the types of money supply can be given as:
1. M0 - Reserve Money
M0 = Currency in Circulation + Bankers' Deposits with Central Bank + Other deposits with Central Bank
2. M1 - Narrow Money
M1 = Currency with public + Demand deposits with the Banking system + Other deposits with Central Bank
M1 = Currency with the Public + Current Deposits with the Banking System + Demand Liabilities Portion of Savings Deposits with the Banking System + 'Other' Deposits with the Central Bank
3. M2
M2 = M1 + Time Liabilities Portion of Savings Deposits with the Banking System + Certificates of Deposit issued by Banks + Term Deposits of residents with a contractual maturity of up to and including one year with the Banking System (excluding CDs)
M2 = Currency with the Public + Current Deposits with the Banking System + Savings Deposits with the Banking System + Certificates of Deposit issued by Banks + Term Deposits of residents with a contractual maturity up to and including one year with the Banking System (excluding CDs) + 'Other' Deposits with the Central Bank
4. M3 - Broad Money
M3 = M2 + Term Deposits of residents with a contractual maturity of over one year with the Banking System + Call/Term borrowings from 'Non-depository' Financial Corporations by the Banking System
5. M4
M4 = M3 + All deposits with post office savings banks
Table 1: Components of Monetary Aggregates and Monetary Policy Target in Selected Industrial and Developing Countries
| Country | M1 | M2 | M3 and higher order monetary | Monetary | | |
| | | | aggregates | Policy Target | ||
| | | | | | | |
| Industrial | countries | | | | | |
| Australia | CC+ current deposits of the | -- | M3 | = M1+term deposits+ certificates of | Inflation | |
| | private non-bank sector | | deposits (CD)+ other deposits | targeting | ||
| | | | Broad Money = M3+borrowing from the | | | |
| | | | private sector by NBFIs less their | | | |
| | | | holdings of currency and bank deposits | | | |
| Canada | CC+DD | M1+SD+nonpersonal deposits | M3 | = M2+FCD+nonpersonal TDs | -do- | |
| Japan | CC+DD | M1+SD+TD+FCD+nonresident | M3 | = M2+PSD+CD+coperatives, trusts, | M2+CDs | |
| | | yen with surveyed financial | etc. | | | |
| | | institutions | | | | |
| Euro Area | CC+ overnight deposits | M1+deposits with agreed maturity | M2+repurchase agreements, money | Inflation | ||
| | | of up to (and including) two years | market fund shares and units+ debt | targeting | ||
| | | +and deposits redeemable at notice | securities with a maturity of up to (and | | | |
| | | of up to (and including) two years | including) two years | | | |
| U.S. | CC+DD a banks and non- | M1+SD at banks and non-bank | M3 | = M2+TD (large denomination) at | Interest rate | |
| | banks thrifts+ other | thrifts+ TD (small denomination) | banks and non-bank thrifts+ | | | |
| | checkable deposits | at banks and non-bank thrifts+ | overnight/term repurchase agreements at | | | |
| | including (NOW), ATS | money market deposits+ retail | banks and non-bank thrifts+ institution- | | | |
| | accounts, credit union share | money market mutual funds | only money market mutual funds+ | | | |
| | drafts+ travelers' checks | | overnight/ term Eurodollar balances at | | | |
| | | | depository institutions | | | |
| U.K. | -- | M2 (retail M4) = Notes and coins, | M4 | = CC+ sterling liabilities of banks | Inflation | |
| | | and retail deposits in M4 | and building societies NBNBSPS | targeting | ||
| Developing | Countries | | | | | |
| Brazil | CC+DD | M1+SD+Special remunerated | M3 | = M2+RP+fixed yield funds | -do- | |
| | | finds+ securities issued by | M4 | = M3+highly liquid government | | |
| | | depository institions | securities held by the public | | | |
| Chile | CC+DD | M2A = M1A+TD | M3 | = M2A+time saving deposits | -do- | |
| | M1A = M1+DD(OCD)+SD | | including those for housing) | | | |
