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Recent Developments in Monetary Analysis

Author(s):
International Monetary Fund. Research Dept.
Published Date:
January 1957
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Method of Monetary Analysis Used by De Nederlandsche Bank

Purpose of the method

The purpose of the method of monetary analysis which has been developed in the last few years in the Annual Report of the Nederlandsche Bank is essentially of a practical nature. It is meant to provide the Bank with a tool to help it in unraveling the mechanism of inflationary and deflationary disturbances and thus to aid the Bank in framing its policies.

I think that most of us will agree that it is one of the prime duties of central banks to prevent or at least to counteract—as far as is possible within the limits of their authority—any inflationary or deflationary developments of sufficient magnitude to create a threat to the long-run stability of the internal and external purchasing power of their monetary unit.

In order to be able to prevent or to counteract inflationary or deflationary developments, one must first be able to recognize them—and, if possible, to recognize them in their earliest stage. This may be done either by looking for the symptoms of their causes or for the symptoms of their effects.

Except in cases of gross monetary mismanagement, it has always been felt easier to recognize the effects of monetary disturbances than to clearly recognize their causes. We all agree that boom conditions, over-employment, increases in the price level, and balance of payments deficits—especially when showing up simultaneously—are indicators of internal inflationary disturbances, whilst underemployment, price falls, and balance of payments surpluses indicate deflationary conditions. Yet, when some of these symptoms contradict one another, we may feel less sure about the interpretation of our data, and even when agreeing about the observed effects we may find it difficult to agree upon their causes.

In the Netherlands, for example, the post factum analysis of the economic situation in 1953 led to very contradictory opinions about the monetary causes that had been at work. In the Annual Report of the Nederlandsche Bank, I myself concluded that a rather strong deflationary impulse emanating from the government sector had only partly been compensated by lesser inflationary pressures from the private sector, whilst their combined effect had been overcome by strong inflationary impulses from abroad, thus explaining the observed combination of mild boom conditions, increased employment, stable prices, and a rather big balance of payments surplus; however, Professor Witteveen, of the Rotterdam School of Economics, concluded on the basis of increased government expenditure and increased private investment that both government and the private sector of the economy had exerted a strong inflationary impulse, whilst the inflationary influences from abroad—judged by the increase in exports—had been rather negligible.

It is not difficult to imagine that the public showed itself rather flabbergasted by these contradictory opinions, and it took indeed some time before the core of the differences between the two authors had been thoroughly thrashed out in a very illuminating discussion, published in one of our leading economic periodicals.1

This discussion proved that, within the limits of their own definitions and methods of approach, both authors from a formal point of view had been right in their contradictory conclusions.

To understand how this was possible one must be conscious of the fact that any quantitative analysis of economic phenomena has to be based upon a set of simplified suppositions with regard to the inter-dependency of the different factors which are to be observed. This set of simplified suppositions is what economists nowadays call a “model.” The simplification lies in the fact that on the basis of some presupposed rules of behavior—algebraically laid down in equations—a quantitative relationship between different phenomena is established. By considering only a limited number of factors to be open to “autonomous variations” and the others to be “dependent variables,” one is able, with the help of such a model, to predict the probable consequences of assumed variations in the autonomous factors.

Also, post factum, one is able, by linking the observed variations in the dependent factors to the observed variations in the autonomous ones, to allocate the “causes” of the variations in the former, albeit that to explain the post factum quantitative relationships one may have to introduce also some “autonomous” changes in the actual rules of behavior compared with the assumed ones.

The fun, but also the trouble, of this method is that one is always technically right. Not of course in predicting the future, but always in explaining the past. It is for this reason that one should beware of the fact that a model is nothing but a piece of man-made machinery. One can never get out of it what substantially has not been put into it beforehand.

The post factum analysis can only show as “causes” the factors which have been introduced as “autonomous variables” when framing the model. If, post factum, the observed changes in the autonomous factors cannot fully explain, i.e., quantitatively do not fit in with, the observed changes in the dependent ones, such divergences simply have to be attributed to some “autonomous” change in the equations of behavior. Reality is always right. Any consistent model can technically explain everything. The point is whether the explanation has any relevancy.

These considerations prove the importance of choosing one’s model, i.e., one’s method of approach to a problem. My controversy with Professor Witteveen made it clear that by inflation and deflation he actually meant increase or decrease in national income. Consequently, he sought the ultimate causes of inflation and deflation in variations in a set of factors, which he considered to be the only autonomous determinants of changes in national income, viz., government expenditure, private investment, and changes in exports. These autonomous changes in expenditure are linked with their multiple effect on the national income by way of the income multiplier, a constant to be derived from the propensity to save, the propensity to import, and the rate of taxation.

Professor Witteveen’s method of approach thus proved to be fundamentally of a nonmonetary nature. In the frame of his “model,” monetary policy in the sense of banking policy and central bank policy cannot find any place whatsoever, the provision of finance to enable entrepreneurs to carry out their autonomous investment decisions, and to enable Government to carry out its expenditure decisions, being implicitly supposed to adapt itself to demand.

It is clear that such a model cannot fit the purposes of a central bank. If one analyzes monetary phenomena with the purpose of getting some guidance for monetary policy, one must necessarily use a model in which monetary policy can find its place. If we believe that by monetary policy we can exert an influence on the creation of money, and maybe also on the propensity of the business community to hoard or to dishoard, and if we further believe that the exertion of such influence will affect the course of the inflationary or deflationary process, then, for the exposition of our ideas, we must choose a model in which the creation and cancellation of money and the acts of hoarding and dishoarding are treated as autonomous factors.

It is the purpose of the Bank’s method to provide the data for such a model.

Background of the method

The line of thought on which the Nederlandsche Bank has based its analysis of monetary conditions starts from the proposition that the essence of monetary disturbances is to be found in the possibility, created by the use of money, of exercising effective purchasing power in excess of, or in deficiency of, current contribution to production. This can be done only by financing expenditure out of the creation of new money or by drawing on available liquid reserves, or, reversely, by hoarding money or taking it out of circulation. Such financing is, in the terminology of the Bank’s Report, called an inflationary or deflationary method of finance.

Any inflationary monetary disturbance must be accompanied by money creation or dishoarding, i.e., by inflationary financing; any deflationary disturbance, by hoarding or cancellation of money, i.e., by deflationary financing.

It is important to see that this way of approach brings the problem of monetary disturbance back to the individual households.2 Inflation is a problem of financing. It is the decision of individual households on how to finance their expenditure which is decisive for the occurrence or non-occurrence of a monetary disturbance. In a closed economy, such initial disturbance is connected with its multiple effect on production, income, and prices by way of the monetary multiplier; in an open economy also, the balance of payment effects have to be taken into consideration.

From the monetary point of view, these acts of spontaneous inflationary or deflationary financing must be considered as final causes. Even if, from a more general point of view, we may conclude that they are not quite autonomous, but that they themselves are motivated by other factors, we must consider them as final from the monetary point of view, because it is indeed the use of money that makes them possible and because it is our task as monetary authorities to concentrate on the problem of how to prevent, to restrain, to neutralize, to compensate, or, under certain very special circumstances, to stimulate them by the use of monetary policies.

Now we all know that, though banking statistics allow us to observe the sum total of the acts of creating and canceling money, we have no proper means of observing the acts of spontaneous hoarding and dishoarding. Worse still, even though, by observation of individual households, we may be able to observe spontaneous acts of hoarding and dishoarding, we may find it difficult to distinguish them from the acts of induced dishoarding and hoarding that are their necessary concomitants. As Robertson’s famous dictum says: All money that is anywhere must be somewhere. Newly created money, once introduced into the income stream, must be held by some household. How can we distinguish this induced increased holding of money, which forms a reaction to the inflationary process, from the spontaneous hoarding that must be interpreted as a deflationary impulse?

The analysis of the Nederlandsche Bank is based on the contention that by applying certain techniques we can indeed, to a certain extent, do so.

Any act of inflationary financing—and in order not to make my argument too involved I shall now leave out the case of an act of deflationary financing, which leads, of course, to reversed consequences—as I say, any act of inflationary financing leads somewhere else to an increase in income—which may be either real or only nominal—or to a temporary disinvestment. Both will be accompanied by an act of hoarding. But the type of hoarding will be different in these two instances.

The act of hoarding that accompanies a temporary disinvestment which takes place in reaction to inflationary impulses elsewhere is nothing but the expression of a delaying factor in the inflationary process. There is no reason why in a free market economy this type of reaction should be lasting. After a short period of transition, normal dispositions will again prevail. For the time being, this reaction may indeed impede the observation of the forces that are at work and lead us to underestimate the strength of the inflationary impulses. If our observations relate to a sufficient lapse of time we may, however, safely ignore this temporary reaction, unless it be stimulated by the application of direct physical controls. In the latter case, it will lead to the phenomenon of “latent” inflation which we well remember from the strictly controlled economies of the war years.

The acts of hoarding—in the sense of increase of average cash balances held—that accompany any increase of income and turnover are of a different type. They result from the increase in the need of money for transaction purposes which is the necessary concomitant of any increase in the real or nominal level of income and turnover. It is this absorption of money in the transaction sphere which eventually sets a limit to and consolidates the effects of the original inflationary impulse. Any new income, by being spent, tends to create additional income and would continue to do so if the money, created or released by the original act of inflationary financing, were not gradually absorbed by the need for increased cash balances.

It is this absorptive reaction to the inflationary process which is the only lasting one and which has to be separated from the total of observable impulses in order to gauge properly the strength of the inflationary forces that are at work. Such separation can very well be based on circumstantial evidence. If we see that during a period of expanding production the business community has been heavily relying on credit expansion and has, moreover, been running down its holdings of near-money, such as treasury bills and long-term bank deposits, we need not feel any doubt that any observed increase in its cash balances is not due to any autonomous hoarding, but is to be interpreted as a reaction to the existing inflationary development. On the contrary, we may have every reason to believe that a certain amount of autonomous dishoarding of inactive money has been adding to the inflationary impulses and has contributed to increase the amount of active money now being absorbed by trade.

A further problem which arises when observing the financing dispositions of the individual households is the question of the exact definition to be given to the notions of hoarding and dishoarding.

As soon as we recognize that the original monetary disturbance consists of the withholding of purchasing power by an act of hoarding or, contrarily, by the exercise of purchasing power coming from resources other than current income, we have to make up our minds about the interpretation of transactions in the financial field. There are three possible courses of action.

In the first instance, one may interpret any act of saving, if it is also accompanied by simultaneous financial investment, as an act of hoarding, and any financing out of funds obtained from others as an act of dishoarding. This interpretation would force us to call any and all saving deflationary, and any investment, except out of own current income, inflationary. In my opinion this terminology would be grossly misleading. The transfer of funds by way of the capital market from a party who chooses not to invest in realities himself, to another party who does, is so much part and parcel of the normal flow of funds, and has so little to do with what we recognize as actual or potential monetary disturbance, that it would definitely be misleading to interpret such transfer as a deflationary activity on the part of the lender and an inflationary activity on the part of the borrower that happen to compensate one another.

A second possibility would be to reserve the notions of hoarding and dishoarding to hoarding and dishoarding of money itself. This would mean that any transfer of purchasing power by transactions in the financial field would be considered as indifferent from the monetary point of view. At first sight this solution would seem perfectly logical.

On second thought we find, however, that this method of interpretation would have many disadvantages by covering up financing dispositions, which are of essential importance in the analysis of inflationary and deflationary processes, and by forcing us to attribute different meanings to financing dispositions which in the eyes of the individual households themselves are perfectly equivalent.

The Nederlandsche Bank has therefore chosen a third possibility, by applying the notion of hoarding and dishoarding—and consequently the notions of deflationary and inflationary financing—not only to the act of hoarding and dishoarding of money itself, but also to the act of accumulating or running down liquid reserves in the form of certain types of near-money, the so-called secondary liquidities, i.e., short-term claims on the Government, local public authorities, and money-creating institutions.

Its reasons for doing so are the following: In the first instance, one must recognize that secondary liquidities, although they cannot directly be used as a means of payment, and therefore lack one essential function of money itself, are, for all practical purposes, equivalent to money in its function as a store of value. Consequently, there is not much sense in applying the notions of liquidity preference, of hoarding for reasons of the precautionary or the speculative motive, etc., exclusively to money itself. We are much nearer to reality, i.e., to the considerations that motivate the individual households, by applying these notions to the sum total of primary and secondary liquidities.

For a business concern of some magnitude, it is a matter of slight interest differentials whether to keep its liquid reserves in a current account balance, in a short-term bank deposit, or in treasury bills. If it decides not to reinvest for the time being the amounts accumulated on depreciation account—and that is one of the essential deflationary impulses that may originate in the private sector—then it may decide on either one or the other. On the other hand, it would not dream—at any rate not in the Netherlands—of investing its liquid reserve in bonds or in the stock market.

It is therefore quite proper to register the accumulation of money, of bank deposits, or of treasury bills as one and the same act of hoarding. Of course, if the accumulated treasury bills do not come out of the stock of treasury bills held by the banking system, in which case a clearly deflationary cancellation of money takes place, but are directly bought from the Treasury, and if the Treasury uses the money thus obtained for current expenditure, then indeed there need not be any net deflationary disturbance. In that case, however, it is much more illuminating, and therefore more relevant, to interpret this joint transaction as a deflationary development in the private sector, compensated by an inflationary development in the government sector, than to pass it over as a transaction that, from the monetary point of view, could be considered indifferent. For even if no actual monetary disturbance has taken place, a potential one has been created. When, some time later, the private sector decides to reinvest and forces the Treasury to repay its short-term debt, the Treasury in all likelihood will have to fall back on the banking system to meet its liabilities.

It is important to recognize that the impulse for this creation of money has originated in the private sector, even though we may find it necessary to insist that it is up to the Government to compensate this inflationary impulse by some deflationary financing of its own.

A second reason for the Nederlandsche Bank’s extension of the notion of hoarding and dishoarding to secondary liquidities follows from the first. It is the fact that this interpretation allows a better, i.e., a more illuminating, allocation of the responsibility for inflationary and deflationary developments to the separate sectors of the economy.

A possible objection to the applied method is that, though it may be admitted that it is indeed difficult to draw a clear line of distinction between money and secondary liquidities, the same holds true for the distinction between the claims we do and those we do not include in the notion of secondary liquidity. Why, one might ask, include treasury bills in the first category but not short-term treasury bonds? The answer is that this objection is perfectly correct but that not too much importance should be attached to it. There generally are no sharp lines of distinction in practical life. Yet we have to draw them the best we can, the distinction of categories being an indispensable tool for any analytical thinking.

It may indeed very much depend upon local circumstances where the line has to be drawn between what is to be considered as secondary liquidity and what is not. The essential point is that only short-term debts of Government and money-creating institutions can properly be considered as falling in this category. For the essential difference between secondary liquidities and other relatively liquid claims is that the latter can be converted into actual money only by withdrawing purchasing power from the debtor or from some party who is willing to substitute himself for the creditor, whilst the owner of secondary liquidities can, for all practical purposes, force the debtor to create new money, because that debtor is either a money-creating institution, which has only to credit the owner of the claim on current account, or the Government, which would rather find some way to create new money than default on its debts.

Technique of the method

After these preliminaries about the basic ideas behind the method of analysis of the Nederlandsche Bank, the method itself is easily described. It consists of splitting the economy into separate sectors, so as to get as near as possible to what is happening in groups of individual households, and then to register the use of inflationary or deflationary methods of finance in each sector separately. Thus the Bank distinguishes (1) Central Government, (2) Local Authorities, (3) Institutional Investors and Miscellaneous Funds, (4) Capital Market and Sundry Items, and, finally, as a residual item (5) Private Individuals, Trade, and Industry. By using sample survey techniques, which the Nederlandsche Bank so far has not done, one might carry this sectional split still further, particularly for distinguishing between private households and entrepreneurs.

For each separate sector, the total amount of ascertainable net deflationary or inflationary financing is calculated. This total finds expression in the ascertainable liquidity surplus or liquidity deficit of the group. In a closed economy, the sum total of all liquidity surpluses and liquidity deficits must of necessity be zero. In an open economy, the sum total is equivalent to the national liquidity surplus or deficit, i.e., the balance of payments surplus or deficit. This surplus or deficit can again be interpreted as a deficit or surplus of a sixth sector of the economy, namely, the sector Foreign Countries.

Now, for most sectors, the ascertainable liquidity surplus or liquidity deficit can be taken as a direct measure of the net deflationary or inflationary impulse that has originated in that sector. For all practical purposes it is only in the sector Private Individuals, Trade, and Industry and in the sector Foreign Countries that the difficulty arises of properly distinguishing between financing dispositions that have to be interpreted as autonomous causes of the inflationary or deflationary processes and those dispositions that have to be interpreted as the unavoidable effects of such processes.

As I have explained before, it is—when observing a period of sufficient length—only the increase or decrease of cash holdings as a result of the transaction motive which has to be separated from the other acts of inflationary or deflationary finance and has to be interpreted as a reaction to, instead of as a cause of, the inflationary or deflationary process. Now, practically, we can say that this reaction will take place only in the sector Private Individuals, Trade, and Industry, where almost all the transaction money is being held. It is only in this sector, therefore, that the observed liquidity surplus or deficit has to be corrected for the likely change in transaction cash balances in order to arrive at an estimate of the net inflationary or deflationary impulses that have originated in this sector. Circumstantial evidence will easily give us a clue, if not to the exact magnitude, then at any rate to the direction of this reactive factor.

A second field in which we have to beware of the impulsive or reactive character of the observed liquidity surplus or deficit is in relation to foreign countries. The national liquidity surplus, i.e., the balance of payments surplus, can be just as well a reaction to the sum total of deflationary impulses that have been active internally as a measure of the inflationary impulses that have been working on the country from the outside. Here again, circumstantial evidence will have to help us in determining and interpreting the exact character of the observed facts.

The value of a scientific tool, such as an analytical method, can be judged only by the use that can be made of it. It is only when it helps us to understand better the relationship of things, to come to relevant conclusions about their interaction, and, if possible, to devise improved rules of conduct, that we have reason to prefer one method of description to another.

In this connection, it is important to know that the Nederlandsche Bank has not arrived at its method of analysis out of some theoretical deduction, but that this method has grown out of dissatisfaction with the results obtained from a previous analytical approach. This previous approach was the well-known technique of determining the causes of the changes in the volume of money from the combined balance sheet of the banking system. This technique was followed by the Bank up to 1950. But especially in the year of the Korea crisis with its terrific inflationary pressures, it proved itself quite inadequate both to explain clearly what was happening and to provide monetary policy with proper rules of conduct. It was therefore in 1951 that the Bank started with what is considered an improved analysis, which was then further developed in the ensuing years.

To give a simplified example of the type of situation with which the Netherlands was faced in 1950, let us assume that the analysis of the causes in the changes in the volume of money provides the following data for a certain period:

Government debt to banking system+300
Private debt to banking system+400
Net loss of foreign exchange–1,000
Net change in monetary circulation–300
Environmental conditions: a booming economy and rising prices

A customary explanation of this situation would be to say that the increased indebtedness of the government and the private sectors to the banking system indicates inflationary conditions in both sectors. One might feel surprised at the combination of these inflationary conditions with a drop in the volume of money, but would probably be satisfied by explaining this drop as the effect of the large balance of payments deficit to which one would be apt to attribute an autonomous character.

The picture completely changes, however, when, after splitting the economy into sectors and taking into consideration the movement of secondary liquidities, we find that the Government has been repaying its floating debt to the private sector to an amount of 500 units—half to institutional investors and half to the rest of the private sector—and that both institutional investors and the rest of the private sector have been spending these funds on long-term investment and on real expenditure, whilst they have also been running down their cash balances for the same purposes.

It then becomes clear that the inflationary impulse has originated completely in the private sector, that the Government in its own sphere even had a liquidity surplus, which was, however, strongly overbalanced by the inflationary financing in the private sector, this latter being fed not only from credit expansion but also from the liquid reserves in the hands of entrepreneurs, the public, and institutional investors.

Further considering the necessary increase in cash balances for transaction purposes, which must necessarily have been connected with the increase in national income resulting from boom conditions and price increases, we would rightly conclude that the drop in total cash balances in the hands of the private sector was actually giving only a feeble expression to the magnitude of the inflationary impulse exerted by the financing of new expenditure out of available cash reserves.

This example will show why the Nederlandsche Bank believes that its method of analysis, even though it cannot claim to give an exact quantitative measure of the monetary impulses that are at work, yet enables one to obtain a better insight into their origin, their character, and their approximate magnitude.

Use of the method in monetary policy

As a guide to monetary policy, it is particularly important to recognize clearly the origin of both actual and potential monetary disturbances. Minding the old adage that prevention is better than cure, it must be considered the prime task of monetary policy, where possible, to prevent disturbances from arising at all. Trying to compensate for disturbances that have once developed is only a poor substitute for prevention. And yet, we have to be alive to the fact that some of the possible monetary impulses are definitely beyond the control of monetary policy. In this connection I feel that the method of the Nederlandsche Bank has the advantage over other types of analysis of better bringing home to us the enormous importance of the volume of liquid claims in the hands of the public.

Monetary policy, by the use of discount policy and other techniques, can exert a relatively strong influence on the volume of money newly created to finance new expenditure. It can exert no influence, or very little influence, on the recourse of the public to available cash reserves in the form of ready cash. Neither, however, can it exert any important influence on the recourse the public has to its reserve of secondary liquidities, and the less so, the shorter the average maturity thereof. It is almost impossible for the central bank not to accommodate the debtors of the secondary liquidities if they are faced with nonrenewal. No increase in the rate of discount can force them to default on their obligations. And the possible indirect ways of compensating an inflationary impulse which originates from a recourse to secondary liquidities are difficult to find and still more difficult to carry out.

There is much talk by economists about the compensatory anticyclical budget policies that governments ought to pursue. There is, alas, in practical politics very little to show in this field, especially in periods of inflationary boom.

These conditions may indicate that the fight against inflation has to be fought much earlier than we usually think. Much more attention may have to be given to the building up of the inflationary potential during periods of all-over monetary equilibrium by the too easy creation of secondary liquidities.

In an open economy, these conditions also have their consequences for the desirable level of foreign exchange reserves. These must be sufficient to carry the load of any irrepressible spontaneous internal inflationary development, including the possible recourse to secondary liquid resources. One of the practical applications of the use of its method of analysis in the field of monetary policy is to be found in some arrangements that exist between the Nederlandsche Bank and the Netherlands Treasury. These arrangements are partly of a formal character and partly no more than a general understanding about some basic rules which the parties have accepted as a guidance for their policies.

Fundamentally, these arrangements are based upon the idea that indeed the liquidity surplus and the liquidity deficit of the Government, as defined by the Nederlandsche Bank, are proper measures of the deflationary or inflationary influence of government finance on the economy. As, generally, i.e., except under conditions of deflation, an inflationary influence of government finance should, of course, be avoided, the Treasury has on principle accepted the policy of not financing any expenditure by an increase of short-term debt, either in the hands of the banking system or in the hands of the public at large. On the other hand, the Nederlandsche Bank has recognized that the purpose for which the Treasury wishes to have recourse to the Bank is far more important than the fact that it should wish to do so at all. Consequently, the Bank has been willing on several occasions, e.g., in 1951, when the private sector of the economy fell back heavily on all available liquidities, to accommodate the Treasury by a direct purchase of treasury bills in order to enable it to repay short-term debt to the banks, but not to finance its own expenditure. Such recourse of the Treasury to the Bank has been called in the Bank’s Annual Report a noninflationary recourse.

Also, in the conduct of its open market policy, in as far as the latter is based on the portfolio of treasury paper which the Bank obtained when the Government took over from the Bank the wartime Reichsmark claim of 4½ billion guilders, the Bank has been willing to agree to certain restrictions on its liberty of action and even to a formal obligation to accommodate the Treasury under certain circumstances, both, however, under the condition that the Government should not indulge in any inflationary financing in the aforementioned sense. In that case the Bank has regained its full liberty of action.

These examples illustrate that the analytical method we are discussing has been not only of theoretical use, but also positively helpful in coming to a sound and fruitful working relationship between the central bank and the Treasury.

The fundamental rules on which this working relationship is based follow directly from the underlying principles of the method of analysis that have just been set out. They might be summarized as follows:

  • (1) Borrowing by the Treasury from the central bank for the purpose of repaying debt to the banking system is by itself, i.e., apart from its indirect influence on bank liquidity, not of an inflationary character.

  • (2) Borrowing by the Treasury from the central bank for the purpose of repaying short-term debt to the public is by itself not of an inflationary character if the public entrusts these funds to the banking system.

  • (3) If, however, the public uses the released funds for financing new expenditure, such borrowing will indeed be indicative of an inflationary process. The origin of the inflationary impulse must then be attributed to the private sector of the economy.

  • (4) Borrowing by the Treasury from the commercial banking system for the purpose of financing expenditure has, by itself, exactly the same inflationary character as borrowing from the central bank.

  • (5) Borrowing by the Treasury from the public by issue of short-term debt for the purpose of financing expenditure can be actually, and is at least potentially, of an inflationary character. Such borrowing can fundamentally be justified only if serving to counteract the undesirable deflationary effects of spontaneous hoarding in the private sector of the economy.

Mr. Chairman, I am very grateful to you that you have taken the initiative for this panel discussion and that you have been so kind as to ask me to tell this illustrious gathering something about the methods the Nederlandsche Bank has been using to unravel the mystery of inflationary and deflationary developments. I do not claim that this method gives any final answer to the problem. I do believe, however, that it can be instrumental in attaining a better understanding of the strictly monetary aspects of the inflationary and deflationary process. Thus it may, perhaps, be helpful to both central banks and treasuries in better adapting their policies to fighting that curse of slow but persistent inflation that seems to be upon our present day world and to the lifting of which all our efforts should be dedicated.

Monetary Analysis in Italy

Italy was an early starter in the field of monetary analysis. The statement about the flow of savings and the money supply, presented below in Table 49 (pp. 398–99), was first published in the Bank of Italy Report for 1948, and included figures for 1946 and 1947. Our progress since then has, unfortunately, been slow; we have been unable to extend our coverage from “capital” to “current” transactions or to increase the sectorization. The data on lending activities are presented by class of financial institution, but we have no details concerning the ultimate lenders, and the classification of borrowers is still limited, in the table, to the division between the central Government and the rest of the economy. In order to be able to improve the sectorization, some of the things we need are an analysis of bank deposits by ownership, which is made difficult by the existence of a large volume of anonymous deposit accounts, and a regular collection of data on installment credit, about which only a couple of sample inquiries have been carried out so far. We also need readier availability of the accounts of local authorities and social insurance institutions.

When all this is said, it remains true that we have not fully exploited the possibilities of such data as we possess by fitting them into elaborate models similar to those evolved in other countries, the Netherlands being an outstanding example. Some of the descriptions of what the Dutch have been doing and debating look rather forbidding by reason of their conceptual subtleties and their arrays of equations; but the basic magnitudes are defined in simple terms and should not prove difficult to establish in countries provided with good budget and balance of payments accounts. I venture to say that in several countries, including mine, such aggregates as the surpluses in income, finance, and liquidity, as defined in the Dutch documents, are already calculated for the country as a whole and for the government sector, in balance of payments and budget surveys, but so far they have not been organized for the purposes of monetary analysis. I trust that a result of the present meeting will be to speed up progress in this direction.

Having in mind the limitations under which we have been working in Italy, I assume that I should especially address myself to those of you who come from countries that are still taking their first steps along the path of monetary analysis, and that I should aim at covering the ground which lies immediately ahead of you, leaving to the other speakers the task of spurring on those who are already halfway toward the more ambitious goals so far attained by only a few. I shall, accordingly, try to exemplify the use of our type of flow-of-funds survey by applying it to the description of monetary developments in Italy (see Table 49).

The Italian survey of the flow of savings and the money supply has grown out of the analysis of central bank transactions which was made in earlier Bank of Italy reports. The purpose of this analysis was to trace the increase in the note issue to the central bank’s transactions with the Government, to its transactions with the banks, and to Italy’s transactions with foreign countries. The paper prepared by the Fund staff would seem to indicate that monetary analysis in a number of countries is still in this initial stage.

The second step was to move on from an analysis merely of currency movements to one including the entire money supply, by visualizing as a whole the monetary system formed by the central bank and all other banks. From our detailed statement it may be seen that, against the change in assets of the banks and savings banks, we set three sources of finance: (1) the accumulation of funds in savings and time deposit accounts; (2) the creation of bank money as reflected in current accounts; (3) the creation of central bank money, as reflected in the balance of transactions of the banks and savings banks with the Bank of Italy. By taking this second step, we were obviously extending the analysis from activities which are entirely money-creating, such as those of the central bank, to others for which savings accounts in addition to money creation are a source of finance.

A further step was made by bringing into the framework of our statement the activities of long-term credit institutions and of the capital market which consist entirely of the investment of savings and have no money-creating effect. Security issues are shown in the statement both gross and net of bank investments.

The first row of totals in Table 49 shows the distribution of funds between the Government and the private sector and the contributions of the various sources. The area covered by this row of totals is coterminous with the jurisdiction of the monetary authorities under the Bank Control Act and the statutes regulating the issue of securities. It is therefore a matter of some interest, from the point of view of monetary management, to follow the movement in these totals through time and to compare it with changes in certain relevant aggregates drawn from national income statistics, such as those for gross and net investment, as well as to follow the change in the relative size of the various elements composing the total stream. Thus, in the Annual Report of the Bank of Italy for 1955, attention was drawn to a tendency for the flow of funds to decrease in relation to the flow of investments, owing to increased government saving and to the large volume of self-finance in the fields of housing and business investment.

The Bank of Italy’s transactions with the Government and with the Exchange Control Office, which have as their only counterpart the creation of central bank money, are listed below the first row of totals. The list of these flows serves to complete the picture of central bank money creation and to establish the total of treasury cash drawings other than those derived from taxation and government property, namely, the Government’s finance deficit.

So much for the nature and the presentation of the data. If we examine the total flow of funds just described, we see that it is characterized by well-defined movements, especially when we adjust the figures for seasonal changes and relate them to periods covering fluctuations in general economic conditions, rather than to calendar years. We are in a position to do this since all our data are available on a monthly basis.

The periods which may be distinguished since the time from which our analysis starts are set out in Table 1. The first period for which we have complete data runs from October 1946 to September 1947 and covers a year of rapid inflation. The second is a period of mild deflation continuing up to the close of 1948. The third is “neutral”; it concludes with the outbreak of the Korean war in June 1950. It is followed by the Korean boom, which represents a second but milder inflationary period extending to June 1951. The fifth period, one of gently deflationary readaptation following the Korean boom, lasted until the autumn of 1952. From that time on, the movements in the flow of funds do not correspond to any very distinct fluctuations in the level of output and prices and we have therefore divided them simply by calendar years. We have thus two complete cycles of inflation and deflation divided and followed by neutral periods. It should be pointed out that all periods were marked by an expansion in the money supply, deflationary periods being defined with respect to price and production trends.

