Different money is important – Newspaper Kommersant No. 32 (7477) dated 21.02.2023
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Since February 2023, the Bank of Russia has expanded the list of indicators characterizing the money supply in the Russian economy: in addition to assessing the standard monetary aggregates M2 and M0, it is planned to publish a monthly operational assessment of two options for broad money supply (M2X) — with and without currency revaluation — as well as the aggregate M1. In the Monetary Policy Report released on February 20, the Central Bank explains that in the context of rapid devaluation, the standard M2 money supply may not be adequately correlated with inflationary pressures.
In the report on monetary policy (MP), which at the beginning of 2023 already contains almost no major news, the Bank of Russia paid special attention to the indicators of the money supply, which the regulator is guided by when making decisions, including on the key rate. An analytical sidebar to the report announces the publication of the Central Bank from February 2023 of an operational assessment of two indicators of the “broad money supply” – earlier the Bank of Russia gave an assessment of the M2X aggregate only taking into account currency revaluation and later data on standard monetary aggregates, M0 and M2. The “broad money” indicator, therefore, will be available almost simultaneously with them; in the publication for February, the aggregate M1 is also estimated – cash plus transferable deposits.
Historically, the orientation of the monetary policy towards the M0 and M2 aggregates has developed in the Central Bank since the early 1990s, the report on the monetary policy states that in economies with different structures (more precisely, with different traditions and norms of the payment turnover and regulatory restrictions that correlate with it), the dynamics of “steps” monetary aggregates (M0-M1-M2-M2X) reflects somewhat different processes in the financial system – accordingly, in order to assess future inflationary pressure on the demand side, it is necessary to monitor different aggregates. In the Russian Federation, only in 2008-2010, due to the jump in currency value and somewhat later, with a surge of interest in savings certificates, the topic was widely discussed. At the same time, it was extremely relevant in 2022: despite the formally very strong growth of the M2 aggregate, inflationary pressure adequate to this dynamics was not created.
The Central Bank in the report on the monetary policy confidently explains what is happening with the growth of ruble deposits for the year by 26%, while the reduction of foreign currency deposits of the population by 40% and organizations – by 17%.
A strong discrepancy between M2 and M2X was already noted in the review of the Central Bank “Monetary conditions and the transmission mechanism of monetary policy” (see “Kommersant” dated February 15), judging by the comments of the Central Bank, it will be observed for at least another months – the process of devaluation, at least for now, has not stopped, and with strong turbulence in the markets, we note that it can easily change sign.
For the first time, comparable data on M2X with and without clearing of currency revaluation are no longer so different – “net” M2X in annual terms increased by 14% (M2 – by 26%), excluding revaluation – by 13.1%. In January (an indicative month for such assessments, the dynamics of all aggregates is slightly negative), “net” M2X grew at a rate of 14.5% year-on-year, taking into account the revaluation, it decreased to 12.5% year-on-year. There is still no “correct” answer to the question of which of the aggregates is better for estimating future inflation (which also depends heavily on expectations): M2X dynamics in two forms show slightly increased inflationary pressure at the level of 2016 and slightly above the levels of 2021 of the year. However, the current dynamics of M0 is now similar to the dynamics of the money supply in the national definition at the level of 2011–2012.
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