Chapter

Chapter 3 WORKSHOP 1 Monetary and Financial Survey

Author(s):
International Monetary Fund
Published Date:
September 1985
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This workshop discusses the sectorization and consolidation of data on financial assets and liabilities of the financial institutions of a country. The format described here is the one used in the International Monetary Fund's monthly publication, International Financial Statistics (IFS). In presenting the data on financial institutions, IFS aims to provide a measure of the volume of liquidity and to cover the accounts of the banking sector whose activities are of the greatest importance in finance and liquidity creation. Such accounts 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.1

PRESENTATION OF THE STATISTICS

In the IFS scheme, the monetary and financial data are presented on three levels. The first level contains a consolidation of financial data into three functional groups: the monetary authorities (MAs), deposit money banks (DMBs), and other financial institutions (OFIs). IFS attaches special importance to the accounts of the monetary authorities; these accounts form a core data base for timely evaluation of monetary developments, including foreign reserve movements, and for formulating monetary policy. The second level consolidates the data for the monetary authorities and deposit money banks into the “monetary survey”; it provides a statistical measure of money and credit. The third, or most consolidated level, combines the other financial institutions and monetary survey into the “financial survey,” 2 in order to measure overall private sector liquidity, contribute to an explanation of its origin, and provide information useful in a description of the relationship between the financial system and other sectors of the economy. The purpose of each of these levels of consolidation is to present financial data for an economy in a way that will best facilitate economic analysis, i.e., the behavior of these financial aggregates and their interactions with the economic activity of the country concerned. IFS concentrates its attention on financial data because they serve to explain the financing of sectoral and aggregate expenditure; in addition, these data have the advantage of being readily available even in the developing countries.

The First Level: Monetary Authorities

The monetary authorities data, which are reported in lines 11 through 17r on the country pages of IFS (as shown in Table 1), consolidate and present the accounts of the central bank and other institutions that create reserve money; issue currency; hold the national reserves of gold, foreign exchange, and special drawing rights (SDRs); control the monetary system; and act as the bank for the government. Generally, most of these functions are carried out by the central bank, but there are many countries where the treasury issues coin and some countries where the treasury or a treasury-controlled exchange stabilization fund holds the official reserves of gold and foreign exchange. These monetary functions of the government should be consolidated with the accounts of the central bank in order to present all of the functions of the monetary authorities together in one section.

