Fresh Definition Of Money Supply Measures Mooted

The working group (WG) on money supply which submitted its report yesterday, has recommended redefinition of the traditional measures of money supply and introduction of new concepts of liquidity broader than the conventional M3 definition.

WG has indicated that in the backdrop of expanding monetary substitute following the financial developments and the impact of technology, the conventional measures are not sufficient to capture the magnitude of monetary resources available.

While the WG has retained the earlier definition of M0 and M1, M2 has been modified to include time liability portion of saving deposits, CD issued by the banks, and term deposits of the banks (excluding FCNRB deposits) not exceeding one year. M3 is redefined to include call and term borrowings from "Non-depository financial corporations" by the banking system. According to the WG while M0 will be published by the RBI on a weekly basis, M1, M2 and M3 would be published on a fortnightly basis.

 

While the group recognizes the impact on the velocity of money and money demand of the spread of usage of credit and debit cards, it has mentioned that these do not call for any redefinition of money supply: credit cards because they do not represent monetary assets and debit cards because they serve the same purpose as bank cheques. And pending the development of electronic equivalents of money, like electronic currencies, the group suggest in future there will requirement of new statistical definition and classification and reporting procedures.

Apart from the modified definition of M3 the group has suggested three more measures under the head Liquidity aggregates which encompass resources generated by post office saving bank (under L1, traditionally called M4 i.e. M3 plus saving deposits with post offices), L1 plus term deposits of term lending institutions and refinance institutions (FI), term borrowings by FI and CDs issued by FIs (under L2) and L2 plus public deposits of NBFC (under L3).

The reporting schedules for these aggregate has been set according to the liquidity content of each of these aggregates and also the time lag involved in compiling these data. Thus, L1 and L2 will compiled on a monthly basis while L3 on a quarterly basis and published in RBIs monthly bulletins.