Table 1.Analysis of Italian Data
July 1945–

Sept. 1946

15

months
Oct. 1946–

Sept. 1947

12

months
Oct. 1947–

Dec. 1948

15

months
Jan. 1949–

June 1950

18

months
July 1950–

June 1951

12

months
July 1951–

Dec. 1952

18

months
1953

12

months
1954

12

months
1955

12

months
1.Ratio of the flow of funds1 to net domestic investment0.881.151.220.760.991.000.920.88
2.Ratio of increment in bank deposits to that in currency in circulation8.521.52.84.42.56.08.07.07.3
3.Ratio of increment in total deposits to that in currency in circulation12.021.63.56.53.67.110.18.28.0
4.Series 2: Cyclical deviations (trend value = 1)0.711.091.320.601.141.041.110.74
5.Series 3: Cyclical deviations (trend value = 1)0.560.981.470.681.091.061.070.68
6.Percentage ratio of net security issues (exclusive of investment of bank reserves) to the flow of funds122.331.439.331.430.636.644.641.5
7.Percentage ratio of net security issues (exclusive of all bank investments) to the flow of funds117.917.528.427.417.526.534.936.8

The figures for the flow of funds are derived from the “detailed statement” (Table 49) by adding the second total in the last column to the first total in the second and third columns from the right.

This figure, relating to a period which is otherwise outside that which we treat, is included merely to demonstrate that the figure for October 1946 to September 1947 is a low minimum.

The figures for the flow of funds are derived from the “detailed statement” (Table 49) by adding the second total in the last column to the first total in the second and third columns from the right.

This figure, relating to a period which is otherwise outside that which we treat, is included merely to demonstrate that the figure for October 1946 to September 1947 is a low minimum.

In order to evaluate the significance of the movements, we must of course consider them in relation to the magnitude of the total volume of bank lending and security issues outstanding. In other words, we must relate the flow of funds to the stock of financial assets outstanding at the beginning of each period. When we make this comparison, we find that the ratio of the flow of funds to the stock reaches high points during the deflationary periods and relatively low ones in the inflationary phases.

Corresponding movements are observed if we relate the flow of funds to the volume of domestic investment, either gross or net, as it is estimated in the national income statistics. The ratio of the flow of funds to net investment is shown on the first line of Table 1. It appears that an absolute minimum (0.76) was reached during the Korean boom, and that a relative minimum (0.88) was reached in the earlier inflationary period of 1946 to 1947. Over the whole period of nine years, the ratio shows a tendency to fall. The low points are mainly connected with the higher profits of industry under inflationary conditions, i.e., with the larger proportion of total investment covered by self-finance.

The relative magnitude of the elements composing the total flow of funds is subject to trend and cyclical movements. This applies to the factors influencing the money supply, to its composition, and its relation to the total flow of funds. I shall take up these various points in succession.

First, as to the factors of change in the volume of money: Central bank transactions in foreign exchange exerted a contractive influence during the two inflationary periods and a highly expansive influence during the periods of deflationary readaptation (as well as during the “neutral” period from January 1949 to June 1950). Transactions of the monetary system with the Treasury exerted at all times an expansive influence, which was stronger during the inflationary periods. The same applies to transactions with the private sector. Central bank finance of government deficits and foreign exchange provided the base for the expansion in bank deposits and exempted the banks from substantial borrowing at the central bank.

Second, as to the distribution of the expansion in the money supply between deposits and currency: When deflationary conditions prevailed, the accumulation of foreign exchange holdings was generally associated with a faster increase in business deposits with the commercial banks and with larger investments by the banks in government securities, allowing the Treasury to reduce its use of central bank finance. (The same applies to the “neutral” period from 1949 to 1950.) As a result, the accumulation of foreign exchange was reflected only in part in increased bank deposits with the central bank, and exerted almost no influence on the note issue. In fact, at all times the expansion in the note issue followed very closely its trend line. This near absence of cyclical movements would seem to reflect the institutional limitations to changes in the income velocity of currency as well as an apparent stability of habits concerning cash holdings on the part of the nonbusiness public. During the inflationary periods, when transactions in foreign exchange exerted a contractive influence, the offsetting processes just described worked in reverse.

The greater steadiness in the development of the note issue, compared with that in deposits, is reflected in marked cyclical swings in the ratio between the two. The second line in Table 1 shows movements in the ratio of the increment in bank deposits to that in currency in circulation; and the third line shows the ratio of the increment in total deposits (including postal savings) to the increment in currency in circulation. In spite of the very sharp upward movement that is due to the trend, we notice that the two inflationary periods are marked by two clear minima (1.5 and 2.5 in the first series; 1.6 and 3.6 in the second series). It is perhaps desirable to give a word of explanation for the very high figures recorded for the fifteen months preceding October 1946. These are due to the return to the banks of the large stocks of notes previously held by various classes who had profited from the conditions of scarcity and social disintegration of the preceding period of war and foreign occupation. It is also worth pointing out that the ratios reached toward the end of the period of nine years are high, approaching much closer than during the earlier part of this period the ratios recorded in the more highly developed western countries.

The elimination of the trend movement in these two series gives the cyclical values shown as lines 4 and 5 in Table 1. Here the movement we have just referred to is still more visible, with marked negative deviations from the trend during the two inflationary periods. We should keep in mind, in this connection, that the holdings of currency are mainly in the hands of the nonbusiness public, and that the fall in the ratio of deposits to currency during the inflationary periods doubtless reflects the comparative lack of responsiveness of this part of the public to price movements and opportunities for profit, at least so long as inflation has not reached an extreme stage. Thus the public absorbs cash in a manner which exerts a dampening influence on the inflationary process, for, by decreasing to this extent the liquidity of the banks, the public in effect lowers the coefficient of expansion applying to the funds available to the banking system at the central bank. The use of average coefficients of expansion therefore seems inappropriate in the analysis of the credit cycle, whenever currency is an important part of the money supply. I shall adopt this as my first conclusion.

The last twelve months of the period also show a negative deviation from the trend in the ratio of the increments in deposits to those in currency; this deviation is most likely due to the shift out of bank accounts and Post Office savings accounts following the reductions in the rates paid on such accounts by the Post Office after October 1953 and by the banks after the coming into force of a new cartel agreement in February 1954.

This shift was toward the capital issues market, as is shown by the last two series in Table 1. Series 6 represents the ratio of net security issues (exclusive of the investment of bank reserves) to the flow of funds. In series 7 security issues are measured exclusive of all bank investments. In both series a strong upward trend is noticeable and a comparison between the two, which gives an indication of the “voluntary” investments of the banks, shows that these investments are high in periods of deflation and of relatively weak demand for bank credit, and low in periods of inflationary boom. This seems to show that, in times of low demand for bank credit on the part of customers, the banks are less active in soliciting subscriptions to security issues from their customers and prefer to take up themselves increasing amounts of securities, thus contributing toward building up the volume of inactive deposits during such periods.

Taking into consideration the various facts and figures which I have mentioned, I would suggest, as a second conclusion, that cyclical deviations from trend in the volume of deposits are not as a rule positively associated with conditions of active inflation. Taking the monetary system as a whole, the counterpart of an increase in deposits is sometimes to be found in an accumulation of foreign exchange, possibly expressing an improvement in the liquidity position of an open economy as a whole. To the extent that government revenue is affected by deflationary conditions and government expenditure by anticyclical policies, the increase in deposits may reflect an improvement in the liquidity position of the private sector matched by a deterioration in that of the Government, in which case the increase in deposits will be balanced by larger bank lending to the Government. It may also happen that increased deposits are the outcome of a disturbance in the normal distribution of liquidity inside the private sector, as between households, traders, and manufacturers. The disturbance may arise from reduced sales, a lower profitability of industry, and an involuntary accumulation of stocks in certain sections of the productive and distributive system. In this case the larger deposits will be met by larger advances.

I hope that some of you may find the validity of these remarks worth testing on the data of other countries.

Federal Reserve Flow-of-Funds Accounts

The rediscovery of central banking as an indispensable tool of economic policy is commonly viewed as a notable feature of the postwar epoch. Accompanying this rediscovery has been a re-examination on the part of the public of functions proper to central banking, and on the part of central banks themselves of normal operations appropriate to their functions.

This re-examination has underscored again central banking’s urgent need for objective norms of reference—quantitative norms in the form of statistical statements of approximate reliability. Re-emphasizing this imperative has given fresh impulse to central bank intelligence activities and to experimental attitudes in developing new facts and organizing data into new patterns of relationship.

The Federal Reserve flow-of-funds accounts for the United States economy are the product of this postwar climate. The experimental form of the accounts needs to be explicitly stressed. The accounts must meet the pragmatic test of central bank intelligence needs. They must be adaptable to new types of data. And they must be capable of modification to provide for observed changes in the functional and institutional features of the economy. Limitations in the accounts, for any of these reasons, may give rise to minor or even major redesign of the experiment.

The experiment has had to be on a scale consistent with the complexities of the task. Both scale and complexities have made the job arduous. The work began about ten years ago, but the developmental stage of the accounts is not yet over. The accomplishment to date is an accounting structure on an annual basis from 1939 through 1955, and we are now engaged in putting the structure in quarterly form. An interval must elapse before quarterly data can be estimated regularly. Until the accounts can be maintained on a current quarterly basis, their usefulness for central bank intelligence will be limited.

Broad objectives

What impelled the Federal Reserve to launch this quantitative experiment? What have been, and continue to be, our intelligence goals? These are simple questions, but the answers are not simple.

The United States economy has had available for some years now a vast quantity of statistical data pertaining to its varied nonfinancial as well as financial activities. These data have been systematized and summarized in a variety of indices, in various aggregates, and in such relationships as the international balance of payments, the monetary reserve elements, the input-output accounts, and the national income-product accounts.

What has not been available is a sweeping organization of data that would demonstrate the primary fact that, in a market economy, the flow of credit and money affects all activities and, in turn, all activities affect the flow of credit and money. In other words, what has been lacking in the economy’s armory of information has been a single statistical panorama of both nonfinancial and financial activities—a record which would connect the money surface of things with the product surface. Such a pattern would furnish a moving picture image of the quantities that, in combination with market prices and interest rates, are generally subsumed under the term “the credit and monetary situation.”

Filling this need, we felt, would throw into new perspective the many problems which must concern any money management directed toward general stability of money purchasing power and orderly economic growth. It would help, for example, to clarify contemporary money functions by distinguishing more effectively between the store of value work, exchange of wealth work, and technical work that money and credit do. It would help further to delineate the role and functions of the various financial institutions.

In addition, it would tell which economic groups purchase the current national output as well as which groups purchase existing wealth and claims to wealth. It would show where the credit or money comes from to make both output and asset purchases, and would make understandable the changes which occur in cash balance and debt positions. And it would aid in tracing the flow of savings from surplus to deficit units, and would indicate the forms in which these savings flows occur.

Beyond this, it would reveal more plainly the relationships between current account payments and capital account payments, and would contribute to the assessment of debt positions, including the soundness of debt. It would illuminate the decision-making process, and help identify the sector source of impulses in economic expansion and contraction.

Lastly, it would assist in differentiating between instabilities caused by defects in financial organization and other instabilities resulting from psychological disturbances in single markets, which then pass through the entire economy, at times convulsively.

The objectives of the experiment, therefore, were broad, multipurpose, and fundamental. They were pursued with the main prepossession of wearers of the central banking cloth—namely, that monetary and other financial variables are vitally important determinants conditioning economic behavior and shaping economic events.

Some pragmatic considerations

The Federal Reserve staff sought a structure of data that would yield utmost flexibility of application to its own uses and to the uses of others. While monetary and financial research is a prime responsibility of a central banking system, it is also an activity of other government agencies, of universities, of financial and business institutions, and of independent scholars. A central bank, being at or close to the source of flow of much economic information, has a responsibility to make data available in well-ordered form for other users—in return for which it gets the benefit of their outside studies and criticism. Furthermore, the data supplied will make their greatest contribution if they are organized in advance with a view to general analysis rather than narrowly to monetary analysis.

In developing its flow-of-funds accounts, the Federal Reserve staff conscientiously endeavored to provide an accounting structure that would be as free as possible from ties to any doctrinaire approach or single theory of economic causation. The staff, moreover, was careful to avoid handicapping its own or any other analyst’s freedom to select hypotheses for testing, or freedom to combine or correlate data in testing. This necessarily has meant maintaining a neutrality toward economic concepts whose general definition accountingwise is moot because they are subject to special tailoring in accordance with the analytic objective or problem in hand. Savings, investment, money, and liquidity are specific examples of such concepts. Data in the flow-of-funds accounts can be combined in several ways to derive alternative measures of these concepts.

Critics may say that the Federal Reserve staff has been too purist in this effort to attain neutrality of accounting structure and data treatment. But this staff itself wants experimental latitude in defining and applying concepts, since the quest for improved or more effective quantitative norms for central banking must constantly be pressed forward in a spirit and atmosphere of unhampered research. Accounting definitions of economic concepts must freely adapt to the purpose or problem of inquiry; they cannot be permitted to express merely the hardened dictate of convention or previous official sanction.

Essence of accounts

The Federal Reserve staff is often asked to put in a nutshell just what the flow-of-funds accounts are. In simple terms, the accounts divide the nation’s economic decision makers into institutionally homogeneous groups, called sectors. For each sector, the accounts show transactions in goods, assets, and credit and money in a consistently defined system of classification. Thus, each sector account identifies and measures the main sources of funds with which the sector makes payments and its principal uses of funds in making payments.

The flow-of-funds accounts closely resemble the international balance of payments statement. In international studies, we have long recognized that understanding of a nation’s changing position in commerce with other nations requires the recording in a single statement of both goods, services, and gold flows, and credit and capital flows. The flow-of-funds accounts employ a comparable approach in domestic analysis.

For each institutionally distinct group within a nation, the flow-of-funds accounts provide related measures of the flows of goods and services and of credit and money. The accounts, in effect, provide a balance of payments statement for each major sector of the economy vis-à-vis the rest of the economy. The separate statements thus afford a framework for observing the changing positions of the major economic groups within the nation and the interaction of these changes with those for other sectors. The whole system of balance of payments accounts for the sector groups is simultaneously derived in accordance with standard accounting rules and hence is statistically integrated.

Relation to national income-product accounts

The following question is frequently asked about the flow-of-funds accounts: What is their relation to the national income-product accounts? And more specifically, what is contributed by the flow-of-funds accounts that is not already provided by the income-product accounts?

Brief contrast of accounting structures. A brief contrast between the two accounting structures can serve two purposes. In the first place, it can make plain that the systems are not substitutes or competitors. They supply different views of an economy’s aggregate activities. Both are needed for empiric inquiry. In the second place, a contrast can show why the accounting logic and sectoring of the two systems differ in so many respects.

The national income-product accounts are aptly described as economy performance accounts. They undertake to measure in both current and constant prices the final product available to satisfy current economic wants plus the final product utilized to provide the tools by which wants will be satisfied in the future. The product measured includes that exchanged by barter and that which is produced and consumed without passage through a market place.

The income-product accounts emphasize productive activity and the allocation of product among various types of use. Consequently, the sectors of the accounts represent types of activity—production, consumption, investment—rather than types of institutional unit. The income generated in the productive process is distributed by economic function or factor of production—worker or employee, proprietor, shareholder, or creditor.

Financial transactions, such as those in cash balances, securities, and other financial instruments, are excluded from the income-product accounts for two reasons, one strictly an accounting matter and the other a purposive matter. First, when all financial and nonfinancial transactions are consolidated into a single summary account for the total economy, borrowing and lending activities within the domestic economy must cancel out since they are necessarily equal. Accordingly, they are not recorded in the final summary accounts.

Second, measurement of the value of current product and income is an intelligence goal of prime importance in itself. Since the exchange of financial claims is not a component of the nation’s current product, many students have felt that the goal of measuring output and income should not be compromised by putting these exchanges into the accounting picture. There are some who would go further and argue that financial transactions are fundamentally of a lower order of importance for use in observing and analyzing economic realities.

The flow-of-funds accounts have quite a different focus. Their purpose is to describe in current money units the total flow through markets of transactions in current product, existing assets, and financial claims. In their present form, they exclude as far as practicable barter transactions, imputed transactions, and bookkeeping transfers among the internal accounts of single transactors, such as capital consumption allowances. The accounts show only cash and credit transactions.

The accounts are focused on the main work that credit and money do in clearing markets and on the structure of financial assets and debts remaining after such clearance. Actions in these markets are by decision-making units responding to forces growing out of a variety of past commitments and a variety of current incentives for spending or investment. Hence, the economic unit of accounting must be the individual or institution that makes decisions. Furthermore, the transaction record of the accounts must include current and capital transactions and, as a minimum, changes in financial assets and liabilities.

Thus, the sectoring or allocation of transactions is on an institutional rather than an activity basis. Financial institutions, divided into as many subgroups as are deemed appropriate, are an essential feature of the account sectoring. The transactions classification is pragmatic, that is to say, transactions are grouped into categories that appear to be meaningful in terms of market processes.

The user of the flow-of-funds accounts is obliged to recognize that activity in markets is the outcome of decisions by many different individuals and institutions acting as economic units. The behavior of each unit must be observed through all of the transactions in which it may engage. For summary observation, their total behavior must be analyzed in the same manner. Stated another way, the meaning of a given group’s cash balance, liquidity, debt, or savings and investment position, however defined, cannot be adequately analyzed without reference to the group’s total receipts and expenditures, their composition, and other associated financing as reflected in asset and liability changes. Similarly, nonfinancial transactions must be studied in relation to each group’s financial position and activities. This is general equilibrium analysis in empiric form, and central banking must engage in such analysis to achieve its key intelligence need—a balanced objective view of the entire credit and monetary situation.

Examples of contrasting accounting treatment. The differences between national income-product accounts and the flow-of-funds accounts may be further clarified by a few examples of contrasting treatment.

The income-product accounts, for instance, record in separate activity accounts transactions for current consumption and transactions ordinarily thought of as investment in tangible assets. Thus, consumers’ purchases of homes are taken into the same account as landlords’ purchases of rental housing and business purchases of new plant and equipment. But in the flow-of-funds accounts these several transactions are recorded in at least three sectors: the consumer sector, the unincorporated business sector, and the corporate business sector.

The reasoning behind this institutional sectoring is to be found in the main purposes of the accounts, namely, to understand the interplay and interaction of market transactions by major groups of decision-making units. The purchase, say, of a home by a consumer household is influenced by factors recorded in the accounts, such as the amounts spent for current living, the receipts margin over current living, the cash and other financial balances previously set aside and on hand, and the amount of debt and debt service for which obligations have already been assumed. The home purchase decision is also influenced by factors external to the accounts, such as the cost and availability of home mortgage credit and the home purchase price. The market process for home purchases, or any other market process for that matter, may not be realistically summarized or seen empirically except in these terms.

There are other aspects of home ownership that bring out the difference in accounting rule applicable to the two systems of accounts. In the income-product accounts, the costs of home maintenance are recorded as an expenditure of the business sector; an imputed rental payment is recorded in personal consumption expenditures; and the excess of this imputed rental over costs of maintenance and depreciation is recorded in the personal income account. Since financial flows are excluded from the accounts, neither the incurrence of a mortgage nor the repayment of mortgage debt would be recorded anywhere. In the flow-of-funds accounts, imputed rents are excluded from the entries, but actual payments on home maintenance and debt service, as well as the net change in mortgage debt, are entered in the consumer sector account along with all other receipts and payments.

Another illustration of contrast between the two systems of accounts is in the treatment of unincorporated business establishments. The logic of the income-product accounts does not require a separate treatment of these units in special sectors. In the flow-of-funds accounts, a distinction between unincorporated and incorporated business is adhered to on institutional grounds, because the legal form of organization affects financial patterns of business and access to financial markets. And the financial patterns and decision making of the farm business are unique to that activity, so that incorporated and unincorporated farms are grouped together in a special farm business sector.

A final difference to be mentioned is one already underscored—the income-product accounts have no sector for financial institutions, whereas the flow-of-funds accounts have several such sectors. The flow-of-funds accounts are designed to throw light on financial as well as nonfinancial transactions. Since financial transactions are the primary function of financial institutions, their separate sectoring and subsectoring must be provided for to express this broader perspective.

An illustrative application, 1953–55

The Federal Reserve flow-of-funds accounts for the United States were first published in December 1955. Their wealth of detail has overwhelmed not a few consumers of statistical information. These consumers have asked: Can this rich quantitative record be put to work? Or is it mainly useful as a directory of statistical numbers—a sort of telephone directory?

Getting data organized and ready for analysis and applying them in analysis are successive steps in a research process. The accounts, as emphasized earlier, are constructed with general purpose objectives. Also, as emphasized earlier, application to many analytical problems thus far has been handicapped by the unavailability of the accounts on a quarterly basis. But some progress in this direction has been made. Using the preliminary quarterly data at hand, we will apply the accounts to a special purpose—a picturing of the credit and monetary situation in the United States over the years 1953–55, an interval marked by recession and recovery.

The illustration must necessarily be condensed and incomplete. A full explanation of the combinations of data employed must be reserved for footnotes to the charts presented, but every effort has been made to identify the curves in a self-explanatory way. One point of simplification may be mentioned in advance. The terms “credit” and “credit markets” are used to cover transactions in both debt and equity instruments.

Chart 1 portrays the total amount of funds—both debt and equity—raised in United States credit markets in each quarter of this three-year period. Note, first, the clear upward drift of financing demands, so that financing activity in the recovery months of 1955 moved above levels reached in the peak period of the preceding cycle. Note, secondly, the wide seasonal swing in financing activity. These wide movements highlight one of the principal, but little commented on, tasks of central banking operations, namely, that of moderating the market impact of fluctuations in credit demand within the year, caused by the seasonal swings in financing needs of consumers, business, agriculture, and government. They also suggest the complexities of the credit market problem when a cyclical upsurge in financing demand coincides with a peak in seasonal financing demand.

Chart 1.Funds Raisedin Markets

(In billions of U.S. dollars)

In Chart 2, total funds advanced during the years covered are shown, together with a subdivision of the total into commercial banking and other sources. Here, the savings and time deposits of commercial banks are grouped with other sources. The picture emphasizes the role that commercial bank activity plays in absorbing seasonal increases and decreases in financing demand. It also brings out the increasing importance during the 1954–55 recovery period of sources of funds other than commercial banking.

Chart 2.Funds Advanced In Markets

(In billions of U.S. dollars)

We must now look behind these totals to see what groups were taking and what groups were supplying funds. Chart 3 shows that the most volatile part of the demand for financing stems from the Federal Government. Seasonal swings in financing demands are dominated by those of the Federal Government. Behind this wide seasonal movement is the heavy concentration of personal and corporate income tax receipts in the first half of the year. One point of interest before leaving this chart is the gradual dampening of Federal Government financing demands over this short period. Government expenditures were cut in the early part of the period, and tax and other receipts rose in the latter part. Thus, as upswing in activity progressed, fiscal policy played an increasing countercyclical role.

Chart 3.Funds Raised, by Sector

(In billions of U.S. dollars)

Chart 3 also brings out that consumer and business demands for financing were of about the same order of magnitude over this period, a fact no doubt surprising to many. Also, these two sources of demand accounted for most of the slackening of total demand in the 1953–54 recession and all of the increase in total demand which occurred during the recovery phase. The volume of funds raised by other sectors, mainly state and local governments, showed more seasonal and cyclical stability over the entire period. The volatility shown by consumer financing merits further attention.

The changing financial position of consumers during the period is traced on Chart 4, which shows the consumers’ surplus of funds on current account, their outlays for purchasing new homes and durable goods, the total of their funds advanced or lent to other sectors, and their borrowing. On the whole, consumer capital outlays were well maintained during the 1953–54 recession, with financing from their own funds displacing borrowing to an appreciable extent in one phase of the downdrift. Consumer capital outlays expanded sharply in the fourth quarter of 1954, and remained high during 1955. In this period, the difference between the current surplus and capital outlays narrowed markedly. The accompanying pressures on consumer resources are evidenced by the narrowing margin between funds advanced and funds borrowed.

Chart 4.Consumer Sector: Sources and Uses of Funds

(In billions of U.S. dollars)

Consumer borrowing is mainly for the purpose of financing capital outlays, so that a tolerably close correspondence in movement might be expected in the consumer capital outlay curve and the consumer borrowing curve. The dissimilarity in movement of the curves is, therefore, rather striking. However, if one adds to capital outlays the purchases of used durable goods and used houses, as in Chart 5, the pattern of movement of the two series becomes somewhat closer.

Chart 5.Gross Capital Outlays: Consumer Sector

(In billions of U.S. dollars)

To show the shifting pattern of business finance, Chart 6 presents a condensed flow-of-funds picture for all business combined. The surplus on current account of the business sectors, calculated here after income tax payments, naturally shows sharp seasonal swings because of the tax payment schedule. Similar seasonal swings are shown in business funds advanced to other sectors, principally because business accumulates securities to provide for tax payments and then liquidates the securities to pay taxes.

Chart 6.Business Sectors: Sources and Uses of Funds

(In billions of U.S. dollars)

Capital outlays and borrowing are of particular interest in Chart 6. Business capital outlays declined irregularly over the recession quarters and increased in 1955 but not to levels much above those of the preceding cyclical peak. As capital outlays decreased, borrowing first moved up and then went down. As an uptrend in capital outlays followed through 1955, borrowing rose. In the last quarter of 1955, business borrowing increased sharply, accompanying a bulge not in capital outlays but in funds advanced. This bulge in funds advanced reflected in part provision for taxes at rising levels of earnings, in part larger financing by the business sector of consumer capital outlays, and in part intrasector extension of trade credit.

So much for the demand side of the financing picture over the 1953–55 period. Let us look more closely into the supply side. Measures of the funds advanced directly to the credit markets are presented in Chart 7. The amounts traced are the net lending by major sectors through the debt and equity instruments issued by nonfinancial sectors. Wide seasonal swings are shown for the funds supplied by business and by commercial banks, and an upward trend marks the business lending curve. The volume of funds supplied by financial intermediaries—savings banks, insurance companies, savings and loan associations, credit unions, investment trusts, and pension funds—remained remarkably constant over the period. Funds supplied by consumers decreased from mid-1953 to the third quarter of 1954, and then, with business recovery in 1955, rose to about the level of the preceding cyclical high.

Chart 7.Funds Advanced in Markets, by Sector

(In billions of U.S. dollars)

As Chart 8 shows, the direct advance of funds to the credit and capital markets is not the only supply contribution made by consumers. They also contribute indirectly by adding to cash balances and by channeling funds through financial intermediaries through deposits and shares in savings institutions and net premium payments to life insurance companies. Their advances to intermediaries were relatively stable, but their holdings of cash showed considerable variation, declining during the first phase of recession and increasing appreciably during the late phase of recession and early phase of recovery. After decreasing as recovery gained full swing, consumers’ cash balances showed little change in 1955. Many of these changes in consumers’ cash balances were inverse to the changes in their holdings of government securities.

Chart 8.Consumer Sector: Funds Advanced

(In billions of U.S. dollars)

For business, in contrast, as Chart 9 illustrates, direct advances and changes in holdings of cash have moved together over this period. Beginning in mid-1954, however, business held more of its liquidity in securities, notably short-term government securities, than in cash—a development related to the rise in market interest rates accompanying the recovery movement.

Chart 9.Business Sectors: Funds Advanced

(In billions of U.S. dollars)

The changing composition of funds advanced by all nonfinancial sectors together is pictured in Chart 10. Through this cycle in demands for financing, the flow of funds made available to nonbank financial intermediaries was remarkably stable. Response to both seasonal and cyclical fluctuations in demand for funds was primarily through changes in direct lending among nonfinancial sectors and in their cash balances. The heavy demand for funds which developed as spending activity increased in late 1954 and in 1955 was met to a large extent by direct lending on the part of the nonfinancial sectors and by more active use of cash balances.

Chart 10.Nonfinancial Sectors: Funds Advanced

(In billions of U.S. dollars)

These charts have shown the wide quarterly fluctuations in borrowing and lending activities. The concluding chart, Chart 11, puts the quarterly flows of debt instruments in the perspective of the total of public and private debt outstanding. The main point to be observed is that consumer debt showed the most rapid rate of growth in this period. The debt of state and local governments also grew steadily and rapidly. Business debt rose more slowly through most of the period, but the rate of increase accelerated in the second half of 1955. The stability of federal debt over this period kept the rise in financing demands from other sectors from pressing unduly against the available supply of savings.

Chart 11.Total Debt, by Sector

(In billions of U.S. dollars; logarithmic vertical scale)

This all too sketchy image of the shifting credit and monetary situation over an important fragment of recent history illustrates alternative responses that each of the major groups can make to changing pressures in financial markets and in their own financial positions. It is this diversity of response pattern that makes research for policy purposes complex and makes risky any generalization on merely a few elements in the economy.

At the outset, we stated that the single objective of this graphic presentation was to offer an experimental example of the analytic utility of the flow-of-funds accounts. If the combinations of data shown in the charts have been suggestive, they will have served their purpose.

Concluding observations

The need to construct a statistical bridge between the money surface of things and the product surface is one felt by economic observers in other countries as well as in the United States. Some have undertaken to meet the need by resectoring the income-product accounts and by adding, to the derived transactions record, measurements by sectors of exchanges of existing assets, transfers of claims to wealth, and changes in debtor-creditor positions. These undertakings have obviously been in the same direction as, and have a close family relationship to, the Federal Reserve flow-of-funds accounts.

The difference between them and the flow-of-funds accounts is partly a matter of approach and partly a difference in scale of experiment. Our own experimental drives led us to undertake a comprehensive rearrangement, reallocation, and supplementation of the income-product accounts so that a panoramic view of market processes within a single accounting framework could be achieved. This departure from the limitations of existing accounting structures represents, in fact, a central contribution of the flow-of-funds accounts. Admittedly, some qualified observers will say that the strangeness and complexity of the new accounting structure is too high a price to pay for this contribution.

Any rearrangement of data to achieve a general observational view involves difficult, at times delicately balanced, choices as to the stratification of data. The choices made by the Federal Reserve staff are at many points tentative and open to dispute. We do not urge these choices upon other statistical workers as the only reasonable solutions. But statistical workers in other countries should be urged to bridge the statistical record of the money surface of things and the product surface. Such a bridging obviously has to be done with a special eye to the distinctive institutional features of a particular economy. And it must be accomplished within the limitations of available data.

We can all learn much from one another’s experimental endeavors along these lines. But at this stage of intelligence, progress in the national accounting arts can be severely handicapped by standardizing the measurement of payments too quickly with a view to international comparability. It is not so important that we observe relations within the different economies on the basis of a uniform accounting pattern. But it is important that new analytic tools are developed which are effective in serving the vital need, recognized in all countries, of bridging the gap between money activities and product activities so that monetary and other stabilization policies are determined with as much public understanding as possible.

