The determinants of the currency deposit ratio of South Africa: an econometric analysis

The main objective of the study was to investigate the determinants of the currency deposit ratio of South Africa. The stability of the demand for money has been a recurring area of interest of empirical research on the South African economy. Underlying this interest in the behavior of money demand is the potential role of movement in monetary aggregates as indicators of future developments in inflation. Specifically, if a stable relationship exists between the demand for money and its determinants, changes in the money supply can provide useful information in the longer terms. While there has been considerable empirical research on estimating the money demand function for many less developed countries (LDCs), the currency demand function has been largely ignored. The study used secondary data sourced from the South African Reserve Bank, Statistics South Africa and Quantec. It also used annual data from 2000 to 2018 with an autoregressive distributed lag (ARDL) technique used for regression purposes. The study opted for this model because the variables were a mixture of me (0) and me (1). The empirical results show that income had a positive relationship with currency deposit ratio. In other words, when income increases, the amount of currency in circulation increases relative to deposits. Results show that there is a negative relationship between inflation and currency demand ratio. The SARB has to monitor changes in income in order to keep pace with the demand for cash. They must also use other monetary policy operational variables such as M3 to ensure that there is a match between income and money demand and money supply.Thesis (MCom) -- Faculty of Management and Commerce, 202