Money Supply in October Totals 4,057 Trillion Won... Why the Figure Dropped by 410 Trillion After Statistical Revision [BOK Focus]

Bank of Korea Announces "Results of Monetary and Liquidity Revision"
Revised "New M2" at 4,056.8 Trillion Won... Down 409.5 Trillion Won from Old M2
Beneficiary Certificates with High Price Volatility and Limited Store of Value Excluded
Reorganized M2 to Better Align with the Concept of "No Loss of Face Value..."
Greater Consistency with GDP and Flow of Funds, Enhanced Usefulness of Monetary Statistics

"In October, the amount of money in circulation (broad money, M2) was tallied at 4,056.8 trillion won, based on the average balance of the original series." This is the result of the Bank of Korea's revision of its statistics in accordance with the International Monetary Fund (IMF)'s updated manual. The core of the revision is the exclusion of beneficiary certificates from investment fund shares in the M2 calculation. Beneficiary certificates, which refer to funds such as equity-type and bond-type funds including Exchange-Traded Funds (ETFs), were excluded because their high price volatility means they have a limited function as a store of value. With beneficiary certificates, which were a major driver of recent M2 growth, now excluded, the revised M2 has decreased by 409.5 trillion won compared to the previous figure of 4,466.3 trillion won.

An employee is organizing 50,000 won bills at the headquarters of Hana Bank in Jung-gu, Seoul.

According to the "Results of Monetary and Liquidity Revision" announced by the Bank of Korea on the 30th, the year-on-year growth rate of M2 has dropped significantly from 8.7% under the previous standard to 5.2% under the new standard. The growth rates for financial institution liquidity (Lf) and broad liquidity (L), which still include beneficiary certificates, fell slightly. Lf decreased from 7.8% to 7.1%, and L fell from 7.1% to 6.9%, respectively. Kim Minsoo, head of the Financial Statistics Team at the Economic Statistics Department 1 of the Bank of Korea, explained, "The revision of monetary and liquidity statistics reflects the IMF manual's changes, centered on the exclusion of beneficiary certificates, as well as structural changes in the financial market such as the growth of mega-investment banks (IBs)."

Liquidity refers to the total amount of money, or funds, available for economic activities such as consumption, investment, and financial transactions. The scope of included products expands in the order of narrow money (M1), M2, Lf, and L. M2 is a broad monetary indicator that adds money market funds (MMFs), time deposits and installment savings with maturities of less than two years, and repurchase agreements (RPs) to M1, which consists of cash, demand deposits, and passbook savings accounts. Lf includes not only M2 but also long-term financial products with maturities of two years or more, and financial products issued by non-deposit-taking institutions. L encompasses Lf as well as products from other financial institutions, government bonds, local government bonds, corporate bonds, and commercial paper.

Revised 'New M2' at 4,056.8 Trillion Won... Down 409.5 Trillion Won from Old M2

According to the Bank of Korea, the new M2 stood at 4,056.8 trillion won as of October this year, which is 409.5 trillion won (9.2%) lower than the old M2 (4,466.3 trillion won), based on the average balance of the original series (L is based on the end-of-period balance of the original series). The addition of mega-IB issued promissory notes and promissory note-type comprehensive asset management accounts (CMA) (44.7 trillion won), as well as improvements in compilation methods and supplementation of basic data (43 trillion won), contributed to the increase. However, the exclusion of beneficiary certificates (497.1 trillion won) resulted in the overall decrease.

As of October this year, the new Lf and L recorded 6,011.4 trillion won and 7,597.1 trillion won, respectively. This is 14.9 trillion won lower and 53.8 trillion won higher than the old Lf and L, respectively.