Notes to charts

The time series presented in these charts are special groupings of quarterly flow-of-funds data, and the following notes describe the groupings in terms of flow-of-funds sectors and transaction categories. The sectors and transaction categories themselves are explained in detail in Flow of Funds in the United States, 1989–68 (Board of Governors of the Federal Reserve System, 1955).

A general point to be made here is that the term “net change” in financial assets and liabilities in these notes refers to net flow—the excess of asset purchases or of borrowing over receipts from sale of assets or from retirement of debt. Capital gains and losses from changes in valuation of assets and liabilities are not included in either the data or the term “net change” as used here. It should also be stated that, for convenience of statement in the notes, the words “liability,” “claim,” and “borrowing” cover equity shares in corporations as well as debt instruments.

Sector groupings in charts

Commercial banking system covers all commercial banks, the Federal Reserve System, and Treasury monetary funds.

Financial intermediaries consists of mutual savings banks and the Postal Savings System, life insurance companies, self-administered pension plans, savings and loan associations, credit unions, investment trusts, and other miscellaneous financial institutions.

Business is the combined total of the corporate, nonfarm noncorporate, and farm business sectors of the flow-of-funds system.

Consumer and Federal Government are the two flow-of-funds sectors described in the Flow of Funds report.

Other sectors is the state and local governments sector and the rest of the world sector.

Nonfinancial sectors refers to all sectors except bank and financial intermediaries as described above.

Transaction groupings in charts

Chart 1. Funds Raised in Markets—the net change in liabilities of all non-financial sectors combined. The financial instruments covered are federal obligations, state and local obligations, corporate debt and equity securities, mortgages, consumer credit and other trade debt, and miscellaneous liabilities of the non-financial sectors. Trade debt as reflected in these charts is net trade debt owed by nonbusiness sectors to the business sectors.

Chart 2. Funds Advanced in Markets—funds advanced to the nonfinancial sectors (the same group of financial instruments as “funds raised” but from the asset rather than liability point of view). Commercial banking—an estimate of net funds advanced through the commercial banking operations of the banking system as distinguished from its savings deposit operations; it is measured by total change in bank credit less change in time and savings deposits. Other sources—all other advances to nonfinancial sectors; it covers funds advanced by financial intermediaries, those available through the savings deposit operations of banks, and funds advanced through direct lending and purchases of securities by investors in the nonfinancial sectors.

Chart 3. Funds Raised, by Sector—distribution by debtor sector of total funds raised in markets (Chart 1).

Chart 4. Consumer Sector: Sources and Uses of Funds—condensation of the flow-of-funds consumer sector statement. Current surplus—excess of current non-financial receipts over current nonfinancial expenditures, that is, the net of all nonfinancial transactions other than purchases and sales of tangible capital assets (homes and consumer durable goods) and premium and benefit payments in connection with private life insurance, annuity, and pension programs. Capital outlays—purchases of homes and durable goods less proceeds from sales of such assets. Funds advanced—net changes in consumer holdings of financial assets and growth in equity in assets of life insurance companies and private pension programs. Borrowing—net changes in total consumer liabilities, i.e., mortgages, consumer credit, security loans, and policy loans.

Chart 5. Gross Capital Outlays: Consumer Sector. Gross expenditures—purchases of new and used homes and durable goods. The series differs from the capital outlays shown in Chart 4 in that the latter is net of consumer sales of used homes and used durable goods. Borrowing—the same series as in Chart 4.

Chart 6. Business sectors: sources and uses of funds—a condensation and rearrangement of the combined statements of the three flow-of-funds business sectors. Current surplus—excess of total nonfinancial receipts over nonfinancial payments (including tax payments) in current accounts; it covers all nonfinancial transactions except purchases and sales of tangible capital assets. Capital outlays—purchases of tangible assets; it includes gross expenditures on plant and equipment and net change in inventories. Funds advanced—changes in holdings of cash, securities, and receivables net of payables. Borrowing—net change in all liabilities other than trade payables.

Chart 7. Funds Advanced in Markets, by Sector—distribution of total funds advanced (Chart 2) by sector group advancing funds.

Chart 8. Consumer Sector: Funds Advanced—distribution by type of asset of the total funds advanced by consumers (Chart 4). Cash balances—changes in holdings of currency and demand deposits on a holder-record basis. Advanced to intermediaries—net changes in consumer holdings of time and savings deposits in banks, shares in savings and loan associations and credit unions, net flows to investment trusts, growth in equity in private life insurance and pension programs. Loans and securities—changes in all other consumer financial assets, mainly government and corporate securities and mortgages.

Chart 9. Business Sectors: Funds Advanced—distribution by type of asset of total funds advanced by business sectors (Chart 6). Cash balances—changes in currency and bank deposit assets of business on holder-record basis. Loans and securities—changes in all other financial assets, including trade receivables net of trade payables.

Chart 10. Nonfinancial Sectors: Funds Advanced—net change during each period in the total financial assets of the nonfinancial sectors and the net premiums under private life insurance and pension programs distributed by type of asset. The types of advance are described in the above notes for Charts 8 and 9. The total here is closely related to the earlier series on funds advanced in credit markets (Chart 2) but differs from it in that it includes advances to banks and financial intermediaries rather than from them. The numerical difference between this total and the earlier total arises from gold flows, changes in cash balances held by financial intermediaries, changes in bank capital accounts, and changes in the currency and deposit float.

Chart 11. Total Debt, by Sector—total debt outstanding of each of the sector groups shown. The business debt series does not include corporate equity securities, tax liabilities, or business trade payables (netted against trade receivables in this presentation).

Monetary Analyses

The compilation of financial data for analyzing monetary problems and for the evolution of monetary policy has received widespread attention in recent years. Statements for these purposes, which may be called Monetary Analyses, are now prepared by a large number of central banks and other national authorities. In the Appendix to this paper, 58 analyses prepared by 41 countries are published and described; of these 58 analyses, 16 were published in their present form for the first time in 1955 or 1956. Some of the general questions of methodology raised by these statements may usefully be discussed here, by pointing out their similarities and contrasts.

The statements may be discussed as a group because they have in common the use for monetary statistics of the principle of sector statistics. The economy is composed of several groups playing different roles and reacting differently to economic conditions. Social accounting, of which Monetary Analyses are a part, has been developed by compiling statistics that will measure transactions of and transactions between the several sectors—government, business, consumers, rest of the world, etc. Like the national income accounts, Monetary Analyses are made by dividing the economy into sectors. National income accounts measure the income of the sectors and the expenditure transactions between them, concluding with measures of each sector’s savings and each sector’s real investment expenditures. National income accounts do not explain how the sector’s deficits or surpluses were financed, and they tell nothing about money and the role of banks. Monetary Analyses measure either the borrowing and lending transactions of or between the sectors, or the amounts of each sector’s financial assets and liabilities. While Monetary Analyses have as a common basis the principle of sector statistics, there are wide differences among them, arising in part from the fact that the two financial questions left unanswered by the national income accounts cannot easily be answered in a single analysis. There is a conflict between the two primary purposes of Monetary Analyses: the measurement of intersector finance and the measurement and analysis of liquidity.

Sector statistics of either borrowing and lending or financial assets and liabilities would provide a matrix useful for the study of intersector finance. If some distinctions by type of lending or borrowing or by type of financial asset or liability were introduced, the matrix would also be useful for the study of the ownership of liquid assets and the causes of change in the volume of liquid assets. The available Monetary Analyses are such matrices, or parts of such matrices, and they serve in varying degrees both of these purposes.

Those Monetary Analyses which are addressed primarily to the study of the origins of liquidity may be called liquidity analyses. Most of them are derived from the asset and liability accounts of the institutions whose liabilities constitute liquid assets, and they are obtained by classifying the assets by the economic sectors indebted to the institutions, and the liabilities by the degree of their liquidity. The accounts of the institutions are almost always consolidated accounts, so that no question of intra-sector claims arises. The differences between the available statements of this type arise from differences in the selection of the liabilities to be “explained” and in the way in which “nonmonetary” liabilities of the institutions whose accounts are analyzed are handled. Because they are based on the accounts of only the money and banking system, or these plus the accounts of other financial institutions, they are necessarily incomplete matrices.

Those analyses which are complete matrices may be called intersector finance statistics. They could be matrices of intersector borrowings and lendings, i.e., transaction statistics measuring “who lent to whom” and “who borrowed from whom,” or they could be matrices of intersector financial assets and liabilities, i.e., statistics of claims, or changes in claims, measuring “who holds claims on whom,” and “who is indebted to whom.” The two matrices are not the same because one form of borrowing and lending is the transfer of marketable obligations of third parties. In either case, the data could be net or gross, i.e., the lendings of one sector to another (or its holdings of claims on the other) could be offset against its borrowings from the other (or against the other’s holdings of its obligations), or the two gross entries could be shown. In either case the entries could include intrasector relations or they could refer only to intersector relations. In either case they could show identical amounts in each related pair of cells, i.e., A’s lending to or claim on B could be shown as exactly equal to B’s borrowing from or debt to A, or, if data were available from the books of both A and B and should differ owing to problems of timing, valuation, and methods of bookkeeping, the pairs of entries could be permitted to differ so that each would be on an “own record” basis. In either case they could provide classifications for the major items in liquidity analyses, or they could include only a single entry for the relationships between any two sectors.

In all of the available statements made in the form of complete matrices, the data are data on financial assets and liabilities rather than data on lendings and borrowings. In most of them, the data are given as gross entries. In most the amounts shown in the paired cells are equal. In most the classifications are given for the major items of liquidity analysis. There are, however, many differences between the available intersector finance statements, because of differences in the ways in which the problems of relationship to the national income accounts have been resolved and of differences in the extent to which liquidity aspects have been sacrificed in the interests of a complete matrix.

In a sufficiently large matrix with subclassifications for types of asset and liability, both of these aspects of financial statistics could find expression, and both of the purposes for which Monetary Analyses are useful could be served. But the function of Monetary Analyses is also to consolidate the data in the interests of comprehensibility. In the process of such consolidation, the two purposes come into conflict: the sum of all intersector borrowings and lendings is zero, and its change from period to period is zero; the total of the community’s liquidity, however, is a positive and significant economic fact and its period-to-period change may be large and of great significance. In financing statistics, a financial asset offsets a liability; in liquidity analyses, a financial asset explains the origin of a liability. In financing statistics, the monetary system can be pictured as a “financial intermediary” as it is in national income statistics; in liquidity statistics, the monetary system is the essential element in the process of expansion or contraction.

Liquidity analyses—money and banking statistics

Money and banking statistics are the first source of Monetary Analyses. The money and banking system clearly plays a unique role in finance, not only because its financing transactions are large compared with the total of all intersector financing transactions, but also because the wide acceptability of its liabilities enables it to finance sector deficits that would not be financed directly by the other sectors. The accounts of the money and banking system are therefore the source of statistics on the supply of liquid assets and the source of statistics of a very important sector in intersector finance.

Monetary Analyses have been made from the accounts of the money and banking system in a large number of countries and in a number of different ways. Some analyses undertake to account for the liquidity-creating potential of the system; others undertake to account for the liquidity creations of the system. The first are analyses of actual or potential bank reserves; the second are analyses of money or of money and its close substitutes.

Analyses of reserve money

Analyses of bank reserves have been made for many years. In many countries, the central bank balance sheet alone constitutes such an analysis; in others, the treasury gold and foreign exchange accounts and currency issue also have to be included. The logic of such statements is, ordinarily, that increases in gold and foreign exchange reserves automatically create reserve money, and that increases in the public’s holdings of currency automatically absorb it. Hence the other accounts of the monetary authorities show the extent to which the central bank did or did not offset these forces so as to cause or prevent a change in bank reserves.

In Denmark and Sweden, where the central banks perform all the functions of the monetary authority, the central bank accounts alone are analyzed to “explain” the origin of reserve money, i.e., currency plus bankers’ deposits at the central bank. In the United States and the Federal Republic of Germany, the accounts of the various parts of the monetary authority are consolidated to “explain” the origins of bank reserves. This is the same as the analysis of reserve money, except that private sector holdings of currency are included as a negative element in the “explanation” rather than as a positive element in the figure “explained.”

The Norwegian statement is made on the premise that treasury bills are also bank reserves. It analyzes the origins of changes in currency, bankers’ deposits at the Bank of Norway, and treasury bills in the hands of banks or the private sector. Treasury bills are included in the analysis by consolidating government accounts with the accounts of the Bank of Norway. The statement obtained is used to calculate the effects of government and central bank operations on the “liquidity” of banks and the private sector. The Government’s cash deficit (or surplus) minus (or plus) its borrowings in forms other than treasury bills is its contribution to (or absorption of) liquidity. This, together with changes in Bank of Norway assets other than treasury bills, accounts for changes in bank and private sector holdings of currency, Bank of Norway deposits, and treasury bills. Denmark calculates a similar total of currency, bankers’ deposits at the National Bank, and treasury bills outstanding, but provides no analysis of the total.

Australia analyzes changes in commercial bank deposits rather than changes in the ability of the commercial banks to create deposits. The Australian statement may nevertheless be mentioned here since it is related in its objective to the analyses of reserve money. It analyzes the end-effect of reserve money rather than the amount of reserves or reserve money.

Analyses of money

Analyses of money are made in a large number of countries, with some differences in the selection of the items to be called money, with differences in the way in which nonmonetary liabilities of the monetary system are accounted for, and with differences in the meaning given to indebtedness to the banking system.

The share of the money and banking system in all borrowing and lending is so large in all countries that the classification of the accounts of the money and banking sector can provide much information on the borrowing and lending of the other sectors. Indeed, in the less developed countries, bank holdings of claims on the other sectors are in some cases good indicators of the total indebtedness of those other sectors. Also, the accounts of the money and banking system are more easily available than those of most of the other sectors and are more likely to be accurate. For all of these reasons, monetary statistics in almost all countries of the world have been recast in recent years into data analyzing the assets of the monetary system by the economic sectors indebted to the system. Accounts made in this way are given for 47 countries in International Financial Statistics (IFS).

The sectoring in the analyses based on the accounts of the money and banking system is not complete, however. The accounts of the banks and the monetary system do not divide the system’s liabilities to, or claims on, the private sector between business and consumers. This omission in the information available from banking statistics is perhaps the most important limitation on the usefulness of all money and banking statistics.

In Greece, the accounts of the Bank of Greece are analyzed to explain the origin of currency. Bankers’ deposits at the Bank of Greece are included as a negative entry in the “explanation” rather than in the item to be “explained.” The purpose is to study the origins of money rather than the origins of actual or potential bank reserves, and the analysis is limited to currency because deposits are not considered to be money.

Most countries include demand deposits in the definition of money, and many produce analyses of money so defined from the consolidated accounts of the whole money and banking system. This procedure raises a difficulty that does not arise in most cases when the accounts of the monetary authorities alone are analyzed. The banks that create deposit money also have other liabilities. These liabilities can be reported along with money in the liability side of the statement, with the result that there is no unique analysis of the causes of change in money; or the liabilities can be netted against selected assets (foreign liabilities against foreign assets; government deposits against loans to the government; and nonmonetary deposits against loans to the private sector), with the result that the changes in money supply can be said to have been “caused” by the changes in the remaining items on the asset side.

Net figures are used to the greatest extent in the accounts of a number of Latin American countries.1 By netting out all other liabilities, the money supply of these countries is allocated to two categories of asset: net foreign assets and net domestic assets, an amount equal to the first being described as “money of foreign origin” and the remainder as “money of domestic origin.” In most statements, the latter category is further subdivided into net credits to governments and net credits to the private sector.

Apart from the netting involved (of which that of nonmonetary deposits against loans to the private sector is probably the most open to question), the allocation of money according to “origin” is in principle identical with a distribution of assets and liabilities by economic sectors. The manner of presentation originated in 1946, in order to draw particular attention to the origin of the large increases in the money supply of Latin American countries which were associated with wartime export surpluses. The same categories have continued to be used since and, insofar as they are clearly related to assets and liabilities by economic sectors, have continued to be useful. But there may be some risk that the netting and the nomenclature used may lead to wrong inferences. Foreign assets (“money of external origin”) may change owing to internal as well as to external causes; the name should not predispose toward an analysis which recognizes only foreign causes of balance of payments deficits. Also, the connection between the two “types” of money should not be overlooked: the creation of “money of internal origin” (i.e., internal credit expansion) may lead to a reduction of “money of external origin” rather than to an increase in the money supply.

Most of the analyses of money resolve the problem of the nonmonetary liabilities of the banks by including them as a negative entry in the analysis, thus making the shifts from monetary to nonmonetary deposits an offset to increases in any of the assets of the money and banking system rather than an offset to increases in only one of these assets. The Belgian statement and the IFS monetary survey accounts report non-monetary liabilities as positive entries on the liability side of the statement and may be said to provide an analysis of money plus quasi money rather than an analysis of money. Statements like those of the United States, Germany, and Indonesia, given in the form of a consolidated balance sheet of the money and banking system, may be said to have a similar solution for the problem of nonmonetary liabilities.

A second difficulty with the sector analysis of the origins of money is that the accounts of banks normally record assets by their original obligors rather than by their previous holders. Hence private sector sales of government bonds to the banks appear in the statistics as increases in bank loans to the government, and other transactions in existing financial assets between the banks and others attribute the resulting inflationary pressure to the sector whose obligations are bought rather than to the sector that borrowed. All Monetary Analyses derived from asset and liability data (and this means all the statements in the Appendix to this paper) imply this explanation of inflationary pressure. If the accounts of the banks are accompanied by the accounts of the other sectors so that a complete matrix is provided, the measurements of “who lent” and “who borrowed” supplied by the row and column totals would be correct. With this information given in the row and column totals, it would be more useful to record in the cells “who holds claims on whom” rather than “who lent to whom.” But analyses of money are incomplete matrices. They fill only those cells of the matrix that involve transactions between the monetary system and others. There are no row and column totals to measure “who lent” and “who borrowed.” The data suggest that measurements of “who lent” and “who borrowed” may be derived from the figures on who borrowed from the banks, but owing to the problem of purchases from third parties, the cell entries do not measure “who borrowed from the banks.”

The Belgian statement and the statement of the Netherlands Bank avoid the problem by setting up a “capital market and sundry items” sector. Bank purchases of outstanding securities are recorded as purchases from that sector. This solution permits the user to read the data as measures of who borrowed from the banks, but does so at the cost of not classifying all bank transactions. So far as is known, no country reports bank assets by previous holder.

The incompleteness of the data also is responsible for a third difficulty in the sector analysis of the origins of money. The borrowings of the sectors as measured from the accounts of the banking system are incomplete. Hence by attributing increases in money supply to the increases in sector borrowings from the banks, the origins of monetary expansion are traced to the sectors that happened to borrow from the banks rather than, as would seem preferable, to the sectors that borrowed on overall account.

The accounts of the Netherlands Bank are constructed on the premise that the source of inflation may, to a considerable extent, be attributed to the sectors that borrowed from the banks, rather than to the sectors that borrowed on over-all account. But the Netherlands Bank argues that to make this attribution requires that the measurement of borrowing from the creators of liquidity be carried to its logical conclusion. It requires that account be taken of the facts that there are institutions other than the banks that create liquid assets, and that increasing one’s holdings of liquid assets is an offset to the act of borrowing from the creators of liquid assets. The Netherlands Bank measures, first, sector borrowings from the banks and sector holdings of money, and second, sector transactions in “secondary liquid resources,” such as treasury bills. The origins of inflation are analyzed on the basis of each sector’s borrowings from banks, issues of “secondary liquidities,” or reductions in holdings of money and “secondary liquidities.” It is of interest to note that, with this definition, money becomes a negative entry in the calculation of a sector’s inflationary contribution. Since all money is held by someone, all increases in money become negative entries. Hence the liquidity deficit or surplus for the economy as a whole becomes equal to the foreign balance.

Extended money and banking statistics

The extension of money and banking type statistics to cover the whole of the financial institutions sector and also the accounts of other sectors whose data are relatively easily available has provided a second source of Monetary Analyses. While the accounts of the money and banking system cover a large part of all borrowing and lending, any extension of the analysis to include the accounts of other sectors increases the possibility of deriving useful indications of the accounts of the remaining sectors. The sectors whose accounts are relatively easily available are the other financial institutions sector (i.e., financial institutions other than the money and banking system), the government sector, and the foreign sector.

Statistics of other financial institutions

In the developed countries, the assets and liabilities of insurance companies and other financial institutions are large, and it should be possible to use them to fill additional cells in a matrix of intersector finance. The statements of Mexico and Japan cover the accounts of a wide range of financial institutions; but since the accounts of the other financial institutions are consolidated with those of the money and banking system, the accounts of the latter, which are of greatest interest in liquidity analyses, cannot be read separately. The Bank deutscher Länder’s statement, “Formation of Wealth and Its Financing,” is perhaps the one that puts the greatest emphasis on the accounts of banks plus other financial institutions. The statement, however, is reconciled with the national income statement and includes its figures on saving and real investment; therefore, it is also related to the statements described below in the section, Matrices of intersector finance.

Government finance statistics

Statistics of the money and banking type have also been widened by including the available accounts of the government sector. In many countries, the treasury performs some monetary functions by issuing treasury currency, by holding gold and foreign exchange reserves, or in other ways. In the statements of almost all countries whose treasuries have monetary functions, the treasury accounts covering these functions are consolidated with those of the money and banking system. However, it is not the inclusion of these aspects of government operations that is referred to here as involving a widening of the scope of statistics of the money and banking type. The accounts of the banking system report its holdings of claims on the government; the accounts of the government report the total of government debt. By using these two sources, an estimate may be made of private sector (or private sector and foreign) holdings of government debt. The accounts of the banks and the accounts of the government are used together in this way in the statements of Finland and Canada.

Balance of payments statistics

The accounts of the money and banking system provide a measure of the accounts of the foreign sector insofar as changes in government and bank holdings of gold and foreign exchange and changes in government and bank liabilities to foreigners measure all financing transactions with the foreign sector. The balance of payments accounts organize the data on government and bank transactions with foreigners that are available from banking and government sources. Data on foreign borrowings and lendings by the private sector could be added if the data were complete and accurate. In the less developed countries, for which the accounts of the banks provide a measure of most domestic borrowing and lending, foreign borrowing and lending are sometimes large, and it might be helpful to use the balance of payments, together with the accounts of the banks and the government, to derive the accounts of the private sector. For many countries, the banking and government accounts of other countries provide information on the private sector’s financial accounts. In addition, the transactions of foreign direct investment companies, which may be available in tax reports, would provide an important part of the private sector’s accounts. Data on other private capital movements, however, are the weakest part of balance of payments data for the same reason that data which must be obtained from private sector sources are the weakest parts of Monetary Analyses: there are few sources of information.

Use of all three sources

The Italian statement is one that has expanded money and banking type statistics to cover all financial institutions, the government, and the balance of payments., The accounts of other financial institutions, the records of government and private capital issues, and balance of payments data on foreign borrowing and lending are used with the accounts of the banks to obtain a statement of intersector and some intrasector borrowing and lending. Private sector capital issues purchased by the private sector are an intrasector item. The issues of private businesses are entered in the account from the records of issuers; holdings already reported in the accounts of the banks and other financial institutions are subtracted; the remainder is entered as the purchases of the private sector. For the government sector, the financing accounts obtained in this way are reconciled with the government finance statistics on revenue and expenditure. The statement, while providing a picture of intersector finance, is organized as an analysis of the sources of change in the Bank of Italy’s note issue.

Matrices of intersector finance

The process of “horizontal” expansion of money and banking statistics—through the inclusion in money and banking type analyses of the accounts of all financial institutions, the financing accounts of the government, and data from the balance of payments—has led to the construction of financial statistics of very much the same type as those now being developed in a few countries through a “vertical” expansion of national income statistics. The compilation of national income statistics with income, expenditure, investment, and savings accounts for each of the sectors raises the question of accounting for the means by which sector deficits and surpluses are financed, and suggests the addition to national income accounts of intersector borrowing and lending statistics. The national income statement may be considered as the “top half” of a full statement of an economy’s transactions. The financial accounts may be considered as the “bottom half.” Data compiled as an extension of national income accounts may therefore be considered as the third source of Monetary Analyses.

Matrices of intersector finance constructed as vertical extensions of the national income accounts or in answer to the questions raised by the national income accounts are a recent addition to statistics. Data are available for France in the Ministry of Finance report, Accounts of the Nation; for the Netherlands, in the Central Planning Bureau’s Central Economic Plan; and two statements for Germany, in the Monthly Report of the Bank deutscher Lander and in the Quarterly Bulletin of the German Institute for Economic Research. The United Kingdom, in National Income and Expenditure, has taken some preliminary steps toward the compilation of financial data related to the national income accounts. In the United States, the flow-of-funds accounts of the Board of Governors of the Federal Reserve System have been compiled to account consistently for all financial and nonfinancial transactions in a single accounting system designed for that purpose. The Canadians are working on a slightly different system of flow-of-funds accounts.

The construction of intersector financing accounts consistent with the national income accounts raises problems, since there are several points at which the definitions that are useful in the measurement of income and consumption are not useful in the measurement of borrowing and lending. The “bottoms” do not easily fit the “tops” and a bridge is required. There are two principal problems.

The money and banking sector

Although the monetary system plays the largest and most interesting role in intersector financing, the national income accounts provide neither a monetary sector nor a financial institutions sector. In the national income accounts, the transactions of the monetary system are included partly in the business sector and partly in the government sector. Transactions between business and the banks and transactions between government and those parts of the monetary system included in the government sector cancel out. Financing statistics, however, must provide a monetary sector or a financial institutions sector if they are not to cancel in the mechanics of their construction a large and significant part of the lending and borrowing which they are intended to measure. It is difficult to take apart the “tops” to fit “bottoms” with an additional sector. The UN System of National Accounts concludes that its methods cannot lead to intersector financing data since “to produce meaningful results … would require a greater number of sectors including, in particular, a separate sector for banks and other financial intermediaries.”

The concept of sectors

In national income definitions, certain economic units are treated as having a “split personality,” i.e., of the transactions of these units some types are included in the transactions of one sector, while other types are included in the transactions of another sector. National income accounts include the business activities of government in the business sector and the income-producing activities of households in the business sector, and make similar splits in the accounts of individual proprietors and in the accounts of consumers who own houses.2 The splits are made by imputation, i.e., by entering into the accounts the transactions that would have occurred if governments and households did not engage in business or if no consumers owned houses. Useful intersector finance statistics, however, cannot make similar imputations. While it would be possible to impute the change in a sector’s net borrowing or lending that would be consistent with the national income account imputations, there would be no useful way to distribute that net figure between its gross counterparts, and no useful way to distribute the gross counterparts between the different types of asset and liability that intersector finance statistics must report. Financing statistics must refer to decision-making units; this requires that the accounts of the central government be consolidated (and include either the gross accounts or the net financing deficits or surpluses of government agencies) and that the accounts of individuals be placed as a whole in the consumer sector.

The statements so far available that present financing accounts consistent with income and expenditure accounts have not built completely satisfactory bridges between the two sets of accounts. The U.K. accounts are derivatives from the national income accounts (income minus consumption equals saving; saving minus real investment expenditures equals financing surplus or deficit). Only for the personal sector are entries made for changes in specific assets and liabilities, and the sum of these does not reconcile with the derived financing surplus or deficit. The monetary system is included in the business sector, and no account is taken of bank financing of business. In the U.K. accounts, there are fewer difficulties in using the national income calculation for financing statistics than there would be in some other countries, since the national income and expenditure accounts of the United Kingdom do not impute the production activities of persons to the business sector, and government enterprises are included as a separate sector.

The accounts of the Netherlands and France and both of those for Germany are made by bridging the differences between the national income accounts and financing accounts obtained from asset and liability statistics of the banks and other sectors. The bridge is made by adding the accounts of the financial institutions sector and then adding adjustment items to correct for the inclusion in the business sector of the business-type activities of the government and personal sectors.

In the Netherlands and Bank deutscher Länder accounts, the money and banking system is not added directly to the list of sectors. Rather, the accounts of the other sectors specify in their financing entries changes in holdings of money and quasi money or in indebtedness to the banks. This, in effect, includes the income and expenditure transactions of banks with the business sector and reports their money-creating activities as a separate sector. The solution amounts to splitting the personalities of the banks. While split personalities for the other sectors would destroy the usefulness of intersector finance statistics, treating the banks as if they had a split personality does little harm. The extent to which their loans are financed from accumulated earnings is very small, and the important differences between banks and other businesses that call for the setting up of a money and banking sector are differences in their asset and liability accounts and not differences in their income and expenditure accounts. The French accounts and the German Institute for Economic Research accounts set up a sector for banks and financial institutions and identify their creations of money in the financing entries of the tables.

While all four of the statements provide for a book credit entry to account for the accrual items in the national income accounts, these entries in the French statement are left blank. In the Netherlands accounts, a large discrepancy item remains.

The U.S. flow-of-funds accounts achieve consistency between the “tops” and the “bottoms” by compiling for that purpose a complete set of alternatives to the national income “tops.” The flow-of-funds accounts undertake to make income and financing transactions consistent by enlarging the national income system of accounting (which includes only those transactions giving rise to production and income) to include all transactions giving rise to payments in money or credit. The enlargement of the system makes it possible to maintain consistency in three ways. First, it transforms the accounts from accounts of the consumption and production sectors, i.e., from accounts representing the total of consumption and the total of production, to accounts of the consumer and business sectors, i.e., to accounts representing all transactions of the transactors classified as consumers or classified as businesses. This helps to make consistent accounts possible, because it is to the accounts of transactors that financing accounts can be reconciled. Second, it permits the inclusion of intermediate sales and purchases of goods in process of production and of transactions in second-hand goods. These transactions, when added to the national income entries, determine the amounts that any sector would have available to lend or would need to borrow. Third, it permits the inclusion of transactions that are financial transactions on both the buyer’s and the seller’s side. These transactions are needed for an explanation of changes in the sector’s holdings of types of asset or liability. Consistently with the criterion of including all transactions giving rise to payments in money or credit, though many of them are of little quantitative importance, the scope of the accounts is in other respects reduced, compared with the national income accounts, by eliminating imputations and transactions in kind. Imputations are entries in the national income accounts representing production or the receipt of income that occurred without any transaction, e.g., the value received and consumed by an individual who owns his own house.

The principle of including all transactions giving rise to a payment in money or credit is not followed everywhere. The accounts of farmers and the accounts of the proprietors of unincorporated businesses are split between their business and household components, in order to include the latter entries in the consumer sector; and, for reasons of practicality, only net transactions in each type of financial asset are included instead of the much larger gross transactions that occur and give rise to payments.

