere and through various means. For obtaining political power, it is therefore important that there turn out to be a flow of Black Money and a Black economy. This fund has been prevailing in the market acting as the next major reason why funds are being available at a larger scale in the bank because these sums get converted into white money being acceptable for the banking industry.

Minimal Interest Rate

The interest rate for saving accounts is as low as 1.5 percent in commercial banks today. Banks are providing beautiful and attractive loans with interest rates up to 7 percent. The rate that banks are offering as of now can be regarded as the minimum rate in the last few years now. This has provided a lot of opportunities for those who had been looking for investment for any sort of business-related activities as their dreams – purchasing a house, riding their car, or expanding business has now gone easier and cheaper. Margin Lending seems to be gaining hype as well.

All these factors have ultimately contributed to the flow of funds in the market recently. There are rays of hope – as the business ventures are rising, job opportunities are increasing and the economy is gradually recovering as well. However, there also remains fear about political uncertainties, as the politics have been gradually turning out to be unstable hereby.

[Mr. Dwaipayan Regmi is currently working as the Assistant Manager in Rastriya Banijya Bank]

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