An interesting question indeed raised by my friend Vivek Jain on Facebook.Thanks VJ!
Here are my two cents on this.I am open to insights from economics enthusiasts and others.
If we look at the fiscal health of all the major economies in the world, as well as the emerging economies like the BRICS (Brazil,Russia,India,China and South Africa, for the uninitiated), one can find a common link and that is all are in debt, to a varying extent.The US, which is the largest economy in the world (GDP approximately $ 14 trillion), is the most indebted country.The Chinese hold trillions of dollars of American treasury bonds.The American fiscal situation has been described as precarious and unsustainable by many economists.China however has a massive trade surplus and hence has little to worry about w.r.t. its debt burden.
Coming to the question in hand,all of us know that the central banks hold billions of dollars in terms of cash and other securities besides gold.So do the multilateral institutions like the World Bank, IMF and the Asian Development Bank in their coffers.Besides, a huge amount of cash is also with the large companies, hedge funds,private equity firms etc. and billionaire investors like George Soros and Warren Buffet.Add to that all the cash in the Swiss banks which only God knows!
Still all this doesnt count for the entire debt of all the nations.The reality is all the debt doesn't exist in physical form.A lot of it just exists on paper i.e.sovereign guarantees by nations.Nations are indebted to each other apart from institutions like the WB,IMF etc.Hence to consider that all the debt is kept in the coffers of central banks or some other institution for that matter would be naive.
Keep smiling and stay tuned!!
A platform where I will share my views on topics and issues that interest me deeply (with a strong business bias, of course)and chronicle the major events in my life beginning 2010.
hey..virinchi again....... from what i understood from ascent of money by Niall Ferguson an economies wealth is measured how much are its citizens credit or loans thats also income to nation so acc to an experiment conducted by him in his class he asked a student(say A) to lend B(a bank) $100 thats M1 for us now bank (assuming CRR to be 10%) lends C $90 which further is used to give D a loan of $81 now acc to M2 the nation has an income of 100+90+81=$181 but the cash is only the $100 M1 so even nothing can act as money these days ur income or ban balance is just a number in a bank database not physical money
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