In constructing the “bottoms,” the flow-of-funds accounts have undertaken to put all entries on an “own record” basis insofar as possible. The principle of “own records” raises the problem of “float,” i.e., the problem of timing inconsistencies between the accounts of any two parties to a transaction. Float results from the facts that many bank transactions and many payments are made by mail and that the time required for delivery of the mail causes the records of banks to differ from the records of depositors and the records of sellers to differ from the records of buyers. As worked out in the U.S. accounts, the records of businesses are accepted as the measure of the amounts of consumer claims on and debts to businesses, but the records of banks are not accepted as the measure of the amounts of private sector deposits and debts to banks. Business records are used to determine the amounts of business deposits, and consumer deposits are estimated as total deposits as reported by the banks, minus total mail float as estimated on the assumption that mail float is equal to “bank” float, minus business deposits as measured from business records.

A study of money-flows accounts is also being made in Canada, where a suggestion has been made for accomplishing the purposes of money-flows accounts and at the same time preserving more direct comparability between financing accounts and national income accounts. It is proposed to enlarge still further the scope of the accounts so as to include most of the transactions that need to be included to ensure consistency either with national income accounts or with financing accounts, and to return to the use of split personalities in such cases as those of consumers who own houses. This would put the national income account imputations and transactions in kind back into the accounts and hence drop the criterion of “all transactions giving rise to payments in money or credit.” It is difficult to define the criterion that would remain, and it is difficult to see how the types of asset held by the sectors could be objectively and usefully distributed consistently with the imputations and split personalities retained in the “tops.”

IFS monetary statistics

Money and banking statistics are consolidated in IFS in statements called “Monetary Surveys.” These Surveys represent a horizontal extension of money and banking data beyond the limits of the monetary system proper, i.e., the accounts of the savings banks and other institutions whose liabilities are classified as “quasi money” are included. The assets of the money and banking system are classified by the economic sectors indebted to the system. The liabilities are classified by liquidity. The data are presented in a neutral form: all nettings (other than the netting of foreign liabilities against foreign assets) are avoided; all asset items and all liability items are shown on their respective sides of the account so that each side adds to “total assets equals total liabilities.”

IFS money and banking data are intended also to analyze the mechanics of the money and banking system. In addition to the consolidation of the accounts of the system, they give the separate accounts of the monetary authorities (the creators of reserve money), the deposit-money banks (the creators of deposit money), and “related institutions” (institutions other than banks that play a role in the monetary system because their liabilities are close substitutes for money). In these accounts, rediscounted items ordinarily appear as loans to the original obligors in the accounts of the deposit-money banks and as loans to banks in the accounts of the central bank.

The IFS accounts of the money and banking system are neither a record of intersector finance nor an explanation of the origins of liquidity. They do, however, provide a measure of the volume of liquidity and the accounts of the sector whose activities are of the greatest importance in finance and liquidity creation. They also permit the derivation of a large part of the data on intersector finance and of much useful information on the origin of changes in liquidity.

The accounts of banks also have a special usefulness that more elaborate statements cannot have. They are available more currently than most other data; they extend back through a long period of years; and, within their own definitions, they are accurately compiled. They have a special usefulness in the countries in which they are most needed, for in the less developed countries reliable data of other types are relatively scarce and the activities of banks constitute a relatively large part of all financial transactions.

The shortcomings of IFS money and banking data are not a proof of the deficiencies of money and banking statistics but rather of the fact that more information should be sought on liquidity and financing data for the other sectors. It would be very useful to add to the accounts of the monetary system the financial asset and liability accounts of the other sectors insofar as this can be done without loss of clear and current accounts of banks, money, and bank lending.

APPENDIX: Survey of Monetary Analyses

Graeme S. Dorrance*

Assisted by Gerard R. Aubanel*

The object of this Appendix is to assemble monetary analyses published by national authorities. The form and terminology used in the national publications have been followed as closely as possible. Analyses are described for the following countries:

  • Argentina

  • Australia

  • Austria

  • Belgium

  • Brazil

  • Burma

  • Canada

  • Ceylon

  • Chile

  • Colombia

  • Costa Rica

  • Cuba

  • Denmark

  • Dominican Republic

  • Ecuador

  • Egypt

  • El Salvador

  • Finland

  • France

  • Federal Republic of Germany

  • Greece

  • Guatemala

  • Honduras

  • India

  • Indonesia

  • Israel

  • Italy

  • Japan

  • Republic of Korea

  • Mexico

  • Netherlands

  • New Zealand

  • Nicaragua

  • Norway

  • Peru

  • Philippines

  • Sweden

  • Union of South Africa

  • United Kingdom

  • United States

  • Viet-Nam

ARGENTINA

A table, shown here as Table 2, analyzing the causes of changes in the domestic means of payment, including government deposits, is published by Argentina. This table combines data on transactions with changes in assets; it analyzes the banking system’s asset data on the basis of the purpose underlying the transactions rather than on the basis of the sectors obligated to the monetary system. Thus the credits of the monetary system to the private sector of the economy are included under three headings: (1) commercial credits; (2) mortgages (most of which are claims on the private sector); and (3) foreign operations (loans to exporters providing credit for payment of shipments are included along with foreign assets; the valuation of the latter is not stated). Claims on the Government are separated into those arising from ordinary operations of the Government, and those resulting from the nationalization and financing of public services. These two items together probably represent the major part of the financing of the Government’s operations. Direct loans to government agencies, however, are classified separately. The negative entries for “other items” consist largely of increases in savings and time deposits, securities issued by the banks, and capital accounts.

Table 2.Argentina: Causes of Changes in the Domestic Means of Payment, 1951–55(In millions of Argentine pesos)
19511952195319541955
Changes in means of payment5,5973,8758,7708,88210,600
Commercial credits5,1184,7182,6354,2114,285
Claims on official agencies4307913,0614,5154,570
Mortgages1,8122,1042,3973,8194,425
Fiscal operations3922302,1757361,238
Nationalization and financing of public services20312979131167
Foreign operations–432–2,3842,3203021,552
Other items–1,926–1,713–3,897–4,832–5,637
Source: Dirección Nacional de Estadística y Censos, Boletín Mensual de Estadística (Buenos Aires).
Source: Dirección Nacional de Estadística y Censos, Boletín Mensual de Estadística (Buenos Aires).

AUSTRALIA

Recent Annual Reports of the Commonwealth Bank contain a table, shown here as Table 3, measuring the changes in the monetary system’s accounts that may be considered the counterparts of changes in trading bank deposits, including time deposits. The table is a consolidated statement of the accounts of the Commonwealth Bank and check-paying banks excluding the small state banks and savings banks. It is designed to demonstrate the factors leading to changes in the liquid assets of the trading banks and the magnitude of the banks’ reactions to these changes. The items in the table are classified according to the freedom of the banking system to alter their magnitudes. The net international reserves of the community and the total of treasury bills created by the Government must, in practice, be acquired by the banks. In Australia, practically no treasury bills are held by sectors other than the banking system, so that the Commonwealth Bank is under an obligation to purchase any bills that the Government decides to issue and that the trading banks do not acquire. The other net changes in the Commonwealth Bank accounts are the net of the other items, exclusive of accounts between the Commonwealth Bank and the trading banks. The sum of all these items is equal to the cash reserves of the trading banks, including “special” (compulsory) deposits, plus trading bank holdings of foreign assets and treasury bills. Changes in trading bank advances and government security holdings provide a measure of the two most important reactions of the banks to changes in their reserve positions. These items, together with “other factors” (which exclude accounts between the trading banks and the Commonwealth Bank), provide the immediate impetus leading to changes in deposits.

Table 3.Australia: Movements in Factors Affecting Trading Bank Deposits, 1954 and 1955(In millions of Australian pounds)
June 30

1954
June 30

1955
International reserves9–142
Treasury bills outstanding–35–30
Other net changes in Commonwealth Bank accounts–13611
Trading banks
Advances115140
Government and municipal securities33–2
Other factors (net)16–37
Movements in total deposits with trading banks (other than state banks)125–10
Source: Commonwealth Bank of Australia, Reports and Balance Sheets (Sydney).

Includes a substantial reduction in liabilities of the central bank.

Source: Commonwealth Bank of Australia, Reports and Balance Sheets (Sydney).

Includes a substantial reduction in liabilities of the central bank.

AUSTRIA

The Austrian Institute for Economic Research publishes a table, shown here as Table 4, analyzing the sources of money. The Austrian National Bank has provided an alternative table for this survey, which is shown here as Table 5. Both these tables are analyses of the changes in the accounts of the monetary system intended to explain changes in money.

Table 4.Austria: Changes in the Money Supply and Its Distribution, 1951–55(In billions of schillings)
19511952195319541955
Money17.3018.6123.1528.8329.19
Currency7.828.7910.2511.9812.79
Deposit money9.489.8212.9016.8516.39
Held by
Private sector5.946.887.939.669.37
Official holders3.543.444.986.786.48
Foreign banks.….….…0.410.54
Increases in money2.821.314.545.680.37
Expansive and contractive (—) factors
Foreign assets0.131.634.802.61–1.45
Commercial credit2.580.661.944.004.13
Other factors0.210.08–0.392.000.74
(Securities)(—)(0.03)(0.40)(1.40)(1.65)
(Treasury bills)(0.34)(0.34)(-0.10)(0.17)(-0.09)
Savings deposits–0.08–1.04–1.70–2.53–2.46
Borrowing–0.02–0.02–0.10–0.40–0.58
Source: Österreichisohe Institut für Wirtschaftsforschung, Statistische Übersichten zu den Monatsberichten (Vienna).
Source: Österreichisohe Institut für Wirtschaftsforschung, Statistische Übersichten zu den Monatsberichten (Vienna).
Table 5.Austria: Money Supply and Factors Leading to Changes, 1951–55(In billions of schillings)
19511952195319541955
Money supply17.3018.6123.1528.8329.20
Bank notes and treasury coin7.828.7910.2511.9812.79
Checking deposits With9.489.8212.9016.8516.41
National Bank0.580.350.810.971.18
Credit institutions8.909.4712.0915.8815.28
Held by
Private sector6.196.157.779.309.24
Official holders3.293.675.187.146.63
Foreign banks.….….…0.410.54
Changes in money supply2.821.314.545.680.37
Expansive and contractive (—) factors
In accounts of National Bank3.111.392.982.030.35
Gold and foreign exchange0.131.634.802.61–1.38
Commercial bills discounted0.84–0.89–0.80–0.160.82
Reconstruction credit discounts1.880.680.140.08–0.09
Treasury certificates0.26–0.48–1.14–0.490.81
Advances against collateral–0.02–0.010.69
In accounts of credit institutions1.710.702.182.960.44
Foreign exchange.….….…–0.12–0.02
Commercial bills0.420.710.880.700.50
Loans0.150.140.190.881.81
Sundry debtors1.140.011.622.641.17
Treasury certificates0.070.861.020.43–0.50
Security holdings0.030.030.301.421.72
Liability on securities pledged at National Bank0.02–0.01–0.69
Savings deposits–0.08–1.03–1.70–2.53–2.46
Debentures issued–0.02–0.02–0.10–O.4O–0.59
Other factors–2.00–0.78–0.620.67–0.42
Source: Austrian National Bank.
Source: Austrian National Bank.

The Institute for Economic Research table is a consolidated statement of the accounts of the monetary system and related institutions that includes a large unclassified entry for “other factors.” The National Bank table is a statement of the separate accounts of the National Bank and the credit institutions (the latter including related financial institutions other than banks). The cash reserves of credit institutions are excluded from the assets included in the table. Similarly, credit extended by the National Bank to the credit institutions is recorded as an increase in National Bank assets with an offsetting liability in the accounts of the credit institutions. Hence, in most years, the increase in the assets of the National Bank is larger than the increase in its liabilities included in money, and the net increase in the assets of the credit institutions is smaller than the increase in their monetary liabilities. In both tables, the 1955 entry for changes in foreign assets is not the change in the system’s foreign assets, but the change that would have occurred except for the transfer of 1.05 billion schillings of gold from the Government to the National Bank, i.e., it is a measure of the monetary effect of transactions by Austrian residents with foreigners. The offset to this transfer is included as an adjustment to the claims on the Government (included in the “other factors” in the Institute’s table). For the years up to 1953 the changes in foreign assets reflect arbitrary valuations. Savings and time deposits and the issue of long-term bonds are considered as contractive factors that reduce the expansion of money arising from the monetary system’s purchase of assets.

BELGIUM

Two tables that provide an analysis of the factors leading to changes in money are published in Belgium. The first table, shown here as Table 6, is essentially a consolidated balance sheet of the monetary system (the National Bank of Belgium, the Currency Issue Department of the Treasury, the postal checking office, the deposit-money banks, the Crédit Communal, which holds the greater part of the deposits of government agencies and municipalities, and the National Institute for Credit to Small Enterprises and its affiliated organizations). The monetary liabilities to the private sector, and to local governments and government agencies, are placed at the top of the table and separated from the other liabilities that follow the analysis of the system’s assets (the Government operates with essentially no deposit holdings). The assets are analyzed by the economic sectors obligated to the monetary system (the foreign sector, the Government, including government agencies, and the private sector). The quasi money held by the private sector is largely in the form of time deposits and foreign currency deposits; that recorded as held by the Treasury is predominantly U.S. aid counterpart funds. It should be noted that only the quasi money issued by money-creating institutions is included. The liabilities of savings banks and similar institutions are not included.

Table 6.Belgium: Consolidated Statement of Monetary Institutions, 1951–55(In billions of Belgian francs)
19511952195319541955
Monetary stock168.5174.5180.3183.6192.7
Currency99.1102.0105.9106.7110.7
Deposit money69.472.574.476.982.0
Held by
Business and individuals62.065.167.869.574.1
Official agencies7.47.47.17.47.9
Counterparts to monetary stock
1.Net foreign assets38.550.450.348.354.7
Net sight assets36.846.747.646.851.3
National Bank50.251.052.460.556.1
Private banks–13.4–4.3–4.8–3.7–4.8
Other assets (net)1.73.72.71.53.4
2.Claims on Treasury and obligations of other governmental borrowers115.7116.5121.5122.5125.2
Government debt113.1115.2120.4119.9122.4
Debt of other governmental borrowers1.01.01.11.42.1
Advances to fund to stabilize government bond prices1.60.31.20.7
3.Discounts for, advances to, and acceptances by, business and individuals in Belgium36.236.538.741.744.4
4.Miscellaneous0.1–1.3–1.71.83.2
Balance of operations of Crédit Communal, National Institute for Credit to Small Enterprises, and Treasury Currency Issue Department, at other than short term1.40.40.12.03.7
Credit transactions with nonmonetary financial institutions0.7–0.10.11.01.3
Balance of assets and liabilities not listed above–2.0–1.6–1.9–1.2–1.8
5.Balancing item2.10.21.01.60.9
Total (1 through 5)192.6202.3209.8215.9228.4
6.Deduction items24.127.829.532.335.7
Quasi-monetary liabilities of money-creating institutions18.121.622.323.425.9
Held by business and individuals14.618.620.621.823.4
Foreign exchange deposits of business and individuals2.41.61.52.02.4
Held by Treasury1.11.40.20.10.1
Net worth minus fixed assets of monetary institutions5.45.25.36.06.0
Debentures of deposit-money banks0.61.01.92.93.8
Source: Banque Nationale de Belgique, Bulletin d’Information et de Documentation (Brussels).
Source: Banque Nationale de Belgique, Bulletin d’Information et de Documentation (Brussels).

The second table, shown here as Table 7, combines data on changes in the accounts analyzed in the first table with some transactions data. It separates the changes in the foreign assets of the monetary system into (1) the capital transactions with, and donation receipts of, the Government from foreigners, and (2) the net change in foreign assets arising from other factors (balance of foreign transactions). The changes in the monetary system’s claims on Government are separated into (1) those arising from direct credit operations with the Government and (2) the purchase of outstanding government securities. The direct financing of the Government, and the purchase and sale of foreign exchange arising from government financing transactions, are combined to provide a measure of the monetary system’s financing of the Government (monetary financing of official agencies).

Table 7.Belgium: Causes of Changes in the Monetary Stock, 1951–55(In billions of Belgian francs)
19511952195319541955
Changes in monetary stock12.46.05.83.39.1
Changes in quasi-monetary items2.53.50.71.12.4
Time deposits and special accounts of exporters to EPU countries0.94.02.00.72.1
Foreign exchange deposits of nationals0.5–0.8–0.10.50.3
Treasury holdings1.10.3–1.2–0.1
Total of changes in monetary stock and quasi-monetary items14.99.56.54.411.5
Balance of foreign transactions10.56.4–1.0–4.74.1
Monetary financing of official agencies4.55.35.80.43.2
Monetization of government debt–1.60.31.13.22.0
Changes in discounts for, advances to, and acceptances by, business and individuals resident in Belgium3.00.32.23.02.7
Changes in net worth minus fixed assets of monetary institutions–0.70.2–0.1–0.7
Debentures issued by deposit-money banks–0.3–0.4–0.9–1.0–0.9
Balance of operations, other than at short term, by Treasury Currency Issue Department, Crédit Communal, and National Institute for Credit to Small Enterprises0.2–1.0–0.31.91.7
Miscellaneous
Credit transactions with nonmonetary financial institutions–0.2–0.80.20.90.2
Changes in assets and liabilities not listed above0.20.4–0.30.7–0.6
Balancing item–0.7–1.2–0.10.7–0.9
Total14.99.56.54.411.5
Source: Banque Nationale de Belgique, Bulletin d’Information et de Documentation (Brussels).
Source: Banque Nationale de Belgique, Bulletin d’Information et de Documentation (Brussels).

BRAZIL

In Brazil, the Superintendency of Money and Credit prepares a table, shown here as Table 8, which analyzes the composition of money and the causes of its variations. The table is primarily an external-internal origin analysis of the total of money; in addition, it allocates responsibility for money creation to the monetary authorities and to the commercial banks.

Table 8.Brazil: Means of Payment, 1954 and 1955(In billions of cruzeiros)
19541955
According to composition151.5177.4
Paper currency in the hands of the public48.957.0
Paper credit102.6120.4
Bank of Brazil17.618.5
Other banks84.9101.9
According to responsibility151.5177.4
Monetary authorities75.388.1
Commercial banks76.289.3
According to origin151.5177.4
Foreign origin–6.1–3.9
Monetary authorities–5.2–3.5
Gold6.56.5
Foreign exchange (net position)–4.0–3.7
Compulsory deposits with Exchange Department–1.8–1.2
Deposits for import licenses
Foreign currency obligations for loans contracted–5.3–4.5
International Monetary Fund—net obligation–0.6–0.5
Commercial banks (international reserves)–0.9–0.4
Domestic origin157.6181.3
Loans to National Treasury33.541.9
Monetary authorities (balance of operations with National Treasury or under its responsibility)33.541.9
Commercial banks
Loans to other government bodies20.423.0
Monetary authorities15.918.2
Commercial banks4.54.8
Other applications103.7116.4
Monetary authorities31.131.5
Commercial banks72.684.9
Source: Superintendência da Moeda e do Crédito, Boletim (Rio de Janeiro).
Source: Superintendência da Moeda e do Crédito, Boletim (Rio de Janeiro).

The money originating as a result of the action of the monetary authorities (in Brazil there are several agencies associated with the Bank of Brazil as monetary authorities) is defined as the total currency outside the monetary system, plus the deposits of the commercial banks with the authorities, minus their borrowings from the authorities. Money originating as the result of the action of the commercial banks is defined as the total of the deposit liabilities of these banks, plus their borrowings from the authorities, and minus their own cash holdings. Thus the responsibility for changes in money are allocated to the authorities and to the commercial banks primarily on the basis of whether the changes occur in the liabilities of the authorities or the banks. The consolidation adjustments for bank cash and intrasystem borrowing allocate changes in cash as a responsibility of the monetary authorities, and lending by the authorities as a responsibility of the banks.

The consolidated accounts of the monetary system are classified as foreign and domestic. The items of foreign origin are the monetary system’s foreign assets minus its foreign liabilities, including liabilities to residents that will be discharged in foreign exchange (e.g., advance deposits by importers for exchange purchases). The difference between the total money outstanding and the factors of foreign origin are considered to be the factors of domestic origin. The loans to the National Treasury and other government bodies are segregated from other factors of domestic origin to provide a measure of the system’s financing of the Government and government agencies (for the period covered by the analysis there were no government holdings of money, as the Government operated with an overdraft). The remaining difference is classified as “other applications” and is presumably to be taken as an indication of the changes in money arising from the financing of the private sector.

BURMA

Two closely related tables, analyzing changes in money, are published by Burma. In the first of these tables, shown as Table 9 below, changes in money, excluding government deposits, are treated as originating in the net balance of transactions between the monetary system and (1) the foreign sector, (2) the Government, and (3) the private sector. For the private sector, the entries exclude changes in demand deposits, which are a part, rather than a cause, of changes in the money supply; changes in time deposits (increases being counted as negative) are entered separately from the net balance on other accounts (“bank credit”).

Table 9.Burma: Factors Affecting Private Money Supply, 1953–55(In millions of kyats)
195319541955
Changes in private money supply144.980.3254.9
Transactions with foreign sector–212.9–548.5.…
Transactions with Government371.9619.1568.9
Bank credit–8.820.920.6
Shift between demand and time deposits–5.5–11.2.…
Source: Union Bank of Burma, Bulletin (Rangoon).
Source: Union Bank of Burma, Bulletin (Rangoon).

In the other table, shown as Table 10 below, changes in money, including government deposits, are analyzed. This table gives slightly more detail on the changes in the foreign exchange balances, distinguishing between changes in the balances of the monetary authorities and those of the commercial banks. It also separates changes in commercial bank loans and advances from other commercial bank transactions with the private sector, but includes increases in quasi money among the miscellaneous transactions covered by “other factors.”

Table 10.Burma: Factors Changing Total Money Supply, 1953–54 and 1954–55(In millions of kyats)
Sept. 1953–

Sept. 1954
Sept. 1954–

Sept. 1955
Changes in foreign exchange balances–380.7–253.5
Held by
Monetary authorities–400.3–263.8
Commercial banks (net)19.610.3
Changes in government and government-guaranteed securities held by banking system188.1433.6
Changes in commercial bank loans and advances (excluding interbank loans)17.323.7
Other factors–44.6–5.7
Changes in total money supply–219.9–198.1
Source: Central Statistical and Economics Department, Quarterly Report on Economic Progress in Burma (Rangoon).
Source: Central Statistical and Economics Department, Quarterly Report on Economic Progress in Burma (Rangoon).

CANADA

The Bank of Canada publishes two tables analyzing changes in the financial assets of the private sector of the economy. The first of these, summarized here as Table 11, provides a measurement of certain liquid assets as defined by the Bank, and of the related factors that are the counterpart of the assets. The second table, shown here as Table 12, provides a direct measurement of personal savings in Canada.

Table 11.Canada: General Public Holdings of Certain Liquid Assets, and Related Factors, 1951–55(In millions of Canadian dollars)
19511952195319541955
Certain Liquid Assets
Currency outside banks1,2751,3771,4291,4581,550
Notes1,1911,2891,3351,8621,449
Coin84889496101
Chartered bank deposits3,5023,7513,6753,9674,207
Public demand2,9933,3733,3683,5973,915
Active notice717796823903974
Other1280289286294820
Adjustment for float–489–706–752–827–1,002
Bank of Canada “other” deposits6645303134
Total currency and active deposits4,8435,1735,1345,4565,791
Resident-owned4,6084,9774,9376,2285,503
Nonresident-owned235196197228288
Inactive chartered bank notice deposits 13,8944,1294,2114,7125,122
Resident-owned3,7534,0174,1004,6085,011
Nonresident-owned141112111109111
Total currency and bank deposits8,7379,3029,34510,16810,913
Government of Canada securities9,3889,0629,2838,7139,083
Resident-owned8,2208,1078,4487,9998,532
Nonresident-owned1,168955835714551
Total of certain liquid assets18,12518,36418,62818,88119,996
Resident-owned16,58117,10117,48517,83019,046
Nonresident-owned1,5441,2631,1431,051950
Related Factors
Government of Canada debt less government deposits and holdings of government accounts14,15114,00813,78814,01513,904
Public holdings9,3889,0629,2838,7139,083
Bank holdings4,7634,9464,5055,3024,821
Bank of Canada2,0962,2112,2192,1662,278
Chartered banks2,6662,7352,2863,1362,543
Bank assets other than Government of Canada securities3,9744,3564,8404,8666,092
Total of related factors18,12518,36418,62818,88119,996
Source: Bank of Canada, Statistical Summary (Ottawa).

Excluding government deposits.

Source: Bank of Canada, Statistical Summary (Ottawa).

Excluding government deposits.

Table 12.Canada: Direct Estimate of Personal Savings in Canada, 1951–54(In millions of Canadian dollars)
19511952195319541
I. Asset changes (annual increase [+] or decrease [−])
A. Liquid assets
Currency and active bank deposits+98+242+44+166
Inactive bank deposits+104+251+130+384
Other institutional deposits+63+104+87+175
Government of Canada nonmarket securities+65+81+382+458
Government of Canada market securities−288+88+57–750
Refundable tax
Other bonds and stocks+150+315+325+250
Total+192+1,081+1,025+683
B. Contractual saving
Life insurance+228+245+272+300
Government of Canada annuities+56+59+62+65
Total+284+304+334+365
C. Real investment
Inventories
Farm+354+237+50–145
Unincorporated business+142–11+69+33
Other real investment
Residential construction+723+718+939+1,010
Farm: construction, machinery, and equipment+532+549+540+389
Unincorporated business: construction, machinery, and equipment+367+345+480+473
Depreciation (—)–768–830–916–977
Total+1,350+1,008+1,162+783
D. Total change in assets+1,826+2,393+2,521+1,831
II. Liability changes (annual increase [+] or decrease [—])
A. Consumer debt
To corporate retail dealers (charge accounts and installment credit)–31+111+53+32
To sales finance companies; installment credit–16+187+139–29
Cash personal loans+2+72+109+98
B. Mortgage debt (to government and corporate lenders)+264+180+249+347
C. Loans from chartered banks to
Individuals (on the security of marketable bonds and stocks)–9+40+30–34
Farmers+35+30+25+5
Unincorporated business+32+16+85+12
Religious, educational, health, and welfare institutions+10–3+8+7
D. Loans from stockbrokers+12+4–15+8
E. Other net payables of unincorporated business
To sales finance companies
Commercial goods; installment credit+28+32+14–16
Wholesale financing+8–7+12–20
To other corporations+51–1+75+54
F. Total change in liabilities+386+661+784+464
III. Direct estimate of personal savings (I. D minus II. F)+1,440+1,732+1,737+1,367
IV. National income estimate of personal savings+1,390+1,525+1,600+1,071
Source: Bank of Canada, Statistical Summary (Ottawa).

Preliminary.

Source: Bank of Canada, Statistical Summary (Ottawa).

Preliminary.

The Canadian authorities do not publish a total that they call money. The Bank of Canada includes currency and certain bank deposits in the total of “currency and active deposits.”1 This total is comparable to the total of money in the statistics of most other countries. The total of currency and active deposits plus the inactive chartered bank notice deposits is shown as a separate series entitled “currency and bank deposits.” Finally, this total plus the private sector’s holdings of Government of Canada securities is reported as the total of “certain liquid assets.” Since the statement analyzes changes in liquid assets, as defined by the Bank of Canada, rather than changes in money, or money and quasi money, it includes the private sector’s holdings of government debt in the consolidation and the entire net government debt (i.e., the total government debt, other than amounts held by the Government, less government deposits) in the counterpart side of the analysis. Because the Exchange Fund is part of the Government, the statement combines, in the figure for government debt, changes in liquid assets available to the public, arising from both the balance of government accounts and the balance of foreign payments.

In the table analyzing personal savings (Table 12), estimates are made of changes in the assets held by the personal sector; this sector is defined to include consumers, unincorporated business, private pension funds, and religious, education, health, and welfare institutions. The assets are analyzed as liquid, contractual, and other. The liquid assets include the “certain liquid assets” referred to above plus other items that are considered by the Bank to be liquid. Changes in liabilities are deducted from changes in assets to provide not only a direct estimate of personal savings but also a statement of the changes in the asset-liability structure of the personal sector. No data are provided, however, for total assets and total liabilities held by the sector.

CEYLON

The Central Bank of Ceylon publishes a table, shown here as Table 13, analyzing the counterparts to the money supply, excluding government holdings. The external assets are the sum of the net foreign exchange and gold holdings of the Central Bank and the commercial banks. The domestic assets are separated into (1) net assets of the Central Bank and (2) assets of the commercial banks. The Central Bank’s net assets are claims on the Government, less the capital and security indebtedness of the Bank, and less deposits of others than the Government and banks. The assets of the commercial banks are classified as government securities or claims on the private sector, the cash reserves of these banks being excluded in the process of consolidation. The quasi-monetary liabilities of the system and the Government’s monetary holdings are treated as separate and identifiable deductions from the system’s assets.

Table 13.Ceylon: Analysis of Changes in Money Supply, 1951–55(In millions of Ceylon rupees)
19511952195319541955
Money supply1,0068968279571,073
External assets (net)802439306647864
Central Bank’s domestic assets (net)6144202–19–45
Commercial banks’ domestic assets
Government securities235302284310284
Private loans, bills, etc.224203221259274
Savings deposits and other liabilities (net)–119–129–134–170–186
Government rupee cash–129–59–52–69–116
In transit adjustments–12–4–2
Source: Central Bank of Ceylon, Bulletin (Colombo).
Source: Central Bank of Ceylon, Bulletin (Colombo).

CHILE

The Central Bank of Chile analyzes money in circulation, including the holdings of official entities and the Government, in a table shown here as Table 14. This table is a condensed combined balance sheet of the monetary system. The accounts of the commercial banks are analyzed by type to provide a net sum equal to their current deposits. The monetary liabilities of the Central Bank, other than commercial bank cash, are considered equal to the net assets of the Bank. Consequently, it is impossible to derive data on the accounts of the monetary system with the significant economic sectors.

Table 14.Chile: Money in Circulation, 1951–55(In billions of Chilean pesos)
19511952195319541955
Current accounts with commercial banks and State Bank
Asset operations25.0030.9349.2564.1292.85
Loans22.7928.0748.2458.1287.27
Investments3.113.926.728.2614.89
Cash2.673.516.049.1711.88
Funds borrowed from Central Bank–3.57–4.57–6.74–11.43–20.64
Liability operations8.7010.5217.3717.7118.39
Deposits other than in current accounts6.297.489.8812.8016.72
Capital and reserves3.203.766.477.1711.56
Other accounts (net)–0.79–0.671.07–1.76–9.89
Total16.3020.4231.8746.4174.48
Current accounts with Central Bank0.330.510.980.961.69
Notes and currency in circulation7.9711.5016.6622.7540.03
Total money in circulation24.6032.4349.5170.12116.20
Source: Banco Central de Chile, Boletín Mensual (Santiago).
Source: Banco Central de Chile, Boletín Mensual (Santiago).

