Determinants of money supply in Malta

Abstract

The money supply has always been a matter of concern in those economies which rely mainly on the workings of the price system to determine production and distribution. Money in its static function is a technical device to facilitate exchange. In its dynamic function through its effect on the price level, it can influence the volume of production and is therefore a determinant of economic progress. In countries where the money supply can.be varied by administrative action we find that the monetary system represents a positive instrument of economic control. In those countries in which the quantum of the money supply cannot be regulated administratively, but is more or less automatic, we find that changes in money supply can, be taken as indicators of certain economic phenomena at work within the economy. It is the latter type of countries that interest us here. In order to interpret statistics on money supply in such countries we must understand what determines this supply. It will be appreciated that.the economic factors at work determining the supply of money differs considerably between countries and therefore what follows can be taken only as a case study of Malta. The background is one of economic dependence on importation, with a relatively small industrial sector.