The year-on-year growth rate of the new M2 as of October this year was 5.2%, lower than the old M2's 8.7%. This is because the impact of the sharp increase in beneficiary certificates (up 36.8% year-on-year) has disappeared, and time deposits and installment savings with maturities of less than two years under the new standard are growing at a slower pace than under the old standard. Kim explained, "The growth rate of M2 under the new standard exceeded the long-term average during the COVID-19 period but has been below the long-term average since January 2023." The ratio of M2 to gross domestic product (GDP) under the new standard has also been below the long-term trend since the first quarter of last year.

Why Now? "Preparation Began in 2019"

Kim stated, "By excluding beneficiary certificates from monetary products included in M2, and reorganizing M2 to better align with the concept of broad money, we have enhanced the usefulness of monetary statistics as an informational variable under the interest rate-centered monetary policy framework."

In November 2017, the IMF published a revised manual that aligned the classification of monetary statistics by economic sector with major international standards and provided clearer criteria for the scope of broad money. In response, a plan for revising monetary statistics was developed in July 2019, and a new survey form was distributed in September 2023. In May this year, the Bank of Korea completed collection of the new survey forms from all surveyed financial institutions and began full-scale revision work in the second half of the year. The results of the revision were published this month.

The Bank of Korea explained the delay in the revision process, stating, "Revising monetary statistics is a lengthy process due to the unique characteristics of monetary and financial statistics, such as the design of survey forms, feedback on survey items with financial institutions, and the development of systems by the surveyed institutions." The outbreak of COVID-19 also contributed to the delay. The Bank noted that social distancing and other measures in response to the pandemic meant it took more than four years to receive feedback on and distribute the new survey forms after the revision plan was established.

The Core of the Revision: Exclusion of Beneficiary Certificates

In accordance with the IMF's revised manual, the Bank of Korea excluded beneficiary certificates from investment fund (MMF and non-MMF) shares in M2, deducting the amount of beneficiary certificates (497.1 trillion won as of October 2025) that had previously been included in M2. However, the holdings of monetary products by non-MMFs (64.2 trillion won) were included in M2. This is because, with the exclusion of beneficiary certificates from M2, non-MMFs have shifted from being issuers of currency to holders of currency.

Kim explained, "Following the IMF's revised manual, we have adjusted the classification of economic sectors in monetary statistics to align with the System of National Accounts (SNA), and we are the second after the euro area to implement a detailed breakdown of other financial institutions (non-MMF, insurance institutions, pension funds, other financial intermediaries, financial auxiliaries, exclusive financial institutions, and lending companies)."

Additionally, considering the growth of comprehensive financial investment firms such as mega-IBs, the Bank of Korea has added highly liquid promissory notes and promissory note-type CMAs issued by mega-IBs to the M2 basket. The compilation method was also improved by supplementing asset information from banks and trust accounts, in addition to liability information from the survey forms of deposit-taking institutions. The Bank of Korea explained that the use of asset information now enables a more detailed breakdown of investment funds and allows for more precise identification of the financial product holdings of economic agents.

Expected Effects: Greater Consistency with GDP and Flow of Funds, Enhanced Usefulness of Monetary Statistics

The Bank of Korea explained that this revision, by reflecting the IMF's updated manual and changes in the financial environment and supplementing the basic data, has further improved the consistency and usefulness of monetary statistics. Kim stated, "By revising the classification of economic sectors in monetary statistics to align with the System of National Accounts (SNA), we have enhanced consistency with GDP and flow of funds statistics."

Another significance of this revision is that M2 has been reorganized to better match the concept of broad money. M2 is defined as "the sum of financial products that are either generally used as a means of payment or can be converted into a means of payment within a short period without loss of face value (stable store of value)." Kim noted, "We have been able to strengthen the usefulness of monetary statistics as an informational variable under the interest rate-centered monetary policy framework."

The Bank of Korea had originally planned to publish only the new standard M2 statistics starting with the "Monetary and Liquidity Statistics for November 2025" to be released in January next year. However, considering the recent heightened interest in monetary indicators, both the new M2 statistics and the total amount of the old M2 will be published in parallel for the next year.