Credit counterpart approach to the determination of money supply in Tanzania.

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University of Dar es Salaam
The objective of this study is to investigate the sources of changes in money supply in Tanzania for the period 1970-1996. The study has concentrated on the money supply broadly defined (M3) by utilising the consolidated balance sheet of the banking system whereby net credit to the government (NCG), credit to the private sector (CP), net foreign assets (NFA), and other items net (OIN) are added together to give total money supply. The study has examined each element separately to investigate the sources of changes in these elements which can be combined to explain changes in money supply. Regression analysis using single equation error correction approach on time series data has been employed. The econometric findings have revealed that there are important factors that are the sources of changes in the components of money supply. Net credit to the government is influenced by external financing, budget deficit, inflation and government securities sold to the public. All these variables except external financing have the expected signs. However, inflation and government securities are not significant. Credit to the private sector is influenced by credit to the government, budget deficit, inflation, income and foreign assets. All the variables bear the hypothesized sign although inflation and income are less significant. Net foreign assets depend on foreign exchange receipts, net foreign capital and balance of payments financing. All these variables are significant and bear the expected signs. These findings led to the conclusion that policies that are aimed at controlling money supply should start with variables that cause changes to the elements of money supply which in turn affect money supply. The major cause of monetary expansion is domestic credit expansion from banking system to both central government and private sector. This is due to the fact that the better way of borrowing from the public which has less effect on money supply is still undeveloped. Therefore, the establishment of money and capital markets in the country will facilitate the whole process of controlling money supply in Tanzania.
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Money supply, Economic conditions 1945 -1990, Tanzania
Kimaro, C. H. (1998). Credit counterpart approach to the determination of money supply in Tanzania. Master dissertation, University of Dar es Salaam. Available at (