| | | | M4 | = M3+instruments of the central | | |
| | | | bank held by non-financial private sector | | | |
| | | | M5 | = M4+treasury promissory notes | | |
| | | | held non-financial private sector | | | |
| | | | M6 | = M5+credit bills held by non- | | |
| | | | financial private sector | | | |
| India | CC+DD+OD with central | NM2= M1+TD (short term) | NM3 = NM2+TD (long term)+call/term | Short-term | ||
| | bank | | funding from financial institutions | Interest Rate | ||
| Korea | CC+DD | M1+SD+TD+FCD | M3 | = M2+RP+CD+OFI deposits+ | Inflation | |
| | NM1 = DD+ instant access | New M2 = | debentures issued+ commercial bills | targeting | ||
| | accounts at banks and non- | M1+SD+RP+CD+cover bills+ | sold+ cover bills | | | |
| | bank financial institutions | money in trust+ beneficial | MCT = M2+CD+money in trust (excl. | | | |
| | (including MMFs at | certificates of investment trust | CD & money in trust of development | | | |
| | ITMCs) | companies and merchant banking | institutions | | | |
| | | corporation+ debentures+ other | | | | |
| | | financial instruments (<2 years) at | | | | |
| | | depository corporations | | | | |
| Malaysia | CC+DD | M1+SD+FD+FCD+NIDs+repos | M3 | = M2+deposits placed with OBFis | Overnight | |
| | | | (excl. inter-placement of deposits | (policy) rate | ||
| | | | between these institutions) | | | |
| Singapore | CC+DD | M1+SD+TD+OD+RP | M3 | = M2+net deposits with NBFIs | Exchange rate | |
| | | | | | targeting | |
| South | M1A = DD+ checks & | M1+SD+TD+PSD | M2+long term deposits held by the | Inflation | ||
| Africa | transmission deposits of the | | domestic private sector with monetary | targeting | ||
| | domestic private sector | | institutions (including national saving s | | | |
| | M1 = M1A+DD (other than | | certificates issued by Post bank) | | | |
| | check & transmission | | | | | |
| | deposits) | | | | | |
| Thailand | CC+ DD | M1+SD+TD | M3 | = M2A+deposits taken by the six | -do- | |
| | | M2A = M2+promissory notes | specialized financial institutions from the | | | |
| | | | public | | | |
| Pakistan | CC+DD | M1+TD+RFCD | | | | |
| | | | | | | |
N refers to New; CD: certificate of deposits; DD: demand deposits; TD: time deposits; SD: saving deposits;
Present Compositions of Monetary Aggregates in Pakistan
In case of Pakistan, the existing definition of money supply seems to be based on functional approach and includes those financial assets which are highly liquid. Among other factors, quantitative significance of financial assets and the availability of data appear to be important consideration for inclusion as a component of current monetary aggregates.
The narrow definition of money supply (M1) includes currency in circulation (CIC), other deposits with SBP and the demand deposits of the scheduled banks. The broad definition (M2) consists of M1, time deposits and resident foreign currency deposits with the scheduled banks. This implies that M2 takes into account not only those financial assets which can directly be used as a medium of exchange but close substitutes of liquid assets also.
Demand and time deposits of the scheduled banks for the definition of money supply, however, do not take into account the deposits of the government and the foreign constituents (non-residents). The governments’ deposits are generally excluded due to non-responsiveness of these deposits to macroeconomic variables like changes in national income, interest rate, exchange rate etc (see IMF Manual 2000). Moreover, monetary and fiscal policy formulation also lends credence to the exclusion of these deposits, as the policy focuses in generally on the net government borrowing from the financial institutions. The non-resident deposits holding are excluded as these deposits are primarily used for international payments, instead of domestic transactions (see IMF Manual 2000).