TABLE 1.Line Items on Country Pages of International Financial Statistics
Exchange Rates
SDR Rateaa
Market Rate (end of period)ae/ag
Market Rate (period average)af/ah
Par or Central Rate (end of period)de/dg
Par Rate/Market Rate (period average) & Trade Conversionrf/rh
International Liquidity
Total Reserves Minus Gold1l.d
SDRs1b.d
Reserve Position in the Fund1c.d
Foreign Exchange1d.d
Gold (million fine troy ounces)1ad
Gold (national valuation)1and
Fund Position
Use of Fund Credit2e.d
of which: by Facility2e*d
Quota2f.d
Trust Fund Loans Outstanding2etd
Monetary Authorities: Other (Foreign) Liabilities4..d
Deposit Money Banks: (Foreign) Assets7a.d
Deposit Money Banks: (Foreign) Liabilities7b.d
Other Financial Institutions: (Foreign) Assets7e.d
Other Financial Institutions: (Foreign) Liabilities7f.d
International License Banks: (Foreign) Assets7k.d
International License Banks: (Foreign) Liabilities7m.d
Monetary Authorities
Foreign Assets11
Claims on Government12a
Claims on Official Entities12b
Claims on Businesses and Individuals12d
Claims on Deposit Money Banks12e
Claims on Other Financial Institutions12f
Reserve Money14
Currency held by Private Sector14a
Demand Deposits14d
of which: Other Government Entities14dx
of which: Other Financial Institutions14dy
Quasi-Monetary Liabilities15
of which: Foreign Currency Deposits15x
Bonds16a
Import Deposits16b
Foreign Liabilities16c
Long-Term Foreign Liabilities16cl
Government Deposits16d
Counterpart Funds16e
Capital Accounts17a
Other Items (net)17r
Deposit Money Banks
Reserves20
Foreign Assets21
Claims on Government22a
Claims on Official Entities22b
Claims on Businesses and Individuals22d
Claims on Other Financial Institutions22f
Demand Deposits24
of which: Other Government Entities24x
of which: Other Financial Institutions24y
Quasi-Monetary Liabilities25
of which: Foreign Currency Deposits25x
Bonds26a
Import Deposits26b
Foreign Liabilities26c
Long-Term Foreign Liabilities26cl
Government Deposits26d
Counterpart Funds26e
Credit from Monetary Authorities26g
Capital Accounts27a
Other Items (net)27r
Monetary Survey
Foreign Assets (net)31n
Domestic Credit32
Claims on Government (net)32an
Claims on Official Entities32b
Claims on Businesses and Individuals32d
Claims on Other Financial Institutions32f
Money34
Quasi-Money35
Bonds36a
Private Sector Import Deposits36b
Long-Term Foreign Liabilities36cl
Counterpart Funds36e
Other Items (net)37r
Money, Seasonally Adjusted34..b
Bank Clearings39c
Bank Debits39d
Other Financial Institutions
Reserves40
Foreign Assets41
Claims on Government42a
Claims on Official Entities42b
Claims on Businesses and Individuals42d
Claims on Deposit Money Banks42e
Demand Deposits44
Quasi-Monetary Liabilities45
Bonds46a
Import Deposits46b
Foreign Liabilities46c
Long-Term Foreign Liabilities46cl
Government Deposits46d
Counterpart Funds46e
Credit from Government46f
Credit from Monetary Authorities46g
Credit from Deposit Money Banks46h
Capital Accounts47a
Other Items (net)47r
Financial Survey
Foreign Assets (net)51n
Domestic Credit52
Claims on Government (net)52an
Claims on Official Entities52b
Claims on Businesses and Individuals52d
Liquid Liabilities54
Bonds56a
Import Deposits56b
Long-Term Foreign Liabilities56cl
Counterpart Funds56e
Other Items (net)57r
Interest, Prices, Production
Discount Rate (end of period)60
Treasury Bill Rate60c
Government Bond Yield: Mid-Term61a
Long-Term61
National Accounts
Exports90c
Government Consumption91f
Gross Fixed Capital Formation93e
Increase in Stocks93i
Private Consumption96f
Less: Imports98c
Gross Domestic Product99b
Less: Net Factor Payments Abroad98e
Gross National Expenditure = GNP99a
National Income, Market Prices99e
Gross Domestic Product: 1975 Prices99b.p
Source: International Monetary Fund, International Financial Statistics (monthly).
Source: International Monetary Fund, International Financial Statistics (monthly).

Data from the balance sheets of the institutions in this category need to be classified so as to furnish as much information as possible on their functions. Thus, it is important to know how countries' transactions with the rest of the world affect the monetary authorities' holdings of foreign assets, how these institutions operate to control the credit expansion of the deposit money banks, and how credit to the government and other sectors has been allocated.

On the IFS country pages, foreign assets (11)3 include gold, foreign bank notes, deposits in foreign exchange held abroad, investments in the debt instruments of other countries, SDRs, and the member's reserve position in the International Monetary Fund. The last is the outstanding amount a member country may draw unconditionally under the Fund's regular tranche policies plus the equivalent of its outstanding lendings to the Fund under borrowing arrangements.

Defining the government sector of a country often poses difficult problems. In IFS, an attempt is made to separate banking system claims on, and liabilities to, public institutions into two categories: government per se and official entities. The term “government” formerly included state and local, as well as central government, but now an attempt is made to limit it to the central government, government enterprises directly under its control, and social security funds. For those countries where data are available, this category is based on the same definition of government as that used for “government finance,” which comprises lines 80–89 of IFS.4 The treatment of government enterprises is based on the same general criteria as those used for government finance statistics: namely, the existence of government ownership and/or control, the extent to which the decision-making process is based on commercial considerations, and whether the market for the output of these enterprises is largely in the government or private sector. Official entities include the financial accounts in the banking system of government entities other than those presented as “government,” such as state and local governments and autonomous nonfinancial public enterprises. The autonomous financial public enterprises (e.g., official development banks, postal and other official savings banks, official mortgage banks, etc.), together with similar private institutions, are included in a separate category, called “other financial institutions” (OFIs), discussed below in the section on The First Level: Deposit Money Banks. The title used in IFS for this category varies from country to country, depending on the nature of the institutions.

