Bank of Korea to Exclude Beneficiary Certificates from M2 under Revised IMF Guidelines
Year-on-Year Growth Rate Drops to 5% Range with New M2 Calculation
Both Revised and Current M2 Totals to Be Published in Parallel for One Year Starting January
In October, the amount of money in circulation increased by more than 41 trillion won, marking the seventh consecutive month of growth in the money supply. This was largely driven by a bullish stock market, which led to a significant rise in equity-type securities and related financial products.
The exchange rate is displayed at a currency exchange booth on Myeongdong Street in Jung-gu, Seoul. Photo by Yonhap News Agency
According to the Bank of Korea on December 16, the seasonally adjusted average balance of broad money (M2) in October stood at 4,471.6 trillion won, up by 41.1 trillion won (0.9%) from the previous month. This growth rate was higher than the 0.7% increase recorded in the previous month. On a year-on-year basis, the growth rate also rose to 8.7%, compared to 8.5% in September. M2 is a broad measure of the money supply that includes cash, demand deposits, and transferable savings deposits (M1), as well as money market funds (MMFs), time deposits and installment savings with maturities of less than two years, beneficiary certificates, and repurchase agreements (RPs).
By financial product, beneficiary certificates increased by 31.5 trillion won, while time deposits and installment savings with maturities of less than two years rose by 9.4 trillion won, driving the overall increase. Kim Minsoo, Head of the Financial Statistics Team at the Economic Statistics Department 1 of the Bank of Korea, explained, "Beneficiary certificates saw a sharp increase, mainly in equity-type securities, due to the stock market rally," and added, "Time deposits and installment savings with maturities of less than two years increased as banks attracted deposits to manage their liquidity coverage ratio (LCR) requirements."
By economic sector, households and nonprofit organizations increased their holdings by 24.1 trillion won, mainly in beneficiary certificates and cash in circulation. Other financial institutions raised their holdings by 20.4 trillion won, focusing on beneficiary certificates and time deposits or installment savings. Corporations and other sectors also saw increases centered on beneficiary certificates, by 2.5 trillion won and 1 trillion won, respectively.
The average balance of M1 stood at 1,332.8 trillion won, up 0.2% from the previous month.
Meanwhile, the Bank of Korea will revise its statistics in accordance with the updated International Monetary Fund (IMF) manual, which excludes beneficiary certificates (Non-MMF shares) with high price volatility and low store-of-value function from M2. Beneficiary certificates refer to funds such as equity-type and bond-type funds, including exchange-traded funds (ETFs). Kim stated, "The revised M2, due to the exclusion of beneficiary certificates, is expected to be significantly lower than the current M2 level (the original average balance for October was 4,466 trillion won)." The year-on-year growth rate will also fall to the 5% range from the current high 8% level, as the impact of the sharp increase in beneficiary certificates (36.8%) disappears.
The Bank of Korea will announce the results of the monetary and liquidity revision on December 30, and from January next year, it will publish both the revised and current M2 aggregates in parallel for one year.
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