COLOMBIA

Three monetary analyses are available in Colombia, two of which are published by the central bank. The Review of the Bank of the Republic contains a brief statement of the origin of money; and the Annual Report of the Bank contains a slightly more detailed statement. The Superintendent of Banks publishes a brief analysis.

The data published in the Review measure the origins of money, including government deposits, as shown in Table 15. The difference between the total money in circulation and the international reserves of the Bank of the Republic, as estimated from the internal records of the Bank, is considered to be the fiduciary circulation. This is subdivided into money originating with the monetary authorities and with the other banks. Treasury coin is defined as originating with the Treasury. The money originating with the Bank of the Republic is the total monetary liabilities of the Bank, including cash holdings of the other banks, minus the international reserves of the Bank. The money originating with the other banks is defined as the deposits with them minus their cash reserves. The other banks covered by this table include development institutions and savings banks, which might be considered as institutions related to, but not included among, deposit-money banks.

Table 15.Colombia: Origins of Money in Circulation, 1951–55(In millions of Colombian pesos)
Dec.

1951
Dec.

1952
Dec.

1953
Dec.

1954
Dec.

1955
International reserves of Bank of the Republic270327396527250
Fiduciary circulation9411,0931,2191,4771,834
Treasury and Bank of the Republic482594580721963
Treasury2829313436
Bank of the Republic454565548687927
Other banks459499640756872
Total money1,2111,4211,6152,0042,084
International reserves as percentage of total money22.323.024.526.312.0
Source: Banco de la República, Revista (Bogota).
Source: Banco de la República, Revista (Bogota).

The Annual Report table analyzes the origins of money, both including and excluding government deposits, as shown here in Table 16. In this table, the net foreign assets of all banking institutions, rather than the holdings of the Bank of the Republic only, are included in the entry for international reserves. The domestic assets of the Bank of the Republic are separated into “credit” (chiefly loans to the banks) and “other assets” (chiefly holdings of government securities). The nonmonetary liabilities of the Bank are deducted from the domestic assets to provide a measure of the money originating in the central bank. In this calculation, the cash reserves of the other banks and government deposits are included in the nonmonetary liabilities of the Bank of the Republic. Hence the money considered as originating in the Bank of the Republic plus the Bank’s component of the international reserves is equal to the Bank’s monetary liabilities held by the private sector. The assets of the other banking institutions are classified as loans, investments, and “other assets” (largely cash reserves). These domestic assets minus the nonmonetary liabilities of these institutions (consisting of loans from the Bank of the Republic, capital contributions from the Government, bonds issued, and quasi-monetary liabilities) plus the banks’ component of the international reserves are equal to their monetary liabilities held by the private sector. The international reserves plus the money “originating” in the Bank of the Republic and the other banks are equal to the privately held money. This total plus government deposits is the same as the total money supply measured in the Review table.

Table 16.Colombia: Origins of Money, 1951–55(In billions of Colombian pesos)
JuneJuneJuneJuneJune
19511952195319541955
International reserves of monetary institutions0.150.210.310.450.18
Bank of the Republic0.160.140.110.110.26
Credit0.270.280.300.360.75
Other assets0.060.090.090.110.09
Nonmonetary liabilities–0.17–0.23–0.28–0.36–0.58
Banking institutions0.620.800.891.111.31
Loans0.871.221.471.812.28
Investments0.070.220.260.320.45
Other assets0.110.200.240.370.38
Nonmonetary liabilities–0.43–0.85–1.08–1.40–1.80
Treasury money0.030.030.030.030.03
Total money, excluding government deposits0.951.171.331.701.78
Government deposits0.060.120.140.170.25
Total money, including government deposits1.011.291.471.872.03
Source: Banco de la República, Informe Anual (Bogota).
Source: Banco de la República, Informe Anual (Bogota).

The analysis of the factors of expansion and contraction of money prepared by the Superintendent of Banks was first published in 1956. As shown by Table 17—presenting data for January of each of the years, 1953, 1954, and 1955—the table is a consolidated statement of the accounts of the banking system, including “related institutions”; it analyzes the factors leading to an expansion or contraction of money, excluding government deposits. The international reserves are the net foreign assets of the monetary system. Loans (“credit”) are separated from investments. Quasi money (“other domestic liabilities”) is shown together with capital accounts as a contractive factor. The entry for “net other assets” is a balancing item.

Table 17.Colombia: Expansion and Contraction of Money, 1953–55(In millions of Colombian pesos)
Jan.

1953
Jan.

1954
Jan.

1955
Expansive factors
International reserves327356323
Internal credit1,5411,6272,256
Investments459599711
Other assets, net406394507
Contractive factors
Other domestic liabilities–576–590–730
Capital and reserves–390–452–629
Subtotal1,7671,9342,438
Treasury money303134
Total money1,7971,9652,472
Source: Superintendencia Bancaria, Boletín (Bogota).
Source: Superintendencia Bancaria, Boletín (Bogota).

These three tables are similar in that they adopt comparable definitions of money and comparable classifications of assets, and the asset classification is by type of asset. In all of them it is impossible to derive measures of the accounts of the banking system with economic sectors other than the foreign sector.

COSTA RICA

The Central Bank of Costa Rica publishes a table, shown here as Table 18, that analyzes the origin of money, including government deposits and deposits of official entities. In addition to providing an internal-external origin analysis of money, this table allocates responsibility for its creation to the Central Bank and to the commercial banks. The total monetary liabilities of the Central Bank, including deposits of the commercial banks, are the component of the total money considered to be created by the Central Bank. The liabilities of the commercial banks included in money, minus their deposits with the Central Bank and their currency holdings, are the component considered to be created by the commercial banks. For both the Central Bank and the commercial banks, the net foreign assets (which include in assets the net IMF position and in liabilities the foreign currency liabilities to residents) are considered to be measures of money of external origin. For both the Central Bank and the commercial banks, the difference between the totals considered to be of their creation and the portion of these totals considered to be of external origin is the measure of money of internal origin.

Table 18.Costa Rica: Origins of Money, 1951–55(In millions of Costa Rican colones)
19511952195319541955
Money in circulation233.6270.4297.2329.9341.5
Created by Central Bank151.6173.4186.9209.8213.2
External origin53.188.8106.295.0116.8
Internal origin98.584.680.7114.896.4
Created by commercial banks82.097.0110.3120.1128.2
External origin2.76.2446.76.5
Internal origin79.390.8105.9113.4121.7
Source: Banco Central de Costa Rica, Boletín Estadístico Mensual (San Jose).
Source: Banco Central de Costa Rica, Boletín Estadístico Mensual (San Jose).

CUBA

The National Bank of Cuba publishes a table, shown below as Table 19, that provides an external-internal origin analysis of privately held money, including foreign currency deposits of residents. Money of external origin comprises the net foreign assets of the National Bank (including the net IMF position), plus treasury holdings of foreign currency, plus the net foreign assets of the deposit-money banks, plus the cost of silver coin in circulation, minus the face value of silver coin in circulation. Money of internal origin comprises the total consolidated domestic assets of the National Bank and the deposit-money banks (i.e., excluding interbank deposits), plus the value of treasury coin in circulation, minus the non-monetary domestic liabilities of the banks, minus the cost of the coin in circulation, minus the deposits of the Government.

Table 19.Cuba: Origins of Privately Held Means of Payment, 1951–55(In millions of Cuban pesos)
19511952195319541955
Internal origin316.9437.3391.3440.3477.8
External origin584.9510.9522.2483.9512.6
Total means of payment901.8948.2913.5924.2990.4
Source: Banco Nacional de Cuba, Revista (Havana).
Source: Banco Nacional de Cuba, Revista (Havana).

DENMARK

Two related monetary analyses are published in Denmark. Both are explanations of the factors leading to changes in the community’s holdings of “reserve money,”1 plus treasury bills. Both the National Bank of Denmark and the Economic Secretariat of the Government refer in their analyses to the “money supply.” As defined by the National Bank, this term comprises outstanding notes, sight deposits with the National Bank, and treasury bills held by the economy. The money supply as defined by the Economic Secretariat includes all the components of the National Bank’s definition plus deposits in postal transfer accounts. The money supply—according to both definitions—is considered to measure commercial bank liquidity.2 However, both definitions include items other than liquid holdings of the banks (i.e., treasury bills and national bank notes held by others than banks), while they exclude some liquid holdings of banks (i.e., foreign assets and coin). As the analyses are concerned with reserve money, both exclude from the money supply deposits with deposit-money banks, on the ground that they bear a more or less constant relationship to the money supply as defined. On the other hand, treasury bills are included primarily to emphasize the inflationary effect of short-term financing of government deficits.

Both analyses combine the accounts of the National Bank with those of the Government, but the combinations are made in different ways. In the National Bank’s analysis of trends in liquidity (see Table 20), changes in direct government accounts with the National Bank (i.e., government deposits and loans to the Government, plus withdrawals from the U.S. counterpart fund accounts) are one of the elements explaining changes in liquidity. The other factors leading to changes are the net foreign exchange position of the National Bank, deposits under the special licensing scheme for imports of textiles (ended in the spring of 1956), and other assets of the National Bank including both government bonds and claims on the private sector. Since liquidity is defined in this table to exclude treasury bills, this analysis is essentially an analysis of reserve money. The items from Table 20 are combined with the outstanding treasury bills in the Bank’s analysis of the money supply (shown here as Table 21). In this table, the transactions of the National Bank plus the short-term borrowings by the Government are consolidated to provide a measure of the changes in reserve money and treasury bills (which are easily convertible into reserve money).

Table 20.Denmark: Trends in Liquidity, 1951–55(In millions of Danish kroner)
19511952195319541955
Influences1
1.Government accounts
Drawings against Ministry of Finance, current account265–315–158329528
Reduction of Government Regulation Account–93–128–103–45–38
Payments into Ministry of Finance, special accounts339121186148–289
Movements on dollar bonus account of Directorate of Supply (automobiles)–107
Movements on other government accounts33–18–14–2311
Total544–340–89302212
2.Deposits under special import licensing scheme for piece goods, etc.–262–58126–1045
3.Kroner payments for ECA imports–405–58
4.Foreign exchange position of National Bank199312–6–498–67
5.Other items in balance sheet of National Bank
Bonds and shares} 5033334–1180
Advances, etc.–1038165–151
Total5032372154–71
Total (1 through 5)126179103–52119
Results’2
1.Notes in circulation1081491522672
2.Deposits of commercial banks, savings banks, etc., with National Bank1830–49–7847
Total126179103–52119
Source: National Bank of Denmark, Report and Accounts (Copenhagen).

No sign indicates outflow from National Bank; minus sign indicates inflow to National Bank.

No sign indicates increase; minus sign indicates decrease.

Source: National Bank of Denmark, Report and Accounts (Copenhagen).

No sign indicates outflow from National Bank; minus sign indicates inflow to National Bank.

No sign indicates increase; minus sign indicates decrease.

Table 21.Denmark: Money Supply, 1951–55(In millions of Danish kroner)
End of Year
19511952195319541955
Notes1,8171,9662,1182,1452,217
Deposits of commercial banks, savings banks, etc., with National Bank492522473394441
Treasury bills1710646917
Total2,3262,5942,6372,5482,675
Source: National Bank of Denmark, Report and Accounts (Copenhagen).
Source: National Bank of Denmark, Report and Accounts (Copenhagen).

The analysis by the Economic Secretariat provides a more direct integration of the accounts of the Government and the National Bank. The tables published by the Secretariat are combined here in Table 22. The Government’s total financing requirements (i.e., the Government’s total deficits on its current and investment budget and the capital budget, including debt redemption, adjusted for changes in arrears of revenue, expenditure, etc.) are considered to be a factor leading to payments by the Government to the economy. Net purchases of foreign exchange, premium payments under the dollar premium scheme minus net increases in required deposits under the special import licensing scheme for textiles, and National Bank net payments not recorded elsewhere (sundry payments) are the only other factors included in the table. These items provide a total of the net payments by the Government and the National Bank affecting liquidity. Part of the liquidity creation is considered to be absorbed by the Government’s bond issues that are purchased by others than the National Bank, plus the Bank’s net sales of bonds. The remaining payments lead to an expansion of the “net money supply.” The net money supply differs from the money supply in that the loans of the National Bank are deducted from the money supply to provide a net measure; i.e., these loans are not considered to be an expansive factor but are treated as a deduction from the money holdings in measuring the increase in the economy’s liquidity.

Table 22.Denmark: Trends in Liquidity, 1951–55(In millions of Danish kroner)
19511952195319541955
Net payments by Government and central bank
Government financing needs646725777787625
Purchases of foreign exchange (net)–227251–66–503–68
Piece goods deposits and dollar export premiums–262–58126–122–47
Sundry payments by central bank 17–18–2293
Net payments, total157925819140603
Financed through
Sales of bonds (gross)102611802447294
Increase in money supply (net)5531417–307309
Increase in money supply (gross)12132581–109160
Less Increase in central bank lending661164198–149
Financing, total157925819140603
Source: Economic Secretariat of the Government, Economic Survey of Denmark, 1956 (Copenhagen, 1956), Table 3, p. 14, and Table IX, p. 80.

Excluding security transactions and loans to other banks by the National Bank.

Source: Economic Secretariat of the Government, Economic Survey of Denmark, 1956 (Copenhagen, 1956), Table 3, p. 14, and Table IX, p. 80.

Excluding security transactions and loans to other banks by the National Bank.

DOMINICAN REPUBLIC

Since 1947 the Central Bank of the Dominican Republic has published an external-internal origin analysis of money, including government holdings (summarized here as Table 23). This table also allocates responsibility for the creation of money to the Government, the Central Bank, and the commercial banks. Money of external origin is considered to be measured by one half of the treasury coin in circulation (the import cost of the coin is estimated to equal half of its face value), and the net foreign assets of the Central Bank (including the net IMF position) and the commercial banks. The difference between the total money in circulation and that of external origin is considered to be of internal origin. To allocate responsibility for the money of internal origin, half of the coin circulation is attributed to the Government; the factors of external origin attributed to the Central Bank are deducted from its total monetary liabilities (i.e., including deposits of the commercial banks) to measure central bank responsibility; and the remaining difference, i.e., the deposits with the commercial banks payable by check minus their international reserves and cash, is attributed as a responsibility of the commercial banks.

Table 23.Dominican Republic: Money Supply by Origin and Issuing Institution, 1951–55(In millions of Dominican pesos)
19511952195319541955
Money supply78.483.376.892.393.7
External origin39.639.137.754.140.7
Government1.01.11.11.11.7
Central Bank31.033.529.537.133.0
Commercial banks7.74.57.115.96.1
Internal origin38.844.239.138.253.0
Government1.01.11.11.11.7
Central Bank6.49.818.117.528.0
Commercial banks31.488.924.919.528.3
Source: Banco Central de la República Dominicana, Boletín Mensual (Ciudad Trujillo).
Source: Banco Central de la República Dominicana, Boletín Mensual (Ciudad Trujillo).

Beginning in 1956 the Central Bank has also published a more neutral analysis, for which the December 1955 data are shown in Table 24. Aside from including part of the treasury coin in foreign assets, this table does not attempt to allocate the factors of expansion and contraction into external and internal subgroups, nor does it attempt to allocate responsibility to the separate monetary institutions. The factors of expansion comprise the foreign assets measured in the same manner as for Table 23, the part of the treasury coin in circulation not considered to be of foreign origin (i.e., half the amount), and the investments and loans of the Central Bank and of the commercial banks, with no attempt to classify them by sector. Among the factors of contraction, only the saving and time deposits are separated from the other factors.

Table 24.Dominican Republic: Expansive and Contractive Factors of the Money Supply, December 1955(In millions of Dominican pesos)
Dec.

1955
Money supply93.7
Expansive factors147.7
Foreign assets (net)40.7
Counterpart of treasury coin1.7
Investments57.0
Bank credits48.3
Contractive factors–54.0
Saving and time deposits–36.0
Other factors–18.0
Source: Banco Central de la República Dominicana, Boletín Mensual (Ciudad Trujillo).
Source: Banco Central de la República Dominicana, Boletín Mensual (Ciudad Trujillo).

ECUADOR

The Central Bank of Ecuador publishes a table, shown here as Table 25, analyzing, by origin, the means of payment, excluding government deposits. The factors of external origin are defined as the net foreign assets of the Central Bank (including in assets the net IMF position, and in liabilities, obligations to residents). The difference between the total money supply and factors of external origin is taken to measure the factors of internal origin.

Table 25.Ecuador: Origins of Means of Payment, 1951–55(In millions of sucres)
19511952195319541955
Money in circulation8431,0381,1011,2751,226
Internal origin437445614762832
External origin406593487513394
Source: Banco Central del Ecuador, Boletín (Quito).
Source: Banco Central del Ecuador, Boletín (Quito).

EGYPT

The National Bank of Egypt prepares a table, shown here as Table 26, analyzing the money supply and its counterpart. This table is essentially a condensed consolidated balance sheet of the monetary system, incorporating a significant netting of liabilities against assets. In the counterpart to the money supply, the consolidated accounts of the monetary system are classified as foreign assets (excluding payments agreement claims on foreigners denominated in Egyptian pounds), loans and discounts (subsectored into government and private, but including, as private loans, payments agreement debit balances expressed in Egyptian pounds), and investments and participations. All the other items in the accounts of the monetary system are grouped together as a residual, including in this residual the quasi-monetary liabilities of the monetary institutions. Because the residual item is significant, and because the foreign assets exclude and the private assets include a few claims on foreigners, it is not possible to obtain a clear separation of the accounts of the monetary system by sector.

Table 26.Egypt: Money Supply and Its Counterpart, 1951–55(In millions of Egyptian pounds)
19511952195319541955
Money supply 1461.3424.2418.8442.5458.4
Private418.6406.4399.0418.3434.5
Government deposits 142.717.819.824.223.9
Counterpart to money supply461.3424.2418.8442.5458.4
Foreign assets320.3258.1248.3246.5212.4
Loans and discounts
Government4.627.837.327.271.0
Private133.0127.1122.6156.2167.1
Investments and participations21.635.435.639.938.0
Residual–18.2–24.2–25.0–27.3–30.1
Source: National Bank of Egypt, Economic Bulletin (Cairo).

This table covers both Egypt and the Sudan. Through the year 1955, Egyptian banknotes circulated in the Sudan; also Sudanese Government deposits are included in the money supply figures.

Source: National Bank of Egypt, Economic Bulletin (Cairo).

This table covers both Egypt and the Sudan. Through the year 1955, Egyptian banknotes circulated in the Sudan; also Sudanese Government deposits are included in the money supply figures.

EL SALVADOR

The Central Reserve Bank of El Salvador publishes a table, shown here as Table 27, providing an external-internal analysis of the origins of money, including government deposits denominated in national currency. The factors of external origin are defined as the foreign assets of the monetary system (excluding the IMF position) minus foreign liabilities. The difference between the factors of external origin so measured and the total of money is the measure of the factors of internal origin.

Table 27.El Salvador: Origins of Money in Circulation, 1953–55(In millions of Salvadoran colones)
195319541955
Money in circulation191.7227.8242.8
Internal origin78.7108.3139.2
External origin113.0119.5103.6
Source: Banco Central de Reserva de El Salvador, Memoria (San Salvador).
Source: Banco Central de Reserva de El Salvador, Memoria (San Salvador).

FINLAND

The Finnish Ministry of Finance publishes a table, shown here as Table 28, that combines data from the accounts of the monetary system and the Government. While the table is intended to provide an assessment of the factors leading to changes in currency holdings,1 it also provides data that permit the measurement of broader intersector financial transactions. Changes in the accounts of the Bank of Finland, the commercial banks, the Postal Savings Bank, other financial institutions, and the Government are recorded directly. For each type of transaction, the net sum of the directly recorded entries is entered as a residual estimate of the transactions by the private sector and foreigners (the “other” sector). The statement records intersector financing transactions as changes in 15 categories of intersector debts. This statement may be condensed into a table presented here as Table 29. In this summary, similar entries from the original table are brought together to show the borrowing and lending between financial institutions; the transactions associated with government financing requirements; the changes in foreign asset holdings; the economy’s borrowing from the financial institutions and changes in its holdings of deposit money, quasi money (in Finland, deposit accounts are similar to savings and time deposits in other countries), and government securities; and miscellaneous financial transactions. Following the structure of Table 28, increases in liabilities and decreases in assets are considered to be factors increasing cash holdings and are recorded as positive entries, and conversely. The sums of these entries must equal the increase in currency holdings for each sector except that for the Bank of Finland, where a negative entry indicates an increase in the currency outstanding. While foreigners are included with private residents in the “other” sector, the separate presentation of foreign balances provides a measure of the net financing balance between the Finnish economy and foreigners.

Table 28.Finland: Money Flows in 19551(In billions of markkas)
Bank of

Finland
GovernmentPostal

Savings

Bank
Commercial

Banks
Other

Credit

Institutions
Other
Government debt to Bank of Finland (net)–5.75.7
Government short-term credit–2.92.50.5.…–0.1
Government domestic bond debt0.1–3.4–1.90.1.…5.1
Other credit by Bank of Finland (net)–5.39.9–2.0–2.6
Other credit by Postal Savings Bank0.7–4.0.…3.3
Postal Savings Bank’s debt on deposit accounts0.33.5–3.8
Postal Savings Bank’s debt on giro accounts–0.1–1.8–0.32.2
Other credit by commercial banks–26.326.3
Commercial banks’ debt on deposit accounts14.4–14.4
Commercial banks’ debt on checking accounts1.7–1.7
Other credit by other credit institutions2.2–24.222.0
Other credit institutions’ debt on deposit accounts27.3–27.3
Other credit institutions’ debt on checking accounts0.5–0.5
Foreign balances (net)–2.40.50.81.1
Other payments10.323.32.1–2.4–1.6–11.72
Increase or decrease (—) in cash–2.43.50.40.6.…–2.1
Source: Ministry of Finance, Economic Survey, 1956 (Helsinki, 1956).

No sign indicates receipt, and minus sign indicates surrender, of means of payment.

Includes an increase of 6.6 billion markkas in importers’ deposits.

Source: Ministry of Finance, Economic Survey, 1956 (Helsinki, 1956).

No sign indicates receipt, and minus sign indicates surrender, of means of payment.

Includes an increase of 6.6 billion markkas in importers’ deposits.

Table 29.Finland: Money Flows in 1955 (Summarized Version)1(In billions of markkas)
Bank of

Finland
GovernmentPostal

Savings

Bank
Commercial

Banks
Other

Credit

Institutions
Other
Government debt to Bank of Finland (net)–5.75.7
Government short-term credit–2.92.50.5.…–0.1
Government bonds0.1–3.4–1.90.1.…5.1
Interinstitution credit (net) 2–7.30.3–0.611.8–4.2
Other credit by credit institutions2.6–3.3–26.3–22.049.0
Changes in deposit accounts3.814.427.3–45.5
Changes in giro and checking accounts–2.21.70.5
Foreign balances (net)–2.40.50.81.1
Other payments10.333.32.1–2.4–1.6–11.73
Increase or decrease (—) in cash–2.43.50.40.6.…–2.1

Summary of data in Table 28.

This entry combines changes in interinstitution loans and interinstitution deposit holdings but excludes changes in the currency assets and liabilities of these institutions.

Includes an increase of 6.6 billion markkas in importers’ deposits.

Summary of data in Table 28.

This entry combines changes in interinstitution loans and interinstitution deposit holdings but excludes changes in the currency assets and liabilities of these institutions.

Includes an increase of 6.6 billion markkas in importers’ deposits.

FRANCE

Two statements of financial statistics are available for France, one prepared by the National Council of Credit and the second compiled by the Ministry of Finance.

The statement of the National Council of Credit, shown here as Table 30, analyzes the counterparts to privately owned money supply plus time deposits with banks. These counterparts are the monetary system’s holdings of claims on the Government, claims on the private sector, and foreign exchange and advances to the Exchange Stabilization Fund, plus the credit extended to the Treasury by the private sector, as measured by the privately held claims on the Government included in money. The net miscellaneous entry includes the small changes in the foreign aid counterpart accounts. Rediscounted claims are shown as credit extended by the Bank of France. Since this table is an analysis of the accounts of the Bank of France and the deposit-money banks, no account is taken of the significant quasi-monetary liabilities of other financial institutions.

Table 30.France: Counterparts to the Money Supply and Time Deposits, 1951–55(In billions of French francs)
19511952195319541955
1.Claims on Treasury
Credit by Bank of France746806939961845
Marketable bond104444
Loans633648876811700
Current postal accounts2829334548
Rediscounts of accrued taxes, etc.71121188776
Coin held4481417
Securities513626702765785
Held by Bank of France186239259191177
Held by other banks327387443574608
Credit by business and individuals312364415504598
Deposits with postal checking system262304352435494
Deposits with Treasury3331353747
Coin in circulation1729283257
Total1,5711,7962,0562,2302,228
2.Credit to the economy
Bank of France7769449981,1221,262
Other banks1,1291,3271,5201,7302,037
Total1,9052,2712,5182,8523,299
3.Gold and foreign exchange
Gold191200201201301
Sight claims on foreigners22311557200
Advances to Exchange Stabilization Fund6659136194
Total279236225394695
Total (1 through 3)3,7554,3034,7995,4766,222
Net of balance sheet entries not included above20–15–5–11–53
Total money supply and time deposits3,7754,2874,7945,4656,169
Source: Conseil National du Crédit, Rapport Annuel (Paris).
Source: Conseil National du Crédit, Rapport Annuel (Paris).

The Ministry of Finance table, given here as Table 31, provides a statement of all borrowing and lending in the economy. Borrowing and lending are measured not only as changes in loans outstanding, but also as the amounts of money involved in the transfer of securities and other claims from one sector of the economy to another. In this table, intersector transfers are recorded but not intrasector borrowing and lending. The table appears after the income and expenditure accounts, as part of a fully integrated set of statements, and is consistent with the national income accounts. In its compilation, data are taken from national income records, the tabulations of the National Council of Credit, and other sources.

Table 31.France: Lending and Borrowing, 1955

(In billions of French francs)

A. Lending Accounts

EnterprisesHouseholdsGovernmentForeignOverseas FranceSaarTreasuryBanks, Insurance, Financial InstitutionsTotal
Money290390680
Other short- and medium-term claims on Treasury, banks, and financial institutions1804257070745
Nonbank commercial credit
Marketable securities Issues120335455
Redemptions102102
Purchases3939
Bank credit and treasury advances2020150445635
Nonrediscountable long-term loans4010179401630
Short-term transactions by Treasury, banks, and financial institutions Between Treasury and banking system80160240
Other102367469
Foreign lending and borrowing
Lending and borrowing14401569
Repayments35145180
Gold and foreign exchange4555245345
Financing by Metropolitan France of transactions between foreigners and Overseas France and the Saar8025105
Adjustment15265714301
Total lending7301,15011419036077731,6714,995
Net lending620190150960
Net lending of households 620
Table 31.France: Lending and Borrowing, 1955

(In billions of French francs)

B. Borrowing Accounts

EnterprisesHouseholdsGovernmentForeignOverseas FranceSaarTreasuryBanks, Insurance, Financial InstitutionsTotal
Money60620680
Other short- and medium-term claims on Treasury, banks, and financial institutions20380345745
Nonbank commercial credit
Marketable securities
Issues2601011075455
Redemptions187212102
Sales192039
Bank credit and treasury advances3701854040635
Nonrediscountable long-term loans280301709644010630
Short-term transactions by Treasury, banks, and financial institutions Between Treasury and banking system15585240
Other130339469
Foreign lending and borrowing
Lending and borrowing402969
Repayments16515180
Gold and foreign exchange2029035345
Financing by Metropolitan France of transactions between foreigners and Overseas France and the Saar253050105
Adjustment59223163301
Total borrowing1,066530256480170549181,5214,995
Net borrowing33614229047145960
Net borrowing by enterprises186Net borrowing by Government287Net borrowing by foreigners147
Enterprises336Government142Foreign290
Banks–150Treasury145Overseas France–190
Saar47
Source: Ministère des Finances, “Rapport sur les comptes de la Nation,” Statistiques et Etudes Financières (Paris).
Source: Ministère des Finances, “Rapport sur les comptes de la Nation,” Statistiques et Etudes Financières (Paris).

The national accounts for France contain, for each sector, an integrated series of statements. The first of these is an account that measures the factors giving rise to gross national production as defined by the Ministry of Finance. A summary of the 1955 entries is given here as Table 32. This account summarizes the income-producing activities of each sector, and subtracts from the total product those payments that are considered to be “costs of production.”

Table 32.France: Production Accounts, 1955(In billions of French francs)
Enterprises 1HouseholdsGovernmentForeignTotal
Receipts
Production14,29937914,678
Imports1,7001,700
Other841841
15,1403791,70017,219
Expenditure
“Costs”8,8508,850
Exports1,9851,985
Other57102159
8,9071021,98510,994
Net receipts6,233277–2856,225
Source: Based on data from Ministère des Finances, “Rapport sur les comptes de la Nation,” Statistiques et Etudes Financières (Paris).

Includes individual enterprises, government-owned enterprises and government production for sale, banks, etc.

Source: Based on data from Ministère des Finances, “Rapport sur les comptes de la Nation,” Statistiques et Etudes Financières (Paris).

Includes individual enterprises, government-owned enterprises and government production for sale, banks, etc.

This account is followed by a second account that combines the following transactions for each sector: (1) the net receipts from the previous account; (2) the receipts of each sector that are transfers from other sectors (including income payments and tax transactions as transfers); (3) consumption and similar expenditure; and (4) the entries required for reconciliation of the national income accounts and the financing accounts. Of these entries, the most important are (a) equipment and balancing subventions that represent the transfers between the enterprise sector and the government sector arising from the inclusion in the enterprise sector of government-financed production that creates cash surpluses or deficits in government accounts; and (b) the entry for profits reinvested in enterprises by sole proprietors whose “nonproductive” activities are included in the household sector.

Table 33, summarizing the 1955 data, shows the net balance brought forward, the net of all entries other than the equipment and balancing subventions, and the sum of the equipment and balancing subventions.

Table 33.France: Allocation Accounts, 1955(In billions of French francs)
Enterprises 1HouseholdsGovernment 2Foreign
Net receipts from production6,233277–285
Net intersector transfers–4,8901,330 3198138
Equipment and balancing subventions 4
From Government523–523
To Government–372372
Savings1,4941,607 547–147
Source: Based on data from Ministère des Finances, “Rapport sur les comptes de la Nation,” Statistiques et Etudes Financiüres (Paris).

Includes individual enterprises, government-owned enterprises and government production for sale, banks, etc.

Excludes financing activities of the Treasury and includes foreign and international agencies operating in France.

Net of consumption expenditure.

See text for explanation of these entries.

Of this total, investment by individual proprietors represents 350 billion francs.

Source: Based on data from Ministère des Finances, “Rapport sur les comptes de la Nation,” Statistiques et Etudes Financiüres (Paris).