Table 2 presents a typical balance sheet of the monetary authorities of a country, with the regrouping necessary for presenting the above information and for constructing the monetary survey.

TABLE 2.Typical Balance Sheet or Monetary Authorities
AssetsLiabilities
Gold
Foreign assets (11)Reserve money(14)
Foreign exchangeCurrency in circulation
Reserve position in IMFoutside banks(14a)
Holdings of SDRsin bank vaults(14b)
Foreign correspondentsbanks' deposits(14c)
Foreign investmentsprivate sector deposits(14d)
Loans to the government
Claims on government (12a)official entities'
Treasury bondsdeposits(14dx)
Discounts and guaranteedTime deposits(15)
government obligations
Deposits in foreign
Claims on official entities(12b)exchange(15b)
Claims on the private sector(12d)Import deposits(16b)
Claims on other financial
(12f)Foreign liabilities(16c)
institutionsGovernment deposits(16d)
Discounts
Claims on deposit money banks (12e)Counterpart funds(16e)
AdvancesLending funds of
Claims on the money marketgovernment(16f)
Fixed assets
UnclassifiedCapital
Capital
Other itemsassets (13)Reservesaccounts(17a)
Counterpart of
Other items
SDR allocations
Profits
Other accounts(17r)
Note: Numbers in parentheses refer to line items on country pages of International Financial Statistics (see Table 1).
Note: Numbers in parentheses refer to line items on country pages of International Financial Statistics (see Table 1).

In the accounts of the country's monetary authorities, following the above distinction, claims on the public sector are subdivided into claims on government (12a) and claims on official entities (12b), while claims on official development and savings banks are included in claims on other financial institutions (12f). In general, claims on the private sector (12d) are likely to be insignificant. Rediscounts are treated as claims on deposit money banks (DMBs) since they are viewed as a transaction between the central bank and the DMB to replenish the liquidity of the latter. At the DMB level, they are reported as a claim on nonresidents, government, or private sector (according to the case) with a contra-entry on the liability side as credit from the central bank.

The main item on the liability side is reserve money. This is the monetary base through which the central bank influences the liquidity of the DMBs and, hence, their ability to create deposit money. The main component of reserve money is currency in circulation outside banks, i.e., currency in the hands of the public. Private sector deposits (l4d), like claims on the private sector, are generally small. The deposits of official as well as private nonbank financial intermediaries are included in private sector (demand) deposits (l4d) or in time deposits (15), as appropriate. Currency in bank vaults (14b) and banks' deposits with the monetary authorities (l4c) are important for economic analysis, since they serve as the base for total demand deposits of the community. Foreign liabilities (16c) include all liabilities to nonresidents in domestic and foreign currencies. Deposits of government are shown as item (l6d). A member's use of Fund credit, which measures the net use by a member country of its conditional drawing rights in the Fund, is included as item (16c). However, the counterpart of SDR allocations is shown in other items (17r) rather than as a foreign liability. Thus, any allocation of SDRs will add to net as well as gross reserves of the participating member countries. As defined in IFS, deposits in foreign exchange (15x) include liabilities to residents only, and therefore are not included as foreign liabilities. Counterpart funds (16e) in local currency are generated from the sale to residents of commodities imported under bilateral aid agreements, particularly under U.S. Public Law 480 (PL-480). These funds usually serve as a source of financing for projects mutually agreed on by the contracting governments.5

In the presentation of the accounts of a country's monetary authorities, a number of problems are encountered.

1. Even at the first level, the presentation of the accounts of monetary authorities involves some consolidation. First, there is a consolidation of central bank accounts with certain accounts of the treasury or other appropriate government agency, such as treasury currency or coin; government foreign asset holdings; treasury accounts (if any); and transactions with the Fund,6 including the payment of the local currency subscription. Second, an interdepartmental consolidation for the central bank is needed where separate issue and banking departments exist, each performing the functions of monetary authorities. However, in cases where the central bank performs predominantly commercial banking functions (either through a separate banking department or otherwise), or conversely, where a deposit money bank, usually official, also performs some or all of the central banking functions, a separation must be made, with the banking department or the commercial banking component of the central bank being included in the DMB consolidation and the central banking component of the DMBs being transferred to the accounts of the monetary authorities.

