What is Monetary Velocity?

Written By: The WealthCycles Staff

Conventional wisdom has it that “the velocity of money” is a determinant of the purchasing power of money. Velocity of money is the speed at which money (currency) changes hands and at which a single unit of currency circulates through the economy.

The purchasing power of money is of the highest importance to those who save in silver and gold, in order to determine current and future valuation of metals. Understanding the determinants of purchasing power also allows us to better predict when the mass population will discover how quickly the purchasing power of their currency is declining... and make the switch to sound money.

It is alleged that when the velocity of money rises, all other thing being equal, the buying power of money declines.

Shares Frank Shostak, giving us a more of taste as to why this concept is so crucial:

According to popular thinking, the idea of velocity is straightforward. It is held that over any interval of time, such as a year, a given amount of money can be used again and again to finance people's purchases of goods and services. The money one person spends for goods and services at any given moment can be used later by the recipient of that money to purchase yet other goods and services...
Consequently, if there are $3,000 billion worth of transactions in an economy during a particular year, and there is an average money stock of $500
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testiomials The factors that determine the purchasing power of money are crucial for decision making, whether your family owns dollars, gold, silver or all of the above.”

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