Includes individual enterprises, government-owned enterprises and government production for sale, banks, etc.

Excludes financing activities of the Treasury and includes foreign and international agencies operating in France.

Net of consumption expenditure.

See text for explanation of these entries.

Of this total, investment by individual proprietors represents 350 billion francs.

The final results of this account are the savings of the enterprise and household sectors, and the surplus (prior to real investment expenditure) of the government and foreign sectors. These entries together with the purchase of real capital, i.e., investment, provide a calculation of the borrowing each sector required or the lending that it was able to undertake. These amounts are estimated in a final income-expenditure account, for which the 1955 entries may be summarized as shown in Table 34.

Table 34.France: Savings-Investment Accounts, 1965(In billions of French francs)
Enterprises 1HouseholdsGovernment 1Foreign
Savings1,4941,60747–147
Investment by individual proprietors350–350
Investment–2,030–637–334
Net lending–186620–287–147
Source: Based on data from Ministère des Finances, “Rapport sur les comptes de la Nation,” Statistiques et Etudes Financières (Paris).

See Table 33, footnotes 1 and 2.

Source: Based on data from Ministère des Finances, “Rapport sur les comptes de la Nation,” Statistiques et Etudes Financières (Paris).

See Table 33, footnotes 1 and 2.

In Table 31, the net borrowing and the net lending are estimated directly from the financial data, with accumulations of money and quasi money considered as lending. The sectors covered are more detailed than those for which entries are recorded in the income and expenditure accounts. Thus data are given for the banks, insurance companies, and other financial institutions as one financial sector. In this way it is recognized that, while their income-producing activities are relatively unimportant, the actions of financial intermediaries in the borrowing and lending process are of the greatest significance. It might be noted that all financial intermediaries are grouped together in the French accounts. The Monetary System is not considered as a separate sector.1 The borrowing and lending by local governments, the social insurance fund, government agencies, and foreign administrations are grouped together, but are shown separately from the general financing of the Treasury. Thus the Treasury’s financing activities are considered to be separate from other government transactions. The accounts of the foreign sector are segregated into Overseas France, the Saar, and “foreign.” In general, the borrowing and lending are classified by liquidity, starting with money and proceeding through an entry that might be considered the equivalent of quasi money, to short-term commercial credit, negotiable securities, loans, and financial transactions with foreigners. Since the national income accounts include accrual transactions, it is necessary to include an entry for the changes in commercial credits outside the banks. While provision is made for this entry, no estimate has been made of the changes in this account. The lack of information regarding this entry may account for part of the discrepancy that is recorded.

FEDERAL REPUBLIC OF GERMANY

The Bank deutscher Länder prepares three analytic financial statements: an analysis of reserve money, a consolidated balance sheet of the monetary system, and an analysis of financing transactions of each sector. The German Institute for Economic Research has prepared an integrated set of accounts that measure both the national income transactions and their associated financial flows.

The reserve analysis is covered by a table, shown here as Table 35, which is published in both the Annual and Monthly Reports of the Bank. This table is a reorganization of the balance sheet of the central banking system, with the items grouped into significant aggregates and recorded with subtotals in an order that is intended to demonstrate the effect of changes in the accounts of the central banking system on the aggregate reserve position of the other banks. Increases in liabilities of the central banking system to others than banks and increases in currency are regarded as drains on the credit institutions’ holdings of reserves. Increases in the assets of the central banking system, other than loans to banks, are regarded as factors leading to increases in the reserves of credit institutions. The difference between the sum of the factors increasing bank reserves and the sum of the factors decreasing reserves provides a measure of the total influx or efflux of central bank money at the credit institutions. This net change in the position of the other banks plus their borrowings from the central banking system is equal to the change in the credit institutions’ reserve deposits (only deposits with the central banks are included in the legal reserves of the deposit-money banks). The part of this change that equals the change in minimum required reserves is shown separately from the total change. This analysis differs from most comparable analyses in that it considers lending to credit institutions as a factor clearly separate from other changes in central bank accounts, and the change in the net of bank cash minus borrowing from the central banks as a significant measure of the effect of central banking policy.

Table 35.Federal Republic of Germany: Credit Institutions’ Recourse to the Central Banking System, 1953–55(In millions of deutsche mark)
195319541955
A.Influx or efflux of central bank money at credit institutions, as result of changes in items listed below1
Circulation of notes and coin–1,165–861–1,346
Central bank deposits of nonbank customers2–1,143–1,710–1,964
Federal Government, Lands, and Equalization of Burdens authorities–1,434–1,707–2,049
Counterpart funds3353–3062
Allied agencies112115135
Others (including Central Cash Office of Postal Administration)–174–88–112
Central bank lending to nonbank customers4 (excluding open market purchases and sales)–771992
Net balance on accounts for settlement of foreign trade at Bank deutscher Lander3,7473,3142,234
Open market purchases or sales by central banking system–269–132–125
Money market securities of Federal Government issued in exchange for equalization claims of Bank deutscher Länder–125
Other5–269–132109
Other factors–12769191
(Items in course of settlement in central banking system)(–27)(–114)(167)
Total influx or efflux (–) of central bank money966699–809
B.Increase or decrease (–) in credit institutions’ deposits with central banking system
Total of minimum reserves and excess reserves292665498
(Change in minimum reserve requirement)(388)(364)(823)
C.Increase or decrease (–) in recourse to central banking system–674–341,307
Position at end of year3,1243,0904,398
D.For comparison: Credit institutions’ credit balances with central banking system3,1883,8524,350
Source: Bank deutscher Länder, Report for the Year 1955 (Frankfurt am Main, 1956).

Signs indicate whether the changes in the items recorded in the text column had the effect of an influx or an efflux (–) of central bank money. Factors entailing an influx or an efflux are as follows:

InfluxEfflux
DecreaseIncreasein note and coin circulation
DecreaseIncreasein central bank deposits of nonbank customers
IncreaseDecreasein central bank lending to nonbank customers
Plus movementMinus movementin the balance on the Bank deutscher Länder’ accounts for settlement of foreign trade
Open market purchasesOpen market sales

The changes in the items recorded under A in the table are taken into account only insofar as they entail an influx or efflux of central bank money at the credit institutions. They are therefore not necessarily identical with the changes in the corresponding items of the combined return of the Bank deutscher Lander and the Land Central Banks.

Including credit balances employed in equalization claims.

Counterpart accounts of the Federal Government and, until January 1955, ERP Special Account of the Berlin Central Bank.

Including cash advances to the Reconstruction Loan Corporation (under a fixed credit line granted for the purpose of providing anticipatory finance for work creation, housing, and investment programs), which cannot be considered as “recourse to the central banking system” in the accepted sense of the term, viz., rediscounts and advances on securities.

Treasury bills and noninterest-bearing treasury bonds acquired on the open market, as far as these did not arise from conversion of equalization claims of the Bank deutscher Länder (see preceding item), Storage Agency bills, and bonds.

Source: Bank deutscher Länder, Report for the Year 1955 (Frankfurt am Main, 1956).

Signs indicate whether the changes in the items recorded in the text column had the effect of an influx or an efflux (–) of central bank money. Factors entailing an influx or an efflux are as follows:

InfluxEfflux
DecreaseIncreasein note and coin circulation
DecreaseIncreasein central bank deposits of nonbank customers
IncreaseDecreasein central bank lending to nonbank customers
Plus movementMinus movementin the balance on the Bank deutscher Länder’ accounts for settlement of foreign trade
Open market purchasesOpen market sales

The changes in the items recorded under A in the table are taken into account only insofar as they entail an influx or efflux of central bank money at the credit institutions. They are therefore not necessarily identical with the changes in the corresponding items of the combined return of the Bank deutscher Lander and the Land Central Banks.

Including credit balances employed in equalization claims.

Counterpart accounts of the Federal Government and, until January 1955, ERP Special Account of the Berlin Central Bank.

Including cash advances to the Reconstruction Loan Corporation (under a fixed credit line granted for the purpose of providing anticipatory finance for work creation, housing, and investment programs), which cannot be considered as “recourse to the central banking system” in the accepted sense of the term, viz., rediscounts and advances on securities.

Treasury bills and noninterest-bearing treasury bonds acquired on the open market, as far as these did not arise from conversion of equalization claims of the Bank deutscher Länder (see preceding item), Storage Agency bills, and bonds.

The statement shown here as Table 36 is a consolidated balance sheet for the monetary system, i.e., the Bank deutscher Lander, the Land Central Banks, deposit-money banks (including installment credit insitutions), the Postal Check and Savings Bank Office, the Reconstruction Loan Corporation, and the Finanz A.G., but not small agricultural credit cooperatives. In this table, the domestic liabilities are classified by the degree of their similarity to money; and for each type of liability other than currency, the total amounts outstanding and the private sector holdings thereof are shown. The assets of the banking system, other than foreign assets, obligations of the Government arising out of the monetary reform, and real estate and miscellaneous items, are considered by the Bank to be loans and they are classified as credit extended by the central banking system or by the deposit-money banks. The assets rediscounted by the central banks are recorded as credit extended by the deposit-money banks, and they are excluded from the assets reported as held by the central banks. For the deposit-money banks, assets are classified as short-term and other. For both the deposit-money banks and the central banking system, all assets other than securities and participations (a total that includes intramonetary system items as well as claims on the private sector) are classified as claims on the private or government sectors. Hence, while no consolidated totals are given for claims of the monetary system on the other sectors of the economy, it is possible to derive very close approximations to the correct totals.1

Table 36.Federal Republic of Germany: Consolidated Condition Statement for the Credit Institutions, Including the Central Banking System, 1951–55(In billions of deutsche mark)
19511952195319541955
Note and coin circulation19.3210.8211.9712.7814.09
Sight deposits, including amounts temporarily employed in equalization claims13.7014.9617.3221.1723.70
(Sight deposits, excluding amounts temporarily employed in equalization claims)(12.77)(13.29)(14.20)(16.44)(20.12)
Money supply23.0225.7829.3033.9537.79
Foreign assets (net)1.594.548.0310.7312.64
Loans to nonbank customers29.9238.2348.8862.23–77.41
Credit institutions outside central banking system28.7737.4948.2761.5076.41
Short-term loans16.7120.1922.9426.1929.22
Business and private(15.85)(18.77)(21.60)(24.88)(27.72)
Public authorities(0.43)(0.89)(0.81)(0.81)(0.82)
Treasury bills and noninterest-bearing treasury bonds(0.93)(1.08)(1.13)(1.05)(1.17)
Medium- and long-term loans11.8515.980.7580.6640.80
Business and private(9.69)(13.48)(19.00)(25.34)(88.40)
Public authorities(1.66)(0.50)(3.73)(5.31)(7.42)
Securities and syndicate participations0.711.322.584.666.37
Central banking system1.150.740.600.731.00
Public authorities1.080.600.470.600.89
Cash advances(0.17)(0.23)(0.23)(0.47)(0.63)
Treasury bills and noninterest-bearing treasury bonds(0.86)(0.37)(0.24)(0.18)(0.06)
Business and private0.120.140.140.120.11
Equalization claims and noninterest-bearing debentures14.8614.8814.9114.8713.84
Holdings13.8913.1711.6910.1410.26
Equalization claims sold under liability to repurchase0.981.713.224.733.58
Savings deposits–4.98–7.40–11.24–16.72–20.67
Time deposits–5.69–7.76–9.94–9.75–9.76
Business and private–3.34–4.60–5.58–4.99–5.46
Public authorities–2.35–3.16–4.36–4.76–4.30
Bank bonds in circulation–2.22–3.03–4.93–8.48–11.46
Monies and loans taken–5.64–8.45–11.13–14.92–19.11
Counterpart accounts in central banking system–1.19–0.74–0.38–0.31–0.25
Other items (net)–3.63–4.50–4.89–3.70–4.86
Net total23.0225.7829.3033.9537.79
Source: Bank deutscher Länder, Monthly Report (Frankfurt am Main).

Excluding cash holdings of credit institutions but including notes issued in West Berlin.

Source: Bank deutscher Länder, Monthly Report (Frankfurt am Main).

Excluding cash holdings of credit institutions but including notes issued in West Berlin.

The Bank’s analysis of sector financing transactions is contained in estimates of “The Formation of Wealth and Its Financing” published annually in the Monthly Report and summarized in a table in the Annual Report. The 1954 data are given here in Table 37.2 The estimates of the Bank measure changes in the assets held by each sector and the financing of these asset changes by saving, borrowing, and transfers. The Bank defines a sector’s investment as the net increase in its members’ holdings of real assets (measured by national income estimates of gross investment minus depreciation), increases in claims on foreigners, and increases in financial claims on other sectors of the economy. The last are classified by the institutions obligated to the lending sectors, with increases in money, quasi-monetary items, and other claims on banks (excluding securities) shown separately. The structure of the German financial system is such that this sector classification also approximates a liquidity classification of the increases in a sector’s assets. The borrowing by each sector is also classified by the institutions to which the borrowers are indebted. The intersector transfers that reconcile the financing data with national income measures of net deficits and surpluses are included as part of the financing accounts. These accounts also include international grants from foreign countries and grants to West Berlin. The financial institutions (i.e., the banking system, building and loan associations, and insurance companies) are not included as a separate sector of the economy; rather, they are regarded as a group of financial intermediaries with no direct saving or investing activities.

Table 37.Federal Republic of Germany: Formation of Wealth and its Financing, 1954(In billions of deutsche mark)
A. Formation of Wealth
Private HouseholdsEnterprisesPublic AuthoritiesForeign CounriesWest Berlin and Soviet ZoneTotal Wealth Formation1
Real wealthMonetary wealth
Formation of material assets (net investments)21.123.3624.48
Increase in claims on foreign countries, West Berlin, and Soviet Zone2.87–0.272.60
Formation of monetary wealth8.283.179.040.050.5521.09
At banks5.541.645.35–0.080.1612.66
Sight deposits (including notes and coin)(0.92)(2.20)(1.43)(–0.04)(0.16)(—)(4.66)
Time deposits(-0.01)(-0.83)(0.39)(-0.45)
Savings deposits(4.63)(0.34)(0.51)(—)(—)(—)(5.48)
Other monies placed with banks at medium and long term(—)(0.10)(3.03)(0.01)(—)(—)(3.14)
At building and loan associations1.300.021.32
At insurance companies0.840.39__1.23
Purchase of securities0.601.121.052.77
Increase in direct claims2.64–0.490.012.16
On West German debtors(—)(—)(2.24)(–0.49)(0.01)(—)(1.76)
On foreign countries and West Berlin(—)(—)(0.39)()()()(0.96)
Other formation of monetary wealth0.580.380.96
Total8.2824.2912.392.930.2827.0821.09
B. Financing of Wealth Formation
Private HouseholdsEnterprisesPublic AuthoritiesForeign CountriesWest Berlin and Soviet ZoneTotal Financing1
SavingsBorrowing
Savings6.959.4010.6526.99
Transfers of wealth1.08–0.07–0.920.09
Borrowing0.2614.962.672.930.2821.09
From banks0.269.342.372.7214.69
At long and medium term(—)(6.12)(2.18)(—)(—)(—)(8.29)
At short term(0.26)(3.23)(0.19)(—)(—)(—)(3.68)
Credits to foreign countries2(—)(—)(—)(2.72)(—)(—)(2.72)
From building and loan associations0.990.99
From insurance companies0.650.130.78
By sale of securities1.080.350.091.52
Direct loans1.94–0.180.200.192.16
From West German creditors(—)(1.94)(–0.18)(—)(—)(—)(1.76)
From foreign countries and West Berlin(—)(—)(—)(0.20)(0.19)(—)(0.39)
Other borrowing0.960.96
Total8.2824.2912.392.930.2827.0821.09
Source: Bank deutscher Länder, Monthly Report (Frankfurt am Main), July 1956.

The aggregate total of real wealth formation or savings cannot be added to the monetary wealth formation or the borrowing, since in an over-all view the financial changes cancel each other out.

Changes in gold and foreign exchange holdings.

Source: Bank deutscher Länder, Monthly Report (Frankfurt am Main), July 1956.

The aggregate total of real wealth formation or savings cannot be added to the monetary wealth formation or the borrowing, since in an over-all view the financial changes cancel each other out.

Changes in gold and foreign exchange holdings.

The sum of the entries for bank loans is larger than the sum of the entries for increases in the community’s holdings of claims on banks. This apparent independent investment in financial assets by banks is explained by the inclusion of bank security issues in the entries for “purchase of securities” by the rest of the economy (these securities are not included in the entries for security issues by the rest of the economy). Hence bank loans are offset by the creation of money, quasi money, and securities. The residual entries that account for errors in and omissions from the tables are entered as positive entries in other borrowing and lending, and are small.

The tabulations of the German Institute for Economic Research present an integrated set of accounts that contain consistent data, with relatively few unexplained discrepancies, for the national income accounts and the associated financing transactions. The data for 1954 are given in Table 38, and the relation between the income accounts and the financing accounts is shown in Table 39. As summarized in Table 39, the net income receipts of each sector, its consumption and tax transactions, and the intersector transfers (primarily social security and similar transfers) provide a total of each sector’s savings. From this total of savings, the investment expenditure of each sector is deducted to provide an estimate of the amount of the sector’s financing transactions. The financing data, however, represent changes in the value of the total assets and liabilities of each sector. Consequently, an adjustment must be made for the revaluations of intersector claims that are still being made in Germany as a consequence of the currency reform and attendant operations (e.g., transfers arising through the operation of the “Share the Burden Fund”) and other revaluations and similar adjustments (e.g., adjustment of accounts arising from the allocation of occupation costs). In part, some of these adjustments involve a conversion of the accounts between the Government and the foreign sector from a national income accrual basis to a cash basis. The national income financing total, as adjusted for these items, provides an estimate of the changes in assets and liabilities that would be shown by direct measurement of sector balance sheets if the national income accounts were accurate and correct sector balance sheets could be derived. The discrepancy line indicates the degree of inconsistency between the two sets of accounts. The relatively small discrepancy may be accounted for, in part, by offsetting errors in the two sets of accounts. In Table 38, the changes in the assets and liabilities of each sector are measured. The net excess (or deficiency) of the increase in assets over the increase in liabilities measures the net “lending” (or “borrowing”) by each sector. Increases in money and quasi money are considered to be lending by each of the nonbanking sectors and borrowings by the banks and financial institutions sector. The other borrowings and loans are classified by type of transaction. It should be noted that the summaries reproduced here are taken from a set of detailed accounts that show the transactions of each sector by years but do not bring together in one statement the transactions for all sectors in any one year. The order of the items differs from sector account to sector account. The banks are included in a sector with other financial institutions. Owing to the nature of German banks and to the types of institution included as banks in German monetary statistics, the inclusion of banks with other financial institutions in a single sector is probably more appropriate in Germany than in other countries, where the banking systems are more limited in their operations and the separation of bank accounts from the accounts of other financial institutions provides more information on the amount and sources of monetary expansion during any period.

Table 38.Federal Republic of Germany: Changes in Financial Assets and Liabilities of Economic Sectors, 1954(In billions of deutsche mark)
GovernmentBusinessHouseholdsResidential ConstructionForeignBanks and Other Financial Institutions
Increase in Assets9.04.48.20.918.5
Notes in circulation0.20.50.1
Sight deposits1.92.00.2–0.1
Time and savings deposits1.0–0.15.9–0.2
Issues of money market securities, loans, bonds, shares, debentures, securities0.90.80.62.7
Short-term credits3.5
Medium- and long-term credits8.7
Claims on Government0.81.0
Other assets of banks0.5
Government long-term investments5.00.5
Operations with West Berlin0.20.3
Life insurance1.0
Medium- and long-term direct credits0.6
Consumer credit, retail trade0.4
Long-term credit to, and investments in, foreign countries–0.2
Short-term capital movements–0.2
Gold and foreign exchange2.5
Increase in liabilities4.07.70.77.32.818.5
Notes in circulation0.8
Sight deposits4.0
Time and savings deposits6.6
Issues of money market securities, loans, bonds, shares, debentures, securities0.61.23.2
Short-term credits3.30.10.1
Medium- and long-term credits1.62.50.24.4
Government obligations1.8
Other obligations to banks0.5
Government long-term investments2.43.1
Operations with West Berlin0.40.1
Life insurance1.0
Medium- and long-term direct credits0.20.4
Consumer credit, retail trade0.4
Long-term credit to, and investments in, foreign countries–0.2
Amortization of foreign debt–0.2–0.50.7
Short-term capital movements–0.2
Gold and foreign exchange2.5
Miscellaneous0.3–0.3
Net financing5.0—3.37.5—7.3—1.9
Source: Deutsches Institut für Wirtschaftsforschung, Vierteljahrshefte zur Wirtschaftsforechung (Berlin).
Source: Deutsches Institut für Wirtschaftsforschung, Vierteljahrshefte zur Wirtschaftsforechung (Berlin).
Table 39.Federal Republic of Germany: Summary of National Accounts, 1954(In billions of deutsche mark)
GovernmentSocial

Security

Funds
BusinessHouseholdsForeignTotal
Net income receipts7.256.281.923.3168.61
Consumption–19.6–0.4–83.2–27.5–130.7
Taxes34.812.1–37.4–9.5
Transfers–11.8–9.72.219.3
Saving10.62.021.08.5–4.237.9
Investment–10.2–26.7–1.0–37.9
Net financing0.42.0–5.77.5–4.2
Revaluations and intersector adjustment entries2.00.2–4.01.8
Change in net credit or debtor (—) positions
As derived from income accounts2.42.2–9.77.5–2.4
As derived from financing accounts5.0–10.627.5–1.9
Discrepancy0.4–0.90.5
Source: Deutsches Institut für Wirtschaftsforschung, Vierteljahrshefte zur Wirtschaftsforschung(Berlin).

Gross national product, 145.3, plus imports, 23.3.

Housebuilding, 3.3, plus other business, 7.3.

Source: Deutsches Institut für Wirtschaftsforschung, Vierteljahrshefte zur Wirtschaftsforschung(Berlin).

Gross national product, 145.3, plus imports, 23.3.

Housebuilding, 3.3, plus other business, 7.3.

The analyses of the Bank and the Institute are roughly in agreement. Some of the apparent differences arise from the inclusion of financial institutions as a separate sector in the Institute’s analysis. The main differences arise from the Institute’s adjustments to the government finance data. The Bank does not make comparable adjustments.

GREECE

The Bank of Greece publishes a table, given here as Table 40, which analyzes the changes in the Bank of Greece accounts that result in changes in the note circulation. The changes in the foreign assets of the Bank of Greece, as measured here, are the changes in the Bank’s net foreign exchange holdings as recorded in the Bank’s books, i.e., including the effects of changes in exchange rates, as well as changes in foreign holdings. The changes in the net balance of accounts between the Bank of Greece and the Government include the net of the Bank’s credits to the Government minus the Government’s deposits. The credits by the Bank of Greece are largely credits to the other banks in Greece. The deposits included in this table are the deposits of Greek banks and semiofficial institutions with the Bank of Greece. The U.S. aid accounts include both transactions directly associated with U.S. aid transfers and the loans by the Bank of Greece financed with the drachma proceeds of dollars received under the U.S. aid program. In 1955, the large negative entry for state accounts and the positive entry for other items reflect a simultaneous writing down of claims on the Government held by the Bank and surplus accounts of the Bank arising from past revaluations of the drachma.

Table 40.Greece: Factors Affecting the Volume of Note Circulation, 1953–55(In millions of drachmas)
195319541955
Note circulation3,5033,8884,951
Net Annual change1,0273851,063
Foreign exchange1,353356475
State accounts–837372–3,193
Credits195808218
Deposits–565–813–1,239
U.S. aid192–555973
Other6892173,829
Source: Bank of Greece, Monthly Statistical Bulletin (Athens).
Source: Bank of Greece, Monthly Statistical Bulletin (Athens).

GUATEMALA

Table 41 below shows an analysis by the Bank of Guatemala of the origin of money, including the deposits of the Government and official agencies. In addition to providing an external-internal origin analysis of money, this table allocates responsibility for its creation to the Bank of Guatemala and to the other banks. The factors of external origin are the net foreign assets of the Bank of Guatemala (including the net IMF position) and of other banks. The difference between the total monetary liabilities of the Bank of Guatemala (including liabilities to the other banks) and its net foreign assets is taken as the sum of the factors of internal origin arising from the activities of the Bank of Guatemala. The difference between the total of money, and the factors of external origin plus the factors of internal origin arising in the Bank of Guatemala, is taken as the sum of the factors of internal origin arising in the other banks.

Table 41.Guatemala: Origins of Money in Circulation, 1951–55(In millions of quetzales)
19511952195319541955
Money in circulation69.873.585.493.1103.8
External origin42.044.042.437.652.1
Bank of Guatemala41.143.241.186.951.1
Other banks0.90.81.30.71.0
Internal origin27.829.543.055.551.7
Bank of Guatemala15.413.731.942.134.1
Other banks12.410.811.118.417.6
Source: Banco de Guatemala, Boletín Estadístico (Guatemala City).
Source: Banco de Guatemala, Boletín Estadístico (Guatemala City).

HONDURAS

A table published by the Central Bank of Honduras, analyzing the factors of expansion and contraction of the money held by the private sector, is shown below (Table 42). The factors leading to a change in money in circulation are classified as factors of external and of internal origin. These, in turn, are divided between those for which the Central Bank is considered responsible and those for which the commercial banks are considered responsible. The expansive factors of external origin are the gross foreign assets of the Central Bank (including the net IMF position) and the commercial banks. All other assets of the banks are considered to be factors of internal origin; they are classified as “loans” and “other,” but with no classification by the economic sectors obligated to the banking system. The contractive factors are the foreign liabilities of the system (including foreign currency deposits of residents) and nonmonetary domestic liabilities that are primarily quasi-monetary deposits but also include capital accounts. For this table, “commercial banks” are the banks included in this category in most Hon-duran statistics, plus the National Development Bank.

Table 42.Honduras: Origins of Money in Circulation, 1951–55(In millions of lempiras)
19511952195319541955
Money in circulation47.552.559.468.660.6
Expansive factors80.492.9102.9117.5113.2
External origin49.450.050.652.742.8
International reserves of Central Bank40.648.845.548.640.0
International reserves of commercial banks6.14.14.54.12.7
U.S. coin in circulation3.72.10.7
Internal origin31.042.952.364.870.4
Central Bank8.012.014.421.018.9
Loans(5.3)(4.8)(6.7)(12.7)(8.9)
Other(2.7)(7.2)(7.7)(8.8)(9.9)
Commercial banks28.080.987.948.851.6
Loans(19.6)(25.2)(81.8)(88.4)(40.7)
Other(8.4)(6.7)(6.2)(10.4)(10.9)
Contractive factors32.940.443.548.952.5
External origin1.11.71.50.10.1
Central Bank liabilities
Commercial bank liabilities1.11.71.50.10.1
Internal origin31.838.742.148.852.4
Central Bank11.515.915.715.412.2
Nonmonetary liabilities(10.9)(15.2)(15.0)(14.6)(11.4)
Capital and reserves(0.5)(0.7)(0.7)(0.8)(0.8)
Commercial banks20.822.826.433.440.2
Nonmonetary liabilities(7.8)(7.7)(10.2)(11.7)(16.9)
Capital and reserves(18.0)(16.1)(16.2)(21.7)(23.4)
Source: Banco Central de Honduras, Boletín Mensual (Tegucigalpa).
Source: Banco Central de Honduras, Boletín Mensual (Tegucigalpa).

INDIA

The Reserve Bank of India publishes two analyses of financial transactions. One is an assessment of changes in the accounts of the monetary system; the other is a measurement of the sources and uses of finance by industrial companies.

The summary of the accounts of the monetary system, shown here as Table 43, is one of the most neutral statements provided by any central bank. The sum of the currency and deposits held by the private sector (i.e., excluding central and local government deposits) are recorded in the first part of the table. In the second part, the important assets and liabilities of the banks, other than components of the money supply, are listed. No subtotals are given for groups of data, no adjustments are made for extraordinary transactions, and minor assets and liabilities are not recorded. Hence no attempt is made to indicate causal relations between groups of assets and liabilities and the money supply, or to indicate relations between parts of the banking system (these relations are indicated elsewhere in the Bulletin of the Reserve Bank), and the sum of the data is not equal to the money supply.

Table 43.India: Variations in the Money Supply and Allied Data, Fiscal Years Ended March 31, 1952–56(In millions of Indian rupees)
1951–521952–531953–541954–551955–56
Money supply with public
Currency with public–1,148–1733028231,933
Demand liabilities (net) of banks–537–1879493681
Other deposits with Reserve Bank1–64–31–18–5023
Total–1,749–3912931,2662,637
Allied data2
Central Government’s deposits with Reserve Bank181–444–700–6379
Other Governments’ deposits with Reserve Bank–13–52427–2318
Foreign assets held by Reserve Bank–1,6116293–230161
Rupee securities held by Reserve Bank–191–208–5856581,727
Loans and advances to Governments by Reserve Bank–624–28–1–5
Other loans and advances by Reserve Bank446–34414268321
Bills purchased and discounted by Reserve Bank–455119–419
Cash on hand and balances with Reserve Bank, of banks–153–35–245277
Time liabilities (net) of banks–88354164517426
Advances and bills purchased and discounted in India, of banks34794–498816511,479
Investments in government securities by banks5–249689181281212
Sources: Reserve Bank of India, Bulletin, and Report on Currency and Finance (Bombay).

Excluding balances held on IMF Account No. 1.

Figures are gross variations; no adjustments have been made in respect of extraordinary transactions.

Excluding money at call and short notice; bills relate to inland bills only up to May 7,1954 and to both inland and foreign bills thereafter.

Includes money at call and short notice.

At book value; include treasury bills and treasury deposit receipts.

Relates to scheduled and reporting nonscheduled banks only.

Sources: Reserve Bank of India, Bulletin, and Report on Currency and Finance (Bombay).

Excluding balances held on IMF Account No. 1.

Figures are gross variations; no adjustments have been made in respect of extraordinary transactions.

Excluding money at call and short notice; bills relate to inland bills only up to May 7,1954 and to both inland and foreign bills thereafter.

Includes money at call and short notice.

At book value; include treasury bills and treasury deposit receipts.

Relates to scheduled and reporting nonscheduled banks only.

The statement of sources and uses of company funds, shown here as Table 44, analyzes the net profit, reserve allocation, and investment accounts for the 771 large Indian public companies engaged in industry and commerce. Data are included only for companies that have paid-up capital of at least 500,000 rupees and that publish accounts (i.e., private limited companies are excluded); all foreign companies operating in India are excluded, as are banking, insurance, and investment companies. The retained profits, funds arising from reserve allocations, borrowing, and tax refunds are shown as sources of funds. Purchases of real investments, with fixed capital separated from inventories, purchases of financial assets, with three types of asset specified, and changes in money are shown as uses of funds. The table provides a measure of the borrowing, lending, and investment transactions of the companies included in the survey. These transactions are measured from the partial accounts of the company sector rather than from the accounts of the financial system. This approach is novel for an underdeveloped country. As in most of the published borrowing and lending statements, the data contained in this survey are available only with considerable delay. The 1953 data were published in the April 1956 issue of the Bulletin. The explanatory article accompanying the table gives the composite balance sheets from which the analysis is derived and associated data for some of the entries (e.g., security issues and their rates of interest, and summarized income, expenditure, profit, and dividend accounts). Information is also provided on the transactions of the companies in each of 32 industries.

