The cash transaction equation was put forward by Professor Fisher of Yale University in the United States in the 1920s, also known as Fisher equation. Fisher's theory was first embodied in his book "Purchasing Power of Money" published in 19 1 1.

Professor Fisher believes that there are buyers and sellers in every transaction, so for the whole economy, the value of sales must be equal to the value of income, and the value of purchase must be equal to the product of the amount of money circulating in the economy and the average number of times that money changed hands in the same period. Assuming that m represents the average amount of money circulating in a certain period, v represents the circulation speed of money, p represents the weighted average of various commodity prices, and t represents the transaction amount of various commodities, the following equation can be written: MV=PT or p = mv/t.

Starting from this equation, people will consider what determines the values of the above four variables. Fisher's answer to this question is generally summarized as follows: the decision of money quantity m has nothing to do with the other three variables, and it can be regarded as an established exogenous variable at any time. An economy with a long-term balance of trading volume T at the income level of full employment can also be considered to be established. Fisher also regards V as a variable that is relatively independent of other variables in the equation, and thinks that although it is not a constant, it is influenced by social customs (such as payment system) and technological development (such as transportation and communication technology), so it can also be regarded as a constant in the short term. So the last variable p depends on the interaction of three variables: m, v and t.

Since v and t are constants, only the relationship between p and m is the most important. In particular, the value of p depends on the number of times m changes. On the other hand, nominal money demand can be deduced from this equation under the condition that certain price level and other factors remain unchanged. That is, because MV=PT, m = pt/v = 1/v pt. This shows that, from the perspective of the function of money as a commodity trading medium, there is a certain proportional relationship between the total transaction volume PT of the whole society at a certain period and price level and the required nominal currency volume, that is, the required nominal currency volume is 1/V of the total transaction volume.