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E-mail China.org.cn, February 28, 2025
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In early December 2024, the central bank announced revisions to the statistical scope of M1. What were the considerations behind this change? What impact will this have on financial data statistics and monetary policy regulation in 2025? Thank you.
Xuan Changneng:
Ms. Zhang will address this question.
Zhang Wenhong:
I'll answer these questions. Thank you for your questions, and thank you for your interest in our financial statistics work. The money supply represents the total sum of financial instruments that serve as means of circulation and payment at a given point in time. It is a crucial indicator for financial statistics and analysis. The PBC has always placed great importance on adjusting the statistical scope of money supply based on economic and financial developments and changes in the liquidity of financial instruments. Since its establishment, China's money supply statistical framework has undergone four major adjustments. In recent years, China's financial markets and financial innovation have developed rapidly, leading to significant changes in the liquidity of financial instruments. The scope of financial instruments meeting the M1 statistical definition has also evolved, necessitating dynamic optimization of M1's statistical framework.
The optimization of M1 calculations now includes household demand deposits and prepaid funds held by non-bank payment institutions. When M1 calculations were first established in China, personal bank cards did not exist, much less mobile payment systems. Since individual demand deposits could not be used for instant transfers and payments at that time, they were not included in M1 calculations. With the rapid advancement in payment technologies, household demand deposits now support instant transfers and payments. Individuals can make payments directly from these accounts without withdrawing cash. Since household demand deposits now have liquidity characteristics similar to corporate demand deposits, they should be included in M1. Customer funds held in non-bank payment institutions, such as WeChat Pay and Alipay balances, can be used directly for payments and transactions. Given their high liquidity characteristics, these funds should be included in M1. From an international perspective, M1 calculations in major economies typically include household demand deposits and other highly liquid payment instruments.
Financial statistics must provide an objective picture of financial operations. When defining the scope of statistical indicators, we must adhere to principles of scientific soundness and effectiveness to support policy decision-making. After recalculating historical data, we found that the revised M1 statistics show a stronger correlation with economic growth indicators and improved stability. The PBC will continue to maintain statistical transparency. Beginning in January 2025, we will implement the revised scope for M1 calculations, with the first release of this data expected in early February. Meanwhile, we will release revised M1 balances and growth rates dating back to January 2024. Thank you.
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