Table 44.India: Sources and Uses of Funds by 771 Companies, 1951–53(In millions of Indian rupees)
195119521953
Sources of funds
Paid-up capital167.831.882.5
Reserves2274.999.5105.4
Depreciation249.7240.2237.7
Taxation reserve134.7–46.734.3
Borrowing366.5–9781.9
From banks280.2–123.5–69.2
Due to trade92.6–29.7–22.0
Debentures18.7–16.27.0
Mortgages6.885.069.5
Other19.886.616.6
Excess profit tax refunds35.247.46.7
Unidentified sources112.943.920.0
1,241.7318.3488.5
Uses of funds
Gross fixed assets327.3459.5483.9
Inventories601.6–186.3–142.8
Receivables208.2–37.441.6
Advance of income tax69.624.127.0
Investments2δ.158.428.6
Cash9.950.2
1,241.7318.3488.5
Source: Reserve Bank of India, Bulletin (Bombay), April 1956.

Excluding capitalized reserves.

Excluding depreciation and taxation reserves.

Source: Reserve Bank of India, Bulletin (Bombay), April 1956.

Excluding capitalized reserves.

Excluding depreciation and taxation reserves.

INDONESIA

Two statements published by the Bank Indonesia are shown here as Tables 45 and 46. These status are consolidated balance sheets of the monetary system, in aggregate and in comparative form, that analyze the total of, and changes in, privately held money.

Table 45.Indonesia: Monetary Balance Sheet, 1951–55(In millions of rupiah)
19511952195319541955
Currency issued by Government (less banknote balances with government pay offices)311255340480574
Advances of Bank Indonesia to Government1,3594,7305,3098,4728,332
Treasury notes and bills with banks5663114153174
Domestic, nongovernment credits granted by banks2,1522,4452,3942,8264,017
Gold and foreign exchange holdings2,0741,7992,0251,7582,771
Sundry items1,0274814167591,018
6,9799,77310,59814,44816,886
Currency in circulation
Banknotes3,1394,2095,0307,2708,474
Less Banknote balances with Government108171160146202
3,0314,0384,8707,1248,272
Government notes349320367470599
Coin70106133156177
Less Cash balances with banks122115152208217
3,3284,3495,2187,5428,831
Demand deposits, domestic creditors1,7062,2552,2693,4193,947
Total money supply5,0346,6047,48710,96112,778
Nonmonetary liabilities of banks1,9453,1693,1113,4874,108
6,9799,77310,59814,44816,886
Source: Bank Indonesia, Report for the Year (Djakarta).
Source: Bank Indonesia, Report for the Year (Djakarta).
Table 46.Indonesia: Causes of Changes in the Money Supply, 1952–55(In millions of rupiah)
1952195319541955
A.Government finance
Government debt with Bank Indonesia.…5803,162–140
Treasury bills with banks.…533921
Currency issued by Government (less banknote balances with government pay offices).…8514194
5,6657183,342–25
Adjustment: Profit on gold1,734
Total5,6652,4523,342–25
B.Domestic credits granted by banks
To semigovernment institutions170–27216086
To private business and individuals11222222731,105
Total292–504331,191
C.Foreign exchange holdings
Gold holdings with Bank Indonesia.…–1,025–596–102
Ready foreign exchange position of Foreign Exchange Fund.…–237608760
Foreign bills and balances of banks.…–298–281354
Total–3,230–1,560–2691,012
Total (A + B + C)2,7278423,5062,178
D.Miscellaneous causes
Margin deposits with banks.…–63–7958
ECA, IMF, and IBRD funds.…3421818
Capital and reserves of banks.…31975130
Time deposits.…34926
Claims of Government on Foreign Exchange Fund.…–280–32
Foreign creditors (Rurni).…40–32–2
Sundry accounts–124–127131
Total1,181–4032361
E.Money supply1,5468823,4741,817
Total (D + E)2,7278423,5062,178
Source: Bank Indonesia, Report for the Year (Djakarta).

Including participations and discounting of bills.

Source: Bank Indonesia, Report for the Year (Djakarta).

Including participations and discounting of bills.

From Table 45 it is possible to derive totals for the claims of the monetary system on the government, the private, and the foreign sectors. The foreign assets are net of foreign liabilities; at the end of 1955, these amounted to almost half of gross foreign holdings. The nonmonetary liabilities of Indonesian banks include a significant amount of liabilities that are not quasi-monetary. Time and savings deposits amount to less than half a billion rupiah, whereas capital accounts of the banks exceed one billion rupiah.

Table 46 not only records the changes in the items aggregated in the monetary balance sheet, but also includes adjustment entries. The change in the foreign exchange holdings for 1953 is not the change in the rupiah value of the system’s foreign assets, but the increase in the value of these holdings minus the profit that the Bank Indonesia obtained on the revaluation of its gold holdings. This profit item is added to the net increase in the government debt to the banking system, as the profit was transferred from the Bank to the Government. Thus the change in foreign exchange holdings measures the net surrender of rupiah by the economy to the monetary system, associated with the decline in Indonesia’s foreign assets during 1953. The sum of the profit on the gold revaluation and the increase in the government debt to the banking system provides a measure of the finance made available to the Government through the operation of the monetary system.

ISRAEL

A statement analyzing the principal factors leading to changes in money, excluding government deposits, prepared by the Bank of Israel, is shown here as Table 47. Changes in the indebtedness of the economic sectors to the monetary-system are considered to be the significant factors producing changes in money. The entry for conversion of foreign currency into Israel currency is the increase in the foreign assets of the monetary system, less increases in the system’s foreign currency liabilities, including liabilities to residents. The net expansion of bank credit to the Government records the total increase in the monetary system’s claims on the Government (other than security holdings) less increases in government deposits (other than the special deposits with banks intended to cover bank financing of loans to the private sector). Bank credit to the public excludes loans made by the banks to the private sector against these countervailing deposits by the Government. The loans financed from these deposits are entered as a deduction from the deposits made for this purpose by the Government. The entry for these net deposits by the Government also includes government time deposits.

Table 47.Israel: Factors Causing Changes in the Money Supply, 1955(In millions of Israel pounds)
1955
Conversion of foreign currency into Israel currency26.1
Net expansion of bank credit to Government21.5
Expansion of bank credit to public20.0
Increased investment of banking institutions in government securities3.2
Increased investment of banking institutions in other securities0.8
Net decrease in government deposits earmarked for loans6.2
Increase of funds in transit between banking institutions7.4
Increase in time deposits held by public–21.1
Other factors7.1
Total increase in money supply71.2
Source: Bank of Israel, Annual Report, 1955 (Jerusalem, 1956).
Source: Bank of Israel, Annual Report, 1955 (Jerusalem, 1956).

ITALY

The Bank of Italy publishes in two parts a table covering the flow of savings and the money supply. One part, shown here as Table 48, is a summary statement; the other part, given here as Table 49, is a detailed statement of the underlying data. The data in these two tables measure the flow of borrowings and lendings within the economy, organized to “account” for changes in Bank of Italy currency in circulation.

Table 48.Italy: Flow of Savings and the Money Supply, 1951–551(In billions of Italian lire)
19511952195319541955
Funds borrowed by Treasury from
Commercial banks, savings banks, and banking associations99.4145.7142.0153.4163.1
Central Post Office Savings Fund65.676.387.314.73.5
Social security and insurance institutions3.65.74.119.1–0.5
Long-term credit institutions and capital market69.558.577.7142.4158.1
238.1286.2311.1329.6324.2
Foreign aid216.7142.574.019.720.0
Other accounts at Bank of Italy–33.541.846.4109.099.6
Italian Foreign Exchange Control Office, gold and foreign exchange21.6–5.01.4
Government notes and coins1.50.4
421.3470.5453.1454.8445.6
Funds borrowed by economy from or through
Bank of Italy–17.3–3.135.113.910.2
Commercial banks, savings banks, and banking associations325.8590.8549.8488.3575.3
Central Post Office Savings Fund52.7100.193.9103.1105.0
Social security and insurance institutions41.247.889.380.8104.5
Long-term credit institutions and capital market126.5171.1232.7266.3292.0
528.9906.71,000.8952.41,087.0
Italian Foreign Exchange Control Office, gold and foreign exchange221.9–25.1–50.18.957.6
International aid6.21.0
757.0882.6950.7961.31,144.6
1,178.31,353.11,403.81,416.11,590.2
Sources of Funds
Savings deposits191.7292.0302.8338.1371.1
Other bank accounts51.936.5102.175.960.4
Post Office savings107.5166.6183.8117.195.4
Social security and insurance institutions44.853.593.499.9104.0
Long-term credit institutions and capital market196.0229.6310.4408.7450.1
Bank of Italy’s current accounts and cashier’s checks–3.86.3–6.20.319.1
Banks’ current accounts and checks271.5356.2287.4236.5339.3
Post Office’s current accounts10.89.8–2.60.713.1
870.41,150.51,271.11,277.21,452.5
Foreign aid181.7119.268.450.24.3
Cash and available balances20.46.33.51.70.4
Circulation of notes and coins126.689.767.890.4133.8
1,178.31,353.11,403.81,416.11,590.2
Source: Bank of Italy, Report for the Year (Rome).

Excluding loans in foreign currencies and current accounts in foreign countries.

If negative, the figures should be added to the funds available and if positive, deducted.

Source: Bank of Italy, Report for the Year (Rome).

Excluding loans in foreign currencies and current accounts in foreign countries.

If negative, the figures should be added to the funds available and if positive, deducted.

Table 49.Italy: Flow of Savings and the Money Supply, Detailed Statement, 1955(In billions of Italian lire)
DestinationSourceResidual Effect on Currency Circulation
To the TreasuryTo the EconomyExcluding current accountsCurrent accounts
Shares and debenturesLoans and advances
BANK OF ITALY1
1. Rediscount: Syndicate for Advances on Industrial Securities–3.5
2. Rediscount: Agricultural credit institutions and sections17.5
3. Direct discounts
4. Advances to special institutions–1.0
5. Advances to private customers–2.8
6. Current accounts10.215.1
7. Cashier’s checks, checks, and other sight liabilities4.0
8. Minor items8.6
BANKS AND SAVINGS BANKS27.7–17.5
9. Deposits at Treasury–22.1
10. Treasury bills through Bank of Italy for statutory reserves59.0
11. Treasury bills direct for statutory reserves57.9
12. Other government securities for statutory reserves–0.3
13. Other treasury bills–38.2
14. Other government securities70.9
127.2
15. Loans and investments31.714.4515.8
16. Savings deposits and current correspondence accounts371.1309.5
17. Cashier’s checks and checks10.1
18. Net surplus on minor asset and liability items51.8
742.5
19. Less Cash and available balances230.4
Transactions with Bank of Italy712.1
20. Rediscounts–6.2
21. Advances taken–5.0
22. Deferred payments at clearing houses–2.6
23. Less Uninvested deposits for statutory reserves4.2
24. Less Other deposits5.0
BANKING ASSOCIATIONS–23.0
25. Deposits at Treasury
26. Treasury bills0.1
27. Other government securities3.2
3.3
28. Loans and investments0.99.735.4
49.7
32. Transactions with Bank of Italy–0.4
CENTRAL POST OFFICE SAVINGS FUND
33. Deposits at Treasury4.5
34. Treasury bills
35. Other government securities
4.5
36. Loans and investments–1.0105.0
37. Post Office savings and current accounts95.413.1
INSURANCE COMPANIES108.5
38. Deposits at Treasury–4.0
39. Government securities3.5
40. Loans and investments18.186.4
41. Actuarial reserves104.0
LONG-TERM CREDIT INSTITUTIONS AND CAPITAL MARKET
42. Treasury bills–10.7
43. Other government securities129.4
118.7118.7
44. Debentures issued by Institute for Industrial Reconstruction14.5
45. Debentures issued by long-term institutions71.0158.7
46. Time deposits of long-term institutions13.2
47. Issues of industrial debentures3.6
48. Share issues162.5
71.0352.5
49. Less Securities already included in items 15, 28, 36, 40, and other duplications31.660.5
39.4292.0331.4
324.2334.2752.81,081.0371.5–40.9
1,087.01,452.53
BANK OF ITALY41,452.13
50. Current account of Foreign Exchange Control Office, gold, and foreign exchange1.457.659.0
51. Foreign aid20.04.315.7
52. Other accounts with Treasury20.320.3
53. Current account for treasury service79.379.3
445.2133.4
54. Collections in respect of budget receipts2,308.50.4
55. Minor treasury transactions–53.0
56. Payments in respect of budget expenditure2,700.7
334.2810.41,085.3371.5133.8
1,144.61,456.83505.3
1,456.43
Source: Bank of Italy, Report for the Year (Rome).

Transactions with special institutions and private customers.

Excluding balances with the Treasury and the Bank of Italy.

The first total is the sum of the borrowing data; the second total is the sum of the lending data and changes in the currency circulation.

Transactions in foreign exchange and with the Treasury.

Source: Bank of Italy, Report for the Year (Rome).

Transactions with special institutions and private customers.

Excluding balances with the Treasury and the Bank of Italy.

The first total is the sum of the borrowing data; the second total is the sum of the lending data and changes in the currency circulation.

Transactions in foreign exchange and with the Treasury.

Table 48 shows the total borrowing and loans within the economy. The borrowing items are separated into those of the Government and those of the private sector, including government enterprises (i.e., the rest of the economy). Within each of these separations, the borrowings from domestic sources—the Bank of Italy, the rest of the monetary system (banks, savings banks, and banking associations), the Post Office Savings Fund, insurance companies, and other financial institutions (including the capital market)—are separated from the “borrowing” abroad (including the sale of foreign exchange and gold to the monetary system, i.e., the Foreign Exchange Control Office). The incorporation of the balances of transactions with foreigners in domestic borrowings results in there being no separate entries for net borrowing transactions between the domestic economy and the foreign sector. For the Government, the borrowings from others than the Bank of Italy are totaled separately. The Government’s borrowing from the Bank of Italy less increases in the Treasury’s account with the Bank are shown as a separate entry, along with the Treasury’s transactions with foreigners (including foreign aid received). All the data except those for the capital market are taken from the records of lenders. The capital market entries are the total net issues of securities as recorded by borrowers, minus the identifiable purchases of these issues as recorded in the accounts of lenders.

Since the total borrowings by the economy less the net borrowings from foreigners are included in the borrowing accounts, their sum must equal the total loans by the economy. These are shown as “sources of funds”; deposits in banks, which in most countries would be classed as money, are included among the sources. The items that are considered to be of a savings nature (savings deposits, bank accounts other than current accounts, savings accounts at the Post Office, and the balance of transactions with insurance companies) are included at the beginning of the list; and those items that are considered either as semisaving or semimone-tary (current accounts and outstanding cashier’s checks) are placed at the end. There are intermediate entries (transactions with long-term credit institutions and the capital market) appearing in both the borrowing and source of funds sections of the table; these record transactions outside the monetary system arising from the issue or redemption of securities. They are intraprivate-sector entries rather than intersector financing entries. The difference between the total borrowings of the economy and the saving and semisaving transactions must equal the foreign aid received by the economy and the increase in currency circulation. These are the only financing items, or financial assets available to the Italian economy, that are not included among the other sources of funds. These items, together with the adjustment for the interbanking system transactions (cash and available balances), provide the balancing entries that equate the total source of funds to total borrowings. The interbank adjustment is required because the total liabilities of both the Bank of Italy and the other banks, including interbank items, are included as a source of funds. For the foreign aid entries, the aid given to the economy, as measured by deposits to counterpart funds, is included in the sources of funds; and the provision of finance to the Treasury, as measured by the withdrawals from counterpart funds, is included in the borrowings. Thus the summary table seeks to demonstrate the borrowings by the economy and the sources from which these borrowings were obtained. The latter are measured by the increases in the financial assets of the private sector of the economy that provide the funds for these borrowings.

In the detailed statement (Table 49), information is given on the transactions that underlie the summary statement. The borrowings by the economy and the increase in the financial assets of the private sector arising from transactions with the monetary system (with each part identified), the Post Office Fund, the insurance companies, and the capital market are specified. The transactions of the Government and the private sector with each of these institutions are listed separately. For the private sector, the issue of shares and debentures is separated from other borrowing through loans and advances. The accumulations of financial assets in current accounts and currency (i.e., in “semimonetary” or “monetary” form) are separated from other accumulations of financial assets. The table also provides data on the transactions within the financial system, i.e., it indicates, among other things, the changes in the accounts between the Bank of Italy and the deposit-money banks. Finally, for the Treasury, but not for the private sector, the total receipts and expenditures on budgetary accounts and the net balance on other accounts are shown to reconcile the government finance data with the financing of the surplus or deficit; but since the net issue (or redemption) of securities to finance the deficit (or surplus) is included in the capital market section, the reconciliation may be more apparent than real.

JAPAN

Two tables analyzing monetary and financial data, published by the Bank of Japan, are summarized here as Tables 50 and 51. In one of the tables (Table 50), the Bank of Japan records the changes in the money supply and its components, and the asset and liability data that are the counterparts to money in the accounts of “financial institutions.” Here, the Bank defines the money supply as including currency, current and ordinary deposits, and deposits at notice, less checks and bills held by financial institutions. This coverage—which is somewhat broader than that in another table on Cash and Deposit Currency published by the Bank in its Economic Statistics Monthly—indicates that the definition of money supply used probably includes some items that would be considered as quasi money in other countries. However, the changes in the most important quasi-monetary deposits (time and savings deposits) are included as offsets to the asset data. The institutions covered are the Treasury, the Bank of Japan, all commercial banks, mutual loan and savings banks, credit associations, the Central Cooperative Bank of Agriculture and Forestry, and the Central Bank for Commercial and Industrial Cooperatives. Thus “financial institutions” include some institutions that might be considered as “related institutions” in other countries. The balance of receipts and payments of treasury accounts represents the net borrowing by the Government from the Bank of Japan plus the net decrease in its deposit account with the Bank. Since the foreign exchange account is included with other government accounts, the net balance of treasury accounts includes the results of changes in the economy’s foreign reserves. However, transactions arising from the purchase and sale of foreign exchange are shown separately; hence the domestic currency equivalent of the change in Japan’s foreign assets is reported, and the net financing of the Government on other accounts by the Bank of Japan may be derived. To the extent that the financial institutions hold government securities, the remaining accounts show not only changes in the credit extended to the private sector of the economy, but also a small element of change in holdings of claims on the Government. However, the amounts of government securities held by the financial institutions are quite small, so that it is possible to arrive at a reasonable approximation to the changes in the claims on the private sector held by the financial institutions.

Table 50.Japan: Money Supply Factors, 1952–55(In billions of yen)
1952195319541955
Changes in
Currency in circulation outside financial institutions59.251.8–6.942.1
Current deposits187.325.710.1142.6
Ordinary deposits134.0121.458.586.8
Deposits at notice and special deposits77.152.322.674.7
Checks and bills held by financial institutions–133.60.8–28.8–91.1
Changes in money supply324.0252.055.5255.1
Factors causing increase or decrease
Treasury accounts69.7–3.686.2294.5
Foreign exchange accounts884–49.3–32.7159.1
Treasury account81.845.7118.9135.4
Loans777.1721.4346.4437.8
Securities76.3113.962.290.1
Savings and time deposits–457.9–454.6–373.3–453.4
Designated domestic deposits–37.114.723.0
Bank debenture issues–43.4–50.8–28.0–20.9
Capital accounts–59.9–83.4–78.0–61.4
Interfinancial institution transactions–24.1–23.714.3–66.7
Other23.318.12.735.1
Total324.0252.055.5255.1
Source: Bank of Japan, Economic Statistics Monthly (Tokyo).
Source: Bank of Japan, Economic Statistics Monthly (Tokyo).
Table 51.Japan: Supply of Industrial Funds, 1953–55(In billions of yen)
195319541955
Stocks and shares165.8142.197.5
Industrial debentures41.318.426.5
Loans and discounts857.7432.4555.2
Financial institutions
All banks513.6211.9246.7
Others222.2178.1219.5
Government financial institutions
Japan Development Bank68.782.124.5
Export-Import Bank of Japan1.017.415.4
People’s Finance Corporation6.75.58.8
Agriculture, Forestry, and Fishery Finance Corporation14.226.918.4
Small Business Finance Corporation8.118.812.7
Special accounts for financial purposes
Trust Fund Bureau2.916.48.1
(Special Account for Industrial Investments)1(5.5)(10.5)(8.0)
Special Account for Finance of Settlers1.41.20.8
Funds accruing from purchases of U.S. agricultural commodities14.3
Bank of Japan’s special loans in foreign currency29.4–70.0–9.1
Bank of Japan’s foreign exchange loans–0.5–0.4
Total1,064.8592.9679.2
Source: Bank of Japan, Economic Statistics Monthly (Tokyo).

Capital subscriptions to the Electric Power Development Company. These figures are included in “Stocks and shares.”

Source: Bank of Japan, Economic Statistics Monthly (Tokyo).

Capital subscriptions to the Electric Power Development Company. These figures are included in “Stocks and shares.”

Table 51 shows the sources from which the business sector of the economy borrowed, including intrasector borrowings. The data indicate the net issue of stocks and shares and industrial debentures that have been purchased by the financial institutions, the personal sector of the economy, or other parts of the business sector. The remaining obligations of the business sector held by financial institutions, or in government accounts, are shown as “loans and discounts.” Thus it is possible to derive an estimate of the total (but not the net) borrowing by the business sector of the economy, but it is not possible to determine which sectors of the economy lent to the business sector.

REPUBLIC OF KOREA

The Bank of Korea publishes a table analyzing the principal factors increasing or decreasing money, excluding government deposits, but including nonchecking demand deposits of the private sector and local governments that in other countries might be considered quasi money. This table, shown here as Table 52, is an analysis of the accounts of the monetary system that explains changes in money. The quasi-monetary liabilities of the system, as defined by the Bank, are treated as separate and identifiable deductions from the system’s assets, but the Government’s monetary holdings are netted against direct loans to the Government. The table does not show totals for either the aggregate of transactions with individual sectors, or by parts of the monetary system. Yet it is possible to derive the major components of the outstanding balances between the monetary system and the Government or the private sector.1 Similarly, it is possible to derive the balance of transactions of the rest of the economy with the Bank of Korea or the other banks. All the securities held by the monetary system are the direct obligations of, or are guaranteed by, the Government. The borrowings by the Korean Reconstruction Bank from the Government are similar to government deposits with the Korean Reconstruction Bank and are included as an adjusting entry.

Table 52.Republic of Korea: Principal Factors Decreasing or Increasing the Money Supply, 1951–55(In billions of hwan)
19511952195319541955
Money supply7.3014.3230.3258.0893.52
Government overdrafts from Bank of Korea less government deposits in Bank of Korea4.315.9611.4931.1452.73
Loans by all banks except Bank of Korea
Private2.186.3917.8929.3364.29
Local government and public organizations0.070.100.250.501.16
Loans by Bank of Korea
Private0.270.230.730.430.66
Government agencies0.551.381.850.540.70
Securities held by Bank of Korea0.020.020.137.1217.65
Securities held by all other banks0.070.210.641.272.03
Purchases of foreign exchange by Bank of Korea0.070.121.261.531.93
Industrial funds borrowed from Government by Korean Reconstruction Bank (decreasing factor)–0.05–0.06–0.05–7.34–26.56
Savings and time deposits (decreasing factor)–0.13–0.27–2.38–3.86–6.99
Deposits of foreign organizations–0.09–0.08–0.38–1.39–12.63
Other0.030.32–1.11–1.19–1.45
Source: Bank of Korea, Monthly Statistical Review (Seoul).
Source: Bank of Korea, Monthly Statistical Review (Seoul).

MEXICO

The Bank of Mexico publishes a table that analyzes the changes in the privately owned money on a dual basis by external-internal origin and by issuing institutions. The 1955 data are given here in Table 53. The data cover all the financial institutions that are considered by the Bank of Mexico to be banks, including long-term lending institutions that in other countries might be considered part of the nonbanking financial system. The data for the privately owned institutions—i.e., the deposit and savings banks that are comparable to deposit-money banks in other countries and the other private financial institutions that in most other countries would be considered as related institutions—are added to constitute one subtotal. To this subtotal, data are added for the Bank of Mexico and for the other government-owned banks that are akin to development institutions in other countries. The final total provides a consolidated statement for the “monetary system.” Changes in the holdings of gold, foreign exchange (including the net IMF position), and silver are considered to be factors of external origin. The remaining factors, considered to be of internal origin, are analyzed by type of account. However, for assets of the type where both the Government and the private sector may be obligated to the financial system, the claims on the Government are separated from those on the private sector (except for the “other” entry, which cannot be allocated).

Table 53.Mexico: Changes in Money in Circulation, by Origins and Credit Institutions, 19551(In millions of Mexican pesos)
Private InstitutionsGovernment Institutions
Deposit and savings banksOthersTotalBank of MexicoOthersTotal
Money in circulation1,295.41,295.4466.929.31,791.6
Notes608.7608.7
Coins–162.9–162.9
Checking accounts1,295.41,295.421.129.31,345.8
Origins of money in circulation
External2.5–6.9–4.42,533.810.12,539.5
Gold, silver, and foreign exchange2.5–6.9–4.42,533.810.12,539.5
Internal1,292.96.91,299.8–2,066.919.2–747.9
Investment in securities416.249.2465.4–439.4–132.1–106.1
Government363.3–4.0359.3–292.2–71.5–44
Business and individuals52.953.2106.1–147.2–60.6–101.7
Credits738.1328.61,066.7–497.1567.71,137.3
Government–30.2–80.2
Business and individuals738.1328.61,066.7–466.9567.71,167.5
Checking account (Federal Government)–194.2–194.2
Other deposits and liabilities–366.4–256.8–623.224.7–416.6–1,015.1
Capital–92.4–75.6–168.0–13.9–181.9
Contribution by Government–11.8–11.8
Contribution by business and individuals–924–75.6–168.0–2.1–170.1
Earned surplus–6.3–12.8–19.1–2.3–145.3–166.7
Surplus–21.8–17.6–39.4–38.252.8–24.8
Other items32.2–26.35.9–90.514.7–69.9
Interbank transactions593.318.2611.5–829.991.9–126.5
Source: Bank of Mexico, Annual Report (Mexico, D. F.).

No sign indicates expansion; minus sign indicates contraction.

Source: Bank of Mexico, Annual Report (Mexico, D. F.).

No sign indicates expansion; minus sign indicates contraction.

NETHERLANDS

Both the Netherlands Bank and the Netherlands Central Planning Bureau publish financial analyses. Taken together, the statements provide data on changes in money, the community’s liquidity, and net borrowing and lending, by sectors. The data on borrowing and lending are integrated with the national income accounts.

Three tables published by the Netherlands Bank are designed to analyze changes in both money and the community’s liquidity. The table, Causes of Changes in the Domestic Money Supply, shown here as Table 54, is a consolidated statement of changes in the assets and liabilities of the monetary system (the Netherlands Bank, commercial banks, commercial banking departments of agricultural credit banks, postal checking office, the Amsterdam giro office, and the currency issue department of the Government, but not savings banks). The assets of the system are classified as obligations of the following sectors: (A) public authorities (with the Central Government and local authorities as subsectors), (B) the private sector, and (D) foreigners. In addition, there is a group of entries brought together as adjustments to the general data of the table and grouped under (C) miscellaneous causes. These causes comprise securities purchased by the money-creating institutions from the market, entered as one group rather than allocated by the sectors thereby obligated to the monetary system, changes in quasi-monetary liabilities of the system, and movements in other liabilities of the monetary system. Government deposits and foreign liabilities are treated as deductions from claims on the Government and foreign assets, respectively. Since the entry for the net increase in the gold and foreign exchange holdings of the Netherlands Bank includes, among its liability components, the liabilities under payments agreements held in the form of treasury bills instead of as deposits with the Bank, there is an entry (A.l.c) that records purchases of these bills as if they had been acquired by the Netherlands Bank, providing central bank finance to the Government. Finance given to the economy as a result of the U.S. aid program is treated, when the donations are made, as equivalent to the reduction in foreign assets that would have taken place in its absence and, when transfers are made from the counterpart account to the treasury accounts, as an addition to financing received by the Treasury through the operation of the monetary system.

Table 54.Netherlands: Causes of Changes in the Domestic Money Supply, 1951–55(In millions of guilders)
195119521953195419551
A.Creation of money for account of public authorities
1.Creation of money for account of Government
a.Increase in net debt of Government to money-creating institutions189–1,592–955–329–114
b.Transfers from the local currency account to Treasury’s ordinary account203828221428158
c.Sale of Netherlands Treasury paper to foreign central banks for employment of balances arising from payments agreements98–29–86–617
Total490–793–8209361
2.Loans to local authorities206–28111471128
3.Total696–1,074–706164189
B.Creation of money for account of private sector of economy
1.Loans to business and private customers
a.By commercial banks21069263372356
b.By agricultural credit institutions251585643
c.By other money-creating institutions621228
2.Total23590273440427
C.Miscellaneous causes
1.Security transactions of money-creating institutions
a.Net purchase of securities} 21} 255293167
b.Issues (—) of shares and bonds–2–8–48
2.Time deposits at commercial banks (increase—)–326–1735–244–190
3.Foreign currency balances of Netherlands residents at commercial banks (increase—)–77278437
4.Capital and reserves of money-creating institutions (increase—) and sundry items–107128–119–12613
5.Total–4897–56–242–51
D.Net purchase of foreign exchange by money-creating institutions from private sector of economy and public authorities
1.Increase in Netherlands Bank’s gold and net claims on foreign countries21442,06384415334
2.Increase in other money-creating institutions’ net claims on foreign countries107–7425195157
3.Amounts credited (—) to the local currency account–511–264–81–515
4.Total–2601,7251,014197196
Changes in domestic money supply182748525559761
In notes and coin375136221289373
In balances at banks} 107} 612241107196
In balances at giro transfer institutions63163192
Source: Netherlands Bank, Report for the Year (Amsterdam).

Provisional.

Including claims on Brazil, Poland, and Yugoslavia consolidated in August 1955.

Including notes and coin held by nonresidents.

Source: Netherlands Bank, Report for the Year (Amsterdam).

Provisional.

Including claims on Brazil, Poland, and Yugoslavia consolidated in August 1955.

Including notes and coin held by nonresidents.

