Depository Institution Services

Currency and Coin — The Federal Reserve Banks distribute cur­rency (paper money) and coin to depository institutions to meet the public’s need for cash. During periods of heavy cash demand, such as the Christmas season, institutions obtain larger amounts of cash from the Federal Reserve Banks. When public demand for cash is light, in­stitutions deposit excess cash with the Reserve Banks, for credit to their reserve accounts. Currency and coin received at the Federal Re­serve Banks are sorted and counted. Unfit currency and coin are de­stroyed and replaced with new currency and coin obtained from the Treasury Department’s Bureau of Engraving and Printing and Bureau of the Mint.

Government Services

The Federal Reserve System, through the Reserve Banks, performs various services for the U.S. Treasury and other government, quasi­government, and international agencies. Each year, billions of dollars are deposited to and withdrawn by various government agencies from operating_accounts in the U.S. Treasury held by the Federal Reserve Banks.

Monetary Policy Role

The primary responsibility of the central bank is to influence the flow of money and credit in the nation’s economy. The Federal Reserve Banks are involved in this function in several ways. First, five of the twelve presidents of the Federal Reserve Banks serve, along with the seven members of the Board of Governors, as members of the Federal Open Market Committee (FOMC). The president of the Federal Reserve Bank of New York serves on a continuous basis; the other presidents serve one-year terms on a rotating basis. The FOMC meets periodically in Washington, D.C., and determines policy with respect to purchases and sales of government securities in the open market, actions that in turn af­fect of the availability of money and credit in the economy.

FEDERAL RESERVE BANKS

Federal Reserve Banks were established by Congress as the op­erating arms of the nation’s central banking system. Many of the services provided by this network to depository institutions and the government are similar to services provided by banks and thrift insti­tutions to business customers and individuals. Reserve Banks hold the cash reserves of depository institutions and make loans to them They move currency and coin into and out of circulation/ and collect and process millions of checks each day. They provide checking accounts or the Treasury, issue and redeem government securities, and act in other ways as fiscal agent for the U.S. government. They supervise and examine member banks for safety and soundness. The Reserve participate in the activity that is the primary responsibility

DOCUMENTARY CREDITS

A bill of exchange might not be honoured, or the order might be cancelled. But a letter of credit is a more binding method of payment.

Letters of credit (L/C) have been used for centuries in one form or another to enable travellers to obtain money from overseas banks. The process begins with the traveller asking his bank to open a letter of credit in his favour, i.e. for him, for a specific amount which is deb­ited to his account. The bank then drafts a letter which will allow him to draw money on overseas banks with whom the home bank has an agreement. The foreign banks will then draw on the home bank to re­cover their payments.

This method of obtaining money has now generally been replaced by Euro cheques, traveller’s cheques, and credit cards. But documen­tary credits — letters of credit accompanied by documents -are widely used in the import/export trade.

DEPOSITS

In May versus April, deposits from residents reduced considerably; their year on year growth rates accelerated. Deposits from HHs (especially, national currency ones) continued to go up. Balances of demand deposits from NFCs (in particular, national currency ones) reduced, which was attributable to production cycle and scheduled transference of tax payments.

In May, total new deposits grew as compared to the previous month and by the 12-month cumulative data as well. Unlike in April, volumes of agreements concluded with HHs went up.

Deposit-taking corporations survey

Monetary aggregate M3

In May 2012, the money supply reduced due to a decrease in national currency transferable deposits and foreign currency other deposits. At the same time, national currency other deposits and foreign currency transferable deposits showed an increase. The year on year growth rates of the monetary aggregate M3 remained at the level of the previous month. Internal credit reduced chiefly owing to a reduction in claims on NFCs.

As of the end of May 2012, balances of the monetary aggregate M3 declined by 0.4% to UAH 701.1 billion. Within the month, the money supply dropped by UAH 2.6 billion chiefly due to a reduction in national currency transferable deposits and foreign currency other deposits. The year on year growth rates of the money supply remained at the level of the previous month, making up 10.2%. In May, the increase in cash in circulation outside deposit-taking corporations (M0) continued; nevertheless, it slowed down as compared to April. Within the month, its balance went up by UAH 0.3 billion to UAH 194.8 billion. Within the total money supply, the portion of the monetary aggregate M0 grew by 0.2 p.p. to 27.8%.

Review of the economy of Ukraine

In May 2012, there was observed economic recovery in Ukraine by all economic activities. Like in previous months, high internal consumer demand was a key factor of the economic growth.

In January – May, the growth rates of production index of staple industries made up 2.2% against 1.8% in January – April. It resulted from the upward dynamics of industries oriented to domestic consumer demand viz. retail trade, construction, and food industry.

In May 2012, retail trade made the most considerable impact on the increase in the production index of staple industries. From the beginning of the year, the growth rates of its turnover made up 15.5%. A growth in the real wage of the population was one of factors causing the increase (during the 5 months of the reporting year, the real wage grew by 15.5%).

In May 2012, construction indicators considerably improved. The decrease in construction volumes being observed from February changed into their increase (in January – May, by 0.3%). It was caused by the enlargement of government financing (in January – May 2012 as compared to the respective period of 2011, capital expenditures of the Consolidated Budget grew by 55.4%) and favorable weather conditions for construction works.

In May, the growth rates of industrial production remained at the level of the previous month, making up 0.7% in January – May. The year on year growth rates of industrial production grew to 1.0%. Chemical and petrochemical industry production grew most of all; its year on year growth rates made up 14.9% chiefly owing to high external demand for mineral fertilizers.

Positive changes were also observed in food industry. The year on year growth rates of its production made up 3.0% (in April, the 2.1% fall). Indicators of production of food products, beverages, and tobacco goods improved at the expense of high consumer demand. The resumption of cheese deliveries to Russia also contributed to the growth of food industry production.

Review of the world economy

In May 2012, the growth rates of the world economy slowed down. The state of economies of Euro area countries continued to deteriorate; the economic growth of the BRIC countries slowed down. The weak labor market continued to affect the inflation dynamics. Besides, there was observed a fall in energy resources prices on world goods markets.

In May 2012, the world economy continued to grow. A certain deceleration in the growth rates of industry was compensated by a faster increase in the growth rates of services sphere. In May, the global composite index JPMorgan PMI* made up 52.1 as compared to 52.3 in March. The speeding-up growth rates of the U.S. economy affected the development of the world economy. In May, production volumes of both industry and services showed an increase. The growth in economies of Russia, China, and India continued. At the same time, the world economy development was restrained by slowing down economic growth rates of Euro area countries and Brazil.

In May 2012, an increase in world industrial production was accompanied by a decrease in inflation pressure. The global employment rate increased in the countries whose economic dynamics were positive.