oney as an economic category is most often understood as cash in circulation or currency outside banks. Together with bank deposits, it is a component of money supply or broad money.

Latvia is among those countries of the European Union where cash is quite widely used, with the cash component accounting for around 12%–15% of broad money. Other countries in Central and Eastern Europe report similar cash use habits.

The development of non-cash settlement instruments (bank and retail cards, the use of electronic, internet and other similar banking services) reduces the role of cash in overall money circulation (cash exceeded 30% of broad money in Latvia nearly a decade ago). Nevertheless, between 1 January 2011 and 1 January 2012, the amount of currency in circulation increased by 23.7% and stood at 1 160.2 million lats on 1 January of the current year.

Structure of Currency in Circulation

The Bank of Latvia puts currency into circulation via Latvian credit institutions which choose the nominal value of banknotes and coins taking into account the customer demand (of population via ATM, shops, etc.), and, consequently, the banknotes and coins in denominations required by depositors, companies, public institutions and other bank customers are circulated.

Currency in Circulation in Breakdown by Denomination

Banknotes constitute 1 093.3 million lats or 94.2% and coins 66.9 million lats or 5.8% of total cash. The sum total of banknotes is made up of 5-lats (6.5%), 10-lats (7.0%), 20-lats (53.5%), 50-lats (8.6%), 100-lats (15.7%), and 500-lats (8.7%) notes. Of total coins, 2-lats coins account for 12.9%, 1-lats coins for 52.8%, 50-santim coins for 12.4%, 20-santim coins for 7.1%, and coins of other denominations for 0.8%–4.4% each.

As to the number of banknotes in circulation, 5-lats, 10-lats and 20-lats notes prevail, with 29.2 million 20-lats notes, 14.3 million 5-lats notes, 7.7 million 10-lats notes, 1.9 million 50-lats notes, 1.7 million 100-lats notes, and 189.6 thousand 500-lats notes in circulation. As to the coins, those of smaller denominations, i.e. 1-santim and 2-santim coins, prevail in circulation (180.4 million and 120.8 million coins respectively), while, for instance, 16.6 million 50-santim coins, 35.3 million 1-lats coins and 4.3 million 2-lats coins are circulated.

Table 1 and Table 2 show how the number of banknotes and coins in circulation has increased for all denominations within one year. This increase has been the largest for 100-lats notes (44.8%) and 500-lats notes (30.7%). The largest increase in circulation of coins was recorded for 1-lats coins (12.6% vis-á-vis the end of the previous year).

Table 1. Banknotes in Circulation

Denomination	1 January 2011		1 January 2012		Relative changes in amount
	Amount (thousand of lats)	% of total	Amount (thousand of lats)	% of total
Ls 5	66,273.1	7.6%	71,576.2	6.5%	8.0%
Ls 10	68,573.8	7.8%	76,694.4	7.0%	11.8%
Ls 20	471,147.3	53.7%	584,562.0	53.5%	24.1%
Ls 50	79,636.8	9.1%	94,227.0	8.6%	18.3%
Ls 100	118,389.9	13.5%	171,438.3	15.7%	44.8%
Ls 500	72,548.5	8.3%	94,815.0	8.7%	30.7%
Total banknotes	876,569.4	100%	1,093,312.9	100%	24.7%

Table 2. Coins in Circulation

Denomination	1 January 2011		1 January 2012		Relative changes in amount
	Amount (thousand of lats)	% of total	Amount (thousand of lats)	% of total
Ls 2	8,317.2	13.6%	8,636.1	12.9%	3.8%
Ls 1	31,358.7	51.1%	35,315.5	52.8%	12.6%
s 50	7,819.5	12.7%	8,299.5	12.4%	6.1%
s 20	4,480.9	7.3%	4,757.1	7.1%	6.2%
s 10	2,736.2	4.5%	2,901.1	4.4%	6.0%
s 5	2,092.6	3.4%	2,189.8	3.3%	4.6%
s 2	2,268.3	3.7%	2,416.6	3.6%	6.5%
s 1	1,711.4	2.8%	1,804.5	2.7%	5.4%
Collector coins	549.9	0.9%	549.9	0.8%	0.0%
Total coins	61,334.7	100%	66,870.1	100%	9.0%

Two different time periods of 2011 record distinctive dynamics of the demand for cash. In the first ten months of the year when the Latvian economy had regained some balance and returned on a moderate growth track, the increase in the demand for cash was somewhat modest (7.8%), with funds on population and company bank accounts rising in the meantime. In November and December, on the other hand, the increase in money supply was unusually strong (14.8% in the course of the two months) due to both seasonal factors and suspending the operations of JSC Latvijas Krājbanka in November to be followed by payments of guaranteed compensations for deposits of all types; in addition, the turmoil resulting from the rumours about the banking sector in early December made some customers withdraw cash from their accounts. Consequently, the annual increase in cash amounted to 222 million lats at the end of 2011 (an increase of 150 million lats in 2010). Even though the total money supply largely depends on non-cash currency, demand deposits, i.e. money on population and company bank accounts, grew at a slower annual pace (by 11.8%), thus the cash component in broad money (which includes also money on bank accounts used in settlements) went up (from 12.3% to 15.6% in 2011).

During its one-year circulation, each coin "visits" the Bank of Latvia several times, which is 2–5 times on average depending on the coin's denomination. When automated cash processing equipment detects that banknotes are too worn-out or damaged, they end their life in cash destroyer equipment.

In 2011, 17.9 million worn-out and damaged banknotes were withdrawn from circulation. The life time of 5-lats banknotes is the shortest, and in 2011, 8.4 million notes of this denomination were withdrawn from circulation.

The life span of coins is longer as they are more durable. The number of coins withdrawn from circulation was 38 thousand in 1997, 144 thousand in 1998, 60 thousand in 1999, 132 thousand in 2000, 202 thousand in 2001, 119 thousand in 2002, 151 thousand in 2003, 159.7 thousand in 2004, 100 thousand in 2005, 106.7 thousand in 2006, 116.8 thousand in 2007, 153.6 thousand in 2008, 121.9 thousand in 2009, 107.2 thousand in 2010, and 125.8 thousand in 2011.

13.6 million 2-lats coins struck in 1992 and 1993 were withdrawn from circulation in 2001, with new bimetallic 2-lats coins gradually replacing them. The figures for old 2-lats coin annual withdrawals in 2004–2011 are 29.8 thousand, 12.2 thousand, 10.0 thousand, 5.0 thousand, 13.0 thousand, 3.1 thousand, 3.8 thousand and 2.8 thousand respectively.