The People’s Bank of China, the central bank, announced on Monday that it will implement a revised statistical range for M1 starting in January 2025.
The M1 statistical scoping review will be expanded to include personal on-demand deposits and prepaid funds received by non-bank payment institutions, building on the existing M1 framework. M1 is a narrow measure of the money supply in an economy that includes currency and liquid assets that can be easily converted into money.
A People’s Bank of China spokesperson said that personal bank cards and mobile payment systems did not exist when the M1 was first created, and personal on-demand deposits could not be used for instant transfers or payments, which is why they were excluded from the M1.
With the rapid advancement of payment technologies, personal demand deposits now support transfers and payments, allowing transactions without the need for a cash withdrawal, and since their liquidity is now on par with corporate demand deposits, they should be included in M1, the spokesperson said.
The Chinese central bank explained that prepaid funds received by non-bank payment institutions, which can be used directly for payments or transactions and show high liquidity, should also be included in the M1 money supply.
Simultaneously with the initial release, revised M1 money supply balance and growth rate data since January 2024 will also be revealed, the Chinese central bank spokesman said.
This adjustment will provide a more accurate reflection of the efficiency of money circulation and the level of economic activity. Improved money circulation efficiency indicates greater economic vitality, Zhao Shijun, co-head of the China Capital Market Research Institute at Renmin University of China, told the Global Times on Monday.
“Revising the statistical framework would deepen our understanding of economic dynamics and provide clearer insights into the flow of funds and their impact on economic performance,” Zhao added.
Relevant data is expected to become publicly available in early February next year, a spokesman for the Chinese central bank said.
The M1 statistical framework in major economies generally includes personal demand deposits and other highly liquid payment instruments, a Chinese central bank spokesman said.
Money supply refers to the total amount of financial instruments available as a means of trade and payment at a given point in time. It is a crucial indicator in financial statistics and analyses.
The People’s Bank of China stressed the importance of adjusting the money supply measurement to reflect changes in economic and financial developments, as well as shifts in the liquidity of financial instruments.
