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Analysis and insight into trends
in money and banking, and their impact
on the world's leading economies


% annual growth rate:

M3Nominal GDP
Seven years to 20176.66%4.10%

Sources: M3 from OECD database and nominal GDP from IMF database, as at October 2018.

The medium-term relationship between money and nominal GDP growth in Australia, 1966-2017

Five-year moving averages of annual % changes, with 1968 being the start of the first five-year period

Comment on monetary trends in Australia

After years of high monetary instability and double-digit inflation in the 1970s, Australia resumed more moderate rates of growth of broad money in the mid-1980s and in turn, to lower rates of inflation. In the early 1990s the adoption by the Reserve Bank of Australia of a monetary strategy committed the Bank to an inflation (range) target has allowed for prices to remain quite stable and moderate since then. This period of more than 20 years of inflation stability has been accompanied by a quite remarkable and steady annual rate of growth of the economy at around 5% on average. However the exponential growth of credit to the private economy since the early 2000s until the outbreak of the Global Financial Crisis led to a very rapid growth in broad money, leading very high and clearly unsustainable rates of growth in M3 in 2007 (20.8%) and 2008 (17.6%). This excess in money growth was accompanied by soaring stock markets and property markets, clearly signaling asset price inflation in the years running up to the crisis.

Unlike most developed economies in the recent financial crisis, Australia has not suffered from deflation or recession in the late 2000s. The rate of growth of broad money indeed decelerated after 2009 although the amount of money did not fall but grew at more moderate rates (around 7% year on year on average).

Banking and finance in the early years of the United States of America were chaotic. Two of the founding fathers - Thomas Jefferson and James Madison - were hostile to banking, since the issue of paper money led to inflation and default. According to Jefferson,

"...banking establishments are more dangerous than standing armies"