China’s central bank revises statistical scope of M1

The People's Bank of China (PBC), the central bank, announced on Monday that it will implement a revised statistical scope for M1 starting from January 2025.

The revision of the M1 statistical scope will expand to include personal 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 cash.

Personal bank cards and mobile payment systems did not exist when M1 was first established, and personal demand deposits could not be used for instant transfers or payments, which is why they were excluded from M1, said a spokesperson for the PBC.

With the rapid advancement of payment technologies, personal demand deposits now support transfers and payments, allowing transactions without the need for cash withdrawals, the spokesperson said, and given that their liquidity is now on par with corporate demand deposits, they should be included in M1.

Prepaid funds received by non-bank payment institutions, which are directly usable for payments or transactions and exhibit high liquidity, should also be included in M1, according to the PBC.

In conjunction with the initial release, the revised M1 balance and growth rate data since January 2024 will also be disclosed, the spokesperson said.

This adjustment will offer a more precise reflection of money circulation efficiency and the level of economic activity. Enhanced money circulation efficiency signals greater economic vitality, Zhao Xijun, co-president of the China Capital Market Research Institute at Renmin University of China, told the Global Times on Monday.

"The revision of the statistical framework will deepen our understanding of economic dynamics and provide clearer insights into the flow of money and its impact on economic performance," Zhao added.

The relevant data is expected to be made available to the public in early February next year, the PBC spokesperson said.

Globally, the M1 statistical framework in major economies generally includes personal demand deposits and other highly liquid payment instruments, said the spokesperson.

The money supply refers to the total amount of financial instruments available as means of circulation and payment at a specific point in time. It is a crucial indicator in financial statistics and analysis.

The PBC emphasized 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.