In the two other tables, presented here as Tables 55 and 56, the Bank analyzes the changes in “primary and secondary liquid resources.” In the first of these tables (Table 55), the totals of primary and secondary liquid resources are measured by holder and origin. Primary liquid resources are the same as the domestic money supply. Secondary liquid resources are time, savings, foreign currency, and similar deposits with the money-creating institutions, obligations of the Government with an original maturity not exceeding five years, and short-term loans to local governments. Since savings banks are not classified as money-creating institutions, but are incorporated in the private sector, not all of the items that might be considered as “quasi money” are included in secondary liquidities. In the second of these tables (Table 56), the net liquidity deficit or surplus of each sector is computed as the sum (with appropriate sign) of its net borrowing from the banking system, its net issuance of secondary liquidities, and the net reduction in its holdings of money and secondary liquidities.

Table 55.Netherlands: Primary and Secondary Liquid Resources in the Hands of Domestic Holders Other Than Banks1(In millions of guilders)
Distribution of Liquid Resources According to Their Nature and the HoldersTotals as at December 31
195119521953195419552
Total primary liquid resources7,1207,7508,2708,8309,590
Held by
Private individuals, trade, and industry36,8207,3307,8908,5109,270
Institutional investors (excluding savings banks) and miscellaneous funds4140190210150170
Savings banks54050504040
Provinces and municipalities120180120130110
Total secondary liquid resources62,9403,3803,3303,5503,680
Consisting of
Claims on the Government71,2101,6801,7401,6401,530
Claims on provinces and municipalities8570270180300360
Claims on money-creating institutions91,1601,4301,4101,6101,790
Held by
Private individuals, trade, and industry2,0202,0601,9702,0702,260
Institutional investors (excluding savings banks) and miscellaneous funds4450440540510540
Savings banks5420540650780720
Provinces and municipalities50340170190160
Total primary and secondary liquid resources10,06011,13011,60012,38013,270
Held by
Private individuals, trade, and industry8,8409,3909,86010,58011,530
Institutional investors (excluding savings banks) and miscellaneous funds4590630750660710
Savings banks5460590700820760
Provinces and municipalities170520290320270
Not included as such in the statement above:
Savings balances at savings banks and agricultural credit banks103,9804,2504,6405,1405,830
Source: Netherlands Bank, Report for the Year (Amsterdam).

The figures have been calculated by the Netherlands Bank; they are based partly on estimates.

Provisional.

This category, for which the figures have been calculated as a residual amount, also includes the funds which could not be included in the special category of institutional investors (excluding savings banks) and miscellaneous funds.

This category includes, inter alia, pension funds, life assurance companies, social insurance funds, the mutual war damage insurance associations, and the National Disaster Fund.

Including the savings departments of the agricultural credit banks.

Secondary liquid resources are taken here to include all claims on the public authorities and money-creating institutions—held by holders other than money-creating institutions—which can be converted in large amounts into money at relatively short notice, without much expense or much loss on the transaction, or which can be used at their face value to make payments in satisfaction of current tax assessments.

Treasury bills, treasury bonds, tax certificates, reconstruction bonds, and freely available balances at the Treasury (all with an original maturity of less than five years).

Cash advances, day-to-day loans, and credits in current accounts granted to provinces and municipalities; also, short-term claims of various descriptions on the Bank for Netherlands Municipalities.

Time deposits, savings deposits, and balances on foreign currency accounts at banks; also, the 12-month deposits at the Giro Transfer Office of the City of Amsterdam.

Including current interest.

Source: Netherlands Bank, Report for the Year (Amsterdam).

The figures have been calculated by the Netherlands Bank; they are based partly on estimates.

Provisional.

This category, for which the figures have been calculated as a residual amount, also includes the funds which could not be included in the special category of institutional investors (excluding savings banks) and miscellaneous funds.

This category includes, inter alia, pension funds, life assurance companies, social insurance funds, the mutual war damage insurance associations, and the National Disaster Fund.

Including the savings departments of the agricultural credit banks.

Secondary liquid resources are taken here to include all claims on the public authorities and money-creating institutions—held by holders other than money-creating institutions—which can be converted in large amounts into money at relatively short notice, without much expense or much loss on the transaction, or which can be used at their face value to make payments in satisfaction of current tax assessments.

Treasury bills, treasury bonds, tax certificates, reconstruction bonds, and freely available balances at the Treasury (all with an original maturity of less than five years).

Cash advances, day-to-day loans, and credits in current accounts granted to provinces and municipalities; also, short-term claims of various descriptions on the Bank for Netherlands Municipalities.

Time deposits, savings deposits, and balances on foreign currency accounts at banks; also, the 12-month deposits at the Giro Transfer Office of the City of Amsterdam.

Including current interest.

Table 56.Netherlands: Ascertainable Liquidity Deficits and Surpluses, 1951–55(In millions of guilders)
19511952195319541955
I. Central Government
A.Creation of liquid resources
1.Direct recourse (—) to money-creating institutions–490790820–90–60
2.Placing (—) of floating debt having the character of secondary liquid resources620–480–60100110
B.Increase (—) in debt toward local authorities6060–6050130
Liquidity deficit (—)19037070060180
II. Local Authorities
A.Creation of liquid resources
1.Direct recourse (—) to money-creating institutions–210280–110–70–130
2.Placing (—) of floating debt having the character of secondary liquid resources–17031090–120–60
B.Drawing down of liquid resources
1.Drawing down (—) of primary liquid resources3060–6010–20
2.Drawing down (—) of secondary liquid resources20280–17020–30
C.Increase (—) in debt toward the Government–60–6060–50–130
Liquidity deficit (—)–390870–190–210–370
III. Institutional Investors and Miscellaneous Funds
A.Creation of liquid resources
1.Direct recourse (—) to money-creating institutions–70–904040
B.Drawing down of liquid resources
1.Drawing down (—) of primary liquid resources106020–7020
2.Drawing down (—) of secondary liquid resources–130110210100–30
Liquidity deficit (—)–1201001407030
IV. Capital Market (and Sundry Items)
Creation of liquid resources
1.Net buying (—) of securities by money-creating institutions–50–90–120
2.Increase (+) in capital and reserves of money-creating institutions, and sundry items120130–10
Total7040–130
V. Private Individuals, Trade, and Industry (Residual Item)
A.Creation of liquid resources
1.Direct recourse (—) to money-creating institutions–140–180–180–480–460
B.Drawing down of liquid resources
1.Ascertainable use (—) of primary liquid resources140630560620760
2.Drawing down (—) of secondary liquid resources60–70–90100190
Liquidity deficit (—)60380290240490
Total of liquidity deficits (–) in the five sectors = national liquidity deficit (—)–2601,7201,010200200
VI. Foreign Countries
Recourse (—) to Netherlands money-creating institutions for the purpose of financing
a.Capital transactions with Netherlands public authorities320330420520310
(Including net receipts in respect of redemptions before due date)(–)(–)(80)(400)(190)
b.Capital transactions with the Netherlands private sector–310–190–150–230–260
c.Current transactions250–1,860–1,280–490–250
Liquidity deficit (–) of foreign countries260–1,720–1,010–200–200
Source: Netherlands Bank, Report for the Year (Amsterdam).
Source: Netherlands Bank, Report for the Year (Amsterdam).

The net borrowing from the banking system, as measured by the Netherlands Bank, must be equal to the net increase in money and nonmonetary deposits with the system. Any increase in a sector’s outstanding debts that are considered to be secondary liquidities must be matched by an equal increase in the secondary liquid holdings of other sectors. Hence the sum of all liquidity deficits and surpluses must equal zero, or, in other words, the sum of the domestic liquidity deficits and surpluses must equal the liquidity surplus or deficit of foreign countries with the Netherlands. The liquidity deficit (or surplus) of any sector is considered by the Bank to provide the starting point for the analysis of the role played by that sector in the inflationary (or deflationary) process.

Whereas the Netherlands Bank analyzes liquidity deficits and surpluses, the Central Planning Bureau attempts to analyze, in a “monetary survey,” all financial transactions. Data for 1955 are given below in Table 57. The survey is consistent with the national income compilations. All income receipts from Netherlands sources are recorded for the significant economic sectors (foreigners, government, and the private sector). The government accounts are subsectored into central government and local government. For the private sector, transactions are separated into those related to transfers to and from insurance funds, wage and salary payments and receipts, and other income transfers. For each sector, and subaccount, total disposable income is recorded (item 4). Expenditure by the Netherlands economy, whether for consumption, for the purchase of fixed assets, or for increases in stocks, plus the adjustments required to reconcile the financing accounts with the income accounts, are deducted from the disposable income of each sector to measure the “finance surplus” of each sector (item 11). The adjustments are of two kinds. The first, “net credits” (item 10.a), represents the transfers from the Central Government to the local authorities, and to the government and other enterprises that are included in the private sector, for the financing of investments. In this way, government financing of the activities of local governments and enterprises is transferred from the local government, or private sector, to the central government sector as required for the financing analysis. The second, “capital transfers” (item 10.b) records intersector capital transfers that involve no debt creation. These include government grants to the private sector, to the local authorities, and to Surinam and New Guinea, and government receipts, mainly from the U.S. aid program. Imports (item 2) are regarded as a “receipt” (since they represent a receipt by the foreign sector from the other “Netherlands” sectors) and exports (item 6) are recorded as an “expenditure.” A subtotal (item 7) records the difference between disposable incomes and expenditures for consumption, i.e., the traditional measure of savings.

Table 57.Netherlands: Monetary Survey, 19551(In billions of guilders)
Foreign

(1)
Central

Government

(2)
Local

Authorities

(3)
Insurance

Funds

(4)
Wages

and

Salaries

(5)
Other

Income

(6)
Total

Government

(2) + (3)

(7)
Total

Private

Sector

(4) + (5) + (6)

(8)
Total

Home

Economy

(7) + (8)

(9)
1.Primary income2.950.01X12.5910.482.9623.0726.03
2.Imports of goods and services14.51
3.Net income transfers received or granted (—)
a.Direct taxes accrued in 19553.43X–0.96–2.473.43–3.43X
b.Income transfers from Central Government to local authorities–1.381.38XXXXXX
c.Income transfers from Government to private sector–0.84–0.270.290.82X–1.111.11X
d.Net payment of interest by Government on internal debt–0.32–0.160.24X0.24–0.480.48X
e.Payments by Insurance FundsXX–0.760.76XXXX
f.Interest and premiums paid to Insurance FundsXX1.51–1.29–0.22XXX
g.Net receipts of interest and profits by Government0.050.15XX–0.200.20–0.20X
4.Total disposable income (1 plus 3)3.891.111.2811.927.835.0021.0326.03
5.Consumption
a.Wages and salaries (Government only)1.640.492.132.13
b.Expenditure on goods and services1.620.52X11.545.232.1416.7718.91
6.Exports of goods and services15.14
7.Savings or dissavings (—) (4 minus 5)0.630.101.280.382.600.734.264.99
8.Net investment or net disinvestment (—)
a.Fixed assets0.130.34XX3.390.473.393.86
b.Change in commodity stocks (inclusive of work in progress)XXXX0.50X0.500.50
9.Income surplus (2 minus 6 or 7 minus 8)–0.630.50–0.241.280.38–1.290.260.370.63
10.Indirect expenditure
a.Net credits supplied or received (—)–0.290.89XX–0.600.60–0.60X
b.Capital transfers supplied or received (—)–0.031.15–0.04XX–1.081.11–1.080.03
11.Finance surplus (9 minus 10)–0.60–0.36–1.091.280.380.39–1.452.050.60
12.Net increase or net decrease (—) of long-term claims on
a.Foreign countries0.09–0.25X–0.250.16–0.09
b.Other domestic sectorsX0.660.711.37–1.37X
13.Difference between taxes paid and taxes accrued in 1955X–0.03X–0.030.03X
14.Redemption of national debt in connection with tax paymentsX–0.03X–0.030.03X
15.Crediting of the local currency account2X0.01X0.01X0.01
16.Payments by Custodian of Enemy PropertyX0.08X0.08–0.08X
17.Net increase or net decrease (—) of short-term claims on other sectors, and miscellaneous items0.360.150.010.16–0.52–0.36
18.Liquidity surplus (11 minus 12 through 17)–0.150.23–0.37–0.140.300.16
The liquidity surplus finds expression in
19.Increase or decrease (—) of the quantity of moneyX–0.02–0.020.860.84
20.Increase or decrease (—) of secondary liquid assetsX–0.04–0.04–0.08–0.12
21.Decrease or increase (—) of debts
a.Short-term debts to domestic sectors (excluding banks)0.39–0.150.24X0.24
b.Short-term and long-term debts to banks–0.15–0.16–0.16–0.32–0.48–0.80
Source: Central Planning Bureau, Central Economic Plan (The Hague).

Explanation of signs used: blank, left out of consideration; dash (—), nil in year under review; X, impossible on account of definition used or of institutional factors.

Of which transferred to the Exchequer, 0.16 billion guilders.

Source: Central Planning Bureau, Central Economic Plan (The Hague).

Explanation of signs used: blank, left out of consideration; dash (—), nil in year under review; X, impossible on account of definition used or of institutional factors.

Of which transferred to the Exchequer, 0.16 billion guilders.

The borrowing and lending associated with the finance surplus are analyzed insofar as possible by type of transaction. The accumulation of money by a sector is regarded as lending through the intermediary of the banking system, and increases in the claims of banks on each sector are similarly regarded as borrowing from the sector. The figures on long-term borrowing and lending (including in borrowing the transfers on foreign aid account and changes in short-term financial claims and miscellaneous items other than those considered to be “secondary liquidities”) are deducted from the finance surplus to measure the “liquidity surplus” for each sector (item 18). The “short-term claims” (item 17) are a residual item rather than a direct estimate. They are derived as the estimated finance surplus, minus the identifiable nonliquidity financial transfers, and minus the directly calculated liquidity surplus. The large size of this residual indicates the possible magnitude of the discrepancy in this table (360 million guilders in 1955, compared with an estimated finance surplus of 600 million guilders). The Central Planning Bureau regards none of its totals as unequivocal measures of inflationary or deflationary pressures. However, it views the finance surplus as a measure of the “disequilibrium” in each sector’s income and expenditure accounts and hence related to the pressures exerted on the economy by the sector. The liquidity surplus, however, is likely to be more directly influenced by the inflationary or deflationary pulls from outside the sector.

NEW ZEALAND

The Reserve Bank of New Zealand publishes a table, shown here as Table 58, analyzing the causes of changes in the volume of money, including government deposits, for years ending in January. In its statement to the Royal Commission on Monetary, Credit, and Banking Systems in 1955, the Reserve Bank included a table, given below as Table 59, analyzing the causes of changes in money.

Table 58.New Zealand: Causes op Changes in the Volume of Money in Circulation, 1952–56(In millions of New Zealand pounds)
Last Balance Day in January
19521953195419551956
Overseas transactions 1–12.51.527.4–20.7–19.4
Bank credit
Reserve Bank
Advances and discounts–8.25.6–2.818.3
Investments in New Zealand–12.014.0–2.8–22.98.1
Trading banks
Advances and discounts46.6–24.00.531.73.1
Investments in New Zealand–0.2–0.37.55.6–2.1
Shift from time to demand liabilities at trading banks 20.42.32.3–3.07.3
Shift in wool retention accounts 3–20.16.25.75.86.3
Other items3.7–6.32.90.8–2.1
Changes in volume of money in circulation–2.3–0.940.715.61.2
Source: Reserve Bank of New Zealand, Bulletin (Wellington).

As shown by changes in foreign exchange and overseas investments held by the New Zealand banking system in respect of New Zealand business, less overseas liabilities. No sign indicates that overseas exchange receipts exceeded disbursements, and minus sign indicates an excess of disbursements.

Minus sign indicates shift from demand to time liabilities. Excludes movements of wool retention balances.

Minus sign indicates movement into wool retention accounts; no sign indicates withdrawals.

Source: Reserve Bank of New Zealand, Bulletin (Wellington).

As shown by changes in foreign exchange and overseas investments held by the New Zealand banking system in respect of New Zealand business, less overseas liabilities. No sign indicates that overseas exchange receipts exceeded disbursements, and minus sign indicates an excess of disbursements.

Minus sign indicates shift from demand to time liabilities. Excludes movements of wool retention balances.

Minus sign indicates movement into wool retention accounts; no sign indicates withdrawals.

Table 59.New Zealand: Causes of Changes in the Volume of Money, 1951–55(In millions of New Zealand pounds)
Last Balance Day in June
19511952195319541955
Changes in Volume of Money40.4–19.325.329.04.6
Overseas transactions36.3–48.743.021.6–35.5
Government borrowing from banks–19.0–6.015.7–23.3–7.5
Trading bank advances and discounts41.240.3–44.821.234.8
Other advances–0.20.27.1–0.310.0
Shift from time to demand liabilities0.70.93.11.3–0.8
Shift in wool retention accounts–20.9–7.86.35.75.8
Other items2.31.8–5.22.8–2.2
Source: Monetary and Fiscal Policy in New Zealand: Submissions to the Royal Commission on Monetary, Banking, and Credit Systems, 1955 (Wellington, 1955), p. 35.
Source: Monetary and Fiscal Policy in New Zealand: Submissions to the Royal Commission on Monetary, Banking, and Credit Systems, 1955 (Wellington, 1955), p. 35.

In Table 58, the accounts relating to the Reserve Bank and business within New Zealand of the trading banks, but not of the savings banks, are analyzed. Changes in the assets of the monetary system are recorded under two headings, overseas transactions and bank credit. Overseas transactions are measured by changes in the foreign assets minus foreign liabilities of the banking system. A number of the trading banks operating in New Zealand are branches of overseas banks; hence the foreign liabilities of the trading banks are significant. Under “bank credit,” the major domestic assets of the banking system are separated into those of the Reserve Bank and those of the trading banks. Each of these groups of items is classified as advances and discounts, or investments. For the Reserve Bank, all the investments and a large part of the advances and discounts represent claims on the Government. For the trading banks, all advances and discounts are to the private sector (including government marketing organizations in the private sector), and a large portion of the investments are in government securities. The item, shift from time to demand liabilities, measures the decline in time liabilities, i.e., time deposits with the trading banks. A decline in time deposits is considered to be a factor leading to an increase in money. Similarly, the item, shift in wool retention accounts, measures the decreases in the accounts that wool exporters were required to hold as an anti-inflationary measure at the time when wool prices were high.

The table that was prepared for the Royal Commission is similar to the other table, except that changes in the claims of the consolidated banking system on the Government are recorded as a separate entry. Hence it is possible to derive data on the changes in the banking system’s claims on the foreign, government, and private sectors.

NICARAGUA

The National Bank of Nicaragua publishes a table, shown here as Table 60, providing an external-internal origin analysis of money, including the holdings of the Government and official entities, and also allocating the responsibility for its creation between the central bank (the Issue Department of the National Bank) and the commercial banks (including the Banking Department of the National Bank). The factors of external origin are defined as the net foreign assets of the central bank and the commercial banks. For the central bank, foreign assets prior to 1955 include the foreign exchange holdings at par values (including the gross IMF position), plus the profit on exchange arising from discrepancies between the par and transactions rates of exchange, minus foreign liabilities (including deposits of the IMF and IBRD, etc., and of foreigners). After the change in the par value of the córdoba on July 1, 1955 and the abolition of the multiple rate system, they are valued at par values. The difference between these two measures of value (30 million córdobas) involves a rise in the measure of money of external origin and a fall in the measure of money of internal origin. Aside from this discontinuity, changes in foreign assets indicate the creation of córdobas by the central bank resulting from foreign operations. For the commercial banks, the foreign assets are the gross foreign assets valued at net cost (i.e., at actual rates of exchange), minus foreign borrowings by these banks, and minus the net balance due by the Bank of London and South America to its home office. The factors of internal origin are first divided into those arising in the central bank and those arising in the commercial banks; then, for each of these groups, the asset accounts are subdivided, insofar as possible, into claims on the Government (including the Mortgage Bank as part of the Government), on the private sector, and on government agencies. The loans of the central bank to the commercial banks are included as an item of central bank responsibility, and there is an offsetting entry in the nonmonetary liabilities of the commercial banks. The nonmonetary liabilities that are deducted from the assets of the banks, to arrive at an estimate of the net factors of internal origin, include, for the central bank, the frozen accounts of the private sector and of the Government under the advance payments scheme for imports, deposits in foreign exchange held by residents, and capital accounts (including the surplus arising from the 1955 revaluation of foreign assets). For the commercial banks, the capital and reserves of the banks and other miscellaneous liabilities are included.

Table 60.Nicaragua: Origins of Money in Circulation, 1951–55(In millions of córdobas)
19511952195319541955
Money in circulation164.4197.9267.8289.3294.6
External origin55.481.682.355.893.4
Net foreign assets
Issue Department of National Bank51.285.785.368.099.1
Commercial banks4.2–4.1–3.0–12.3–5.7
Internal origin109.0116.3185.5233.5201.2
Issue Department of National Bank53.837.869.093.960.1
Loans and investments
To Government and Mortgage Bank36.928.120.011.18.2
To commercial banks72.175.0105.2170.4197.7
Other assets0.10.1
Less Nonmonetary liabilities55.265.356.287.7140.9
Commercial banks54.678.4116.2138.1140.5
Loans and investments
To private sector141.9173.5253.8861.2402.5
To official entities and Government2.62.55.04.53.5
Other assets10.511.914.019.928.9
Less Nonmonetary liabilities100.4109.5156.1247.5289.4
Interbank discrepancies0.60.10.31.50.6
Source: Banco Nacional de Nicaragua, Revista Trimestral (Managua).
Source: Banco Nacional de Nicaragua, Revista Trimestral (Managua).

NORWAY

The Bank of Norway, the Ministry of Finance, and the Central Bureau of Statistics, all publish tables analyzing changes in the liquidity of the Norwegian economy. However, the three statements are similar in approach. They regard the issue of treasury bills by the Government and the increase in monetary liabilities of the Bank of Norway as comparable increases in liquidity that may be absorbed by the private sector or may flow to the banks as increases in their cash reserves or as liquid reserves that are convertible into cash.

The table published by the Bank of Norway, shown here as Table 61, analyzes changes during 1955 in liquidity of the banks and the rest of the community that may be attributed to the operations of the Government and the Bank of Norway. Hence it is essentially an analysis of reserve money. The Government’s cash deficit (including loans to the State Banks as expenditure), together with expenditure for the redemption of debt, provides a measure of the amount that the Government was required to borrow during the year. The Government’s borrowing by means other than treasury bills is deducted to provide a measure of the changes in liquidity made available to the economy as a result of the Government’s income, expenditure, and long-term borrowing. The net purchase of foreign exchange and loans granted by the Bank of Norway, plus a few minor items in the Bank’s accounts, provide a measure of the changes in liquidity attributed to the Bank.

Table 61.Norway: Changes in the Liquidity of the Banks and the Private Sector, 1955(In millions of Norwegian kroner)
1955
A. Government
Cash surplus (—) or deficit on current budget, business enterprises and plants, different special accounts, etc.–212
Redemption of domestic loans and purchase of bonds208
Loans to State Banks735
Domestic loans raised by Government–750
Total–19
B. Bank of Norway
Net sales of foreign exchange–155
Transfers from banks of blocked taxation funds–31
Net increase in securities, excluding treasury bills57
Advances and discounts65
Total–64
C. Total (A + B)–83
Changes in note circulation–16
Changes in bank accounts with Bank of Norway88
Changes in holdings of treasury bills in hands of banks and private sector–78
Other–77
Source: Bank of Norway, Report and Accounts for the Year 1955 (Oslo, 1956).
Source: Bank of Norway, Report and Accounts for the Year 1955 (Oslo, 1956).

The data in the national budget table, compiled by the Ministry of Finance (see Table 62), differ slightly from those in the table prepared by the Bank of Norway. The total liquidity creations attributed to the Government and the Bank of Norway are classified by holders rather than by type of liquidity created. Redemption of debt is treated as a part of government expenditure, and hence of the Government’s deficit, rather than as a separate outlay requiring financing. Finally, the magnitudes for the same data differ because the budget is prepared before final estimates for all the items are available. The data are limited to the transactions by the Government and the Bank of Norway. Consequently, they provide an analysis of changes in reserve money rather than in the liquidity of the economy.

Table 62.Norway: Increases and Decreases in Liquidity, 1951–55(In millions of Norwegian kroner)
19511952195319541955
Government
Cash surplus (—) or deficit–263–157205371–9
Loans to State Banks481312526570735
Cash deficit prior to borrowing218155731941726
Domestic borrowing–31–101–1–531–750
Net liquidity increase or decrease (—) by Government18754730410–24
Bank of Norway
Net purchase or sale (—) of exchange–222125–612–493–151
Transfer of blocked funds515–30
Other transactions–4–93–17122
Net liquidity increase or decrease (—) by Bank of Norway289116–609–510–59
Banks and private sector
Total net liquidity changes (decrease—)476170121–100–83
Changes in banks’ holdings of liquid assets354–11–14–252–70
Changes in banknotes in private hands222259209185
Other changes–100–78–74–33–13
Source: The National Budget of Norway (Oslo, Ministry of Finance, Storting Report No. 1).
Source: The National Budget of Norway (Oslo, Ministry of Finance, Storting Report No. 1).

The Economic Survey for 1956, prepared by the Central Bureau of Statistics, contains three tables, combined here in one (Table 63), to provide an analysis of the liquidity created by the Government, the Bank of Norway, the joint stock and savings banks, and the Post Office deposit system. This analysis consolidates the accounts of more institutions than are comprehended in the statements of the Bank of Norway and the Ministry of Finance. Consequently, it provides an analysis of changes in the liquidity of the private sector of the economy. These liquid holdings are defined as currency, bank deposits (including savings deposits), treasury bills, and unused overdraft credits. As in the preceding tables, the Government’s deficit less long-term borrowing is assumed to contribute to the liquidity of the community by providing treasury bills for purchase or by transferring deposits at the Bank of Norway to other parts of the economy. The increase in the assets of the Bank of Norway, less (in effect) the increase in its holdings of treasury bills, and less the increase in some of its minor liabilities, also increases the liquidity of the economy. The net increase in the assets of the deposit-money banks, less (in effect) increases in their holdings of treasury bills and deposits with the Bank of Norway, further increases the liquidity available to the private sector. Overdrafts approved by the deposit-money banks, but not used by their customers, and deposits with the Post Office are included as factors in liquidity. Hence counterparts to both these items are recorded on the asset side of the accounts. Measures of the contributions of each group of institutions to changes in the different forms of liquidity are among the further details provided in the Economic Survey, and are shown here as Table 64. For each group of institutions, changes in the totals of these items (plus, for the joint stock and savings banks, deposits and unused overdrafts) are equal to its net liquidity creation. The totals for each group of items are equal to the total holdings of the private sector, as recorded in Table 63. The discrepancies between the data for comparable entries in the tables prepared by the Central Bureau of Statistics and the tables of the Bank of Norway and the Ministry of Finance reflect the fact that the data of the Central Bureau cover only nine months of each year.

Table 63.Norway: Survey of Factors Leading to, and Changes in, Liquidity Holdings of the Private Sector, First Nine Months, 1954 and 19551(In millions of Norwegian kroner)
First Nine Months
19541955
1. Government
Loans to State Banks251393
Domestic borrowing 2–400–680
Foreign borrowing–248–352
Other transactions299162
Total liquidity supplied–98–477
2. Bank of Norway
Foreign assets–1181
Loans and advances–2421
Bonds–842
Other transactions–1420
Total liquidity supplied–47264
3. Total liquidity supplied by Government and Bank of Norway (1 + 2)–145–213
4. Joint stock and savings banks
Loans and advances611393
Bonds and shares154–24
Unused overdrafts59–174
Cashier’s checks246249
Other items49–2
Total liquidity supplied1,119442
5. Deposits in Post Office checking and savings offices7067
6. Total liquidity supplied by all deposit-money banks (4 + 5)1,189509
7. Total liquidity supplied by Government and monetary system (3 + 6)1,044296
8. Liquidity holdings of private sector
Currency–8–116
Deposits with Bank of Norway–3691
Deposits with Post Office6868
Treasury bills–942
Deposits with joint stock and savings banks970385
Unused overdrafts59–174
1,044296
Source: Statistisk Sentralbyrå, ϕkonomisk Utsyn over Året 1955 (Oslo, 1956), pp. 116, 118, and 119.

Including State Banks, loan associations, and insurance companies.

Excluding treasury bills issued.

Source: Statistisk Sentralbyrå, ϕkonomisk Utsyn over Året 1955 (Oslo, 1956), pp. 116, 118, and 119.

Including State Banks, loan associations, and insurance companies.

Excluding treasury bills issued.

Table 64.Norway: Contributions of Groups of Institutions to Changes in Liquidity Holdings of the Private Sector, First Nine Months, 1954 and 1955(In millions of Norwegian kroner)
First Nine Months
19541955
Government
Treasury bills–4234
Deposits with Bank of Norway–56–511
Bank of Norway
Treasury bills93–2
Deposits–112431
Currency–28–165
Joint stock and savings banks
Deposits970385
Unused overdrafts59–174
Treasury bills–6010
Deposits with Bank of Norway132171
Currency2049
Deposits with Post Office–21
Post Office
Total deposits7067
1,044296
Source: Statistisk Sentralbyrå, ϕkonomisk Utsyn over Året 1955 (Oslo, 1956), pp. 116 and 118.
Source: Statistisk Sentralbyrå, ϕkonomisk Utsyn over Året 1955 (Oslo, 1956), pp. 116 and 118.

PERU

The Central Reserve Bank of Peru publishes a table, shown here as Table 65, analyzing by origin and responsibility the means of payment outstanding, excluding government deposits. In addition to providing an external-internal origin analysis of money, the table allocates responsibility for the creation of money to the issuing institutions. For the Government, foreign currency deposits with the Central Bank are considered as measuring that part of its monetary liabilities (i.e., coin in circulation) of external origin. The difference between the total treasury currency issued and all deposits of the Government with the Central Bank (in both foreign and national currency) is considered a measure of the money of internal origin created by the Government. For the Central Bank, the factors of external origin are defined as equal to its net foreign assets, i.e., its gross foreign holdings (including the net IMF position) minus deposits payable in foreign exchange and other liabilities to residents that will be discharged in foreign exchange (e.g., advance payments by Peruvians for the purchase of foreign exchange). The difference between the monetary liabilities of the Bank (i.e., currency outstanding and national currency monetary deposits, including government deposits, and reserve deposits of banks) and its net foreign assets comprises the money of internal origin created by the Central Bank. For the commercial and savings banks, the factors of external origin are foreign exchange holdings less the foreign exchange deposits of Peruvian residents with these banks. The difference between the banks’ monetary deposits and the sum of their net foreign assets plus deposits with the Central Bank comprises the money of internal origin created by the commercial and savings banks.

Table 65.Peru: Origins of the Means of Payment, 1951–55(In millions of soles)
19511952195319541955
Total means of payment2,7423,2063,5423,7744,009
External origin595579447630501
Government222