Part 1
23.03.2024
Most African countries are failing to experience desired economic growth that is sufficient to trigger substantial growth and improve household livelihoods or increase standard of living due to low velocity of money circulation in their economies and weak linkages of several economic models, said Dr. Kamayoyo Kelvin, Zambian Economist and Scholar.
The velocity of money in any economy is crucial because it helps to determine the direction and speed at which money is circulating among the economic actors or people. In many instances, the most preferred situation is to experience a high velocity of money because it reflects a bustling economy with strong economic activity as opposed to an economy characterised by low velocity of money circulation and generally fewer business transactions.
High velocity of money would presumably represent a high frequency of business transactions which is essentially desired by the private sector for satisfying their commercial motives, for example profit making.
The term velocity is not extraterrestrial. Velocity is a well known fundamental concept in kinematics, the branch of classical mechanics that often describes the motion of bodies. Incontrovertibly, velocity could also be relied upon in describing the movement and exchange of money in any economy.
Notwithstanding, there are a number of factors that often affect velocity of money circulation in any economy, thus, type of transactions and their frequency, money supply, and consumer preferences, inter alia.
African countries, therefore, ought to assess the categories of transactions that tend to enjoy high velocity of money and simultaneously keep a macroeconomics eye wide open to track capable inflationary pressures.
Arguably, most African countries need to constantly record high velocity of money in order to spur private sector growth and accelerate socioeconomic transformation agenda that is inclusive and impactful. African countries like many other nations across the globe are conscious of the global persuasive call for action to attain the 17 Sustainable Development Goals by 2030 that is anticipated to result in ending poverty, protecting the planet, and ensuring that all people enjoy peace and prosperity.
To achieve this, high velocity of money that stimulates sustainable continental economic growth anchored on private sector active participation and social impact developmental initiatives remains crucial. High velocity of money is also good for the economy because it can promote competition, increase the frequency of money changing hands and attract investors for value addition industries.
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