2. In cases where foreign assets held by the treasury, by an exchange stabilization fund, or by a similar government institution are consolidated with the accounts of the monetary authorities, the offsetting entries may be recorded either by deducting from claims on government (12a) or, where this would lead to a negative figure, by adding to government deposits (l6d). Foreign liabilities of government, such as those related to development loans, are not recorded in the accounts of the monetary authorities.

3. The reserve position in the Fund is entered in line 11, even in cases where a part of the Fund's accounts (such as the local currency subscription) is shown in the accounts of the treasury or another government institution and does not appear in the balance sheet of the central bank. In such cases, offsetting entries are made, following a procedure similar to that in paragraph 2 above. The same is true of use of Fund credit, because the maintenance of the Fund accounts is a monetary function of the government which must be consolidated with central bank data.

4. The term “claims” (on government, banks, etc.) is used to include not only direct credit in the form of rediscounts, loans, and advances but also indirect credit in the form of investments in securities (including both new issues and securities purchased from existing holders).

5. As regards the classification of the public sector into its various components, a uniform presentation of IFS data for all countries has not been possible because of lack of data. In some cases, state and local governments may not be included at all or may be included in government (12a) rather than in official entities (12b). There may be cases of autonomous public enterprises being included in government (12a) instead of in official entities (12b). In other cases, official development and savings banks may be included in official entities (12b) or even in government (12a), instead of being shown separately as OFIs (12f). Similarly, the deposits of an official entity or an official development bank may be shown in government deposits (l6d), instead of in private sector demand deposits (l4d) or time deposits (15). Where possible, in such cases a note is inserted in the country pages of IFS, pointing out the inadequacy of data.

6. The distinction between DMBs and OFIs (see the section below on The First Level: Deposit Money Banks) may present similar problems of classification for the claims of the monetary authorities on, and their liabilities to, such institutions. As in the case of paragraph 5 above, this can also have a bearing on the totals in the monetary survey.

The First Level: Deposit Money Banks

Deposit money banks (DMBs), which comprise lines 20–29 on the country pages of IFS, include all commercial institutions whose demand deposit liabilities are important or form a large proportion of their total liabilities. Although the commercial banks are the principal institutions in this category, such financial institutions as savings banks may also be included when their liabilities are regarded as money. Thus, the term “deposit money banks” is, in general, synonymous with commercial banks but its coverage may be somewhat different. Currently in IFS, the term “commercial banks” is used in some countries as a heading for lines 20–29, while the term “deposit money banks” or a different term is used in others (such as business banks for Yugoslavia, commercial and cooperative banks for India, commercial and savings banks for Spain, deposit and savings banks for Mexico, etc.).

Table 3 presents a consolidation of the balance sheet accounts from such institutions. Most of the items in this table need no further explanation than that given for the same items under monetary authorities. The most important problem in making a table of this kind lies in the division of deposit accounts between demand deposits (24) and time and savings deposits (25 and 25x). Money comprises demand deposits held by the domestic nongovernment sector. Quasi-money includes mainly time and savings deposits (25) held by the domestic private sector with those institutions included in deposit money banks.7 Foreign exchange deposits of the private sector and other foreign exchange deposits (25x) are considered as quasi-money and not as a foreign liability.

TABLE 3.Typical Consolidated Balance Sheet of Deposit Money Banks
AssetsLiabilities
Cash in vault
Reserves (20)Sight deposits
(24)
Deposits with monetaryChecking accounts
authoritiesSavings and other
(25a)
Gold and foreign exchange
Foreign assets (21)deposits requiring
Deposits and securitiesprevious notice
abroadTime deposits
Loans to the government
Claims on government (22a)Foreign exchange deposits(25x)
Treasury bondsImport deposits(26b)
Discounts and governmentDeposits of foreign
obligationscorrespondents(26c)
Claims on official entities(22b)Government deposits(26d)
Discounted bills
Claims on the private sector (22d)Counterpart funds(26e)
AdvancesGovernment lending funds(26f)
Overdrafts
Medium-term and long-termCredit from monetary
loansauthorities(26g)
Stocks and bonds
Capital
Capital
Other items (23)Reservesaccounts(27a)
Fixed assets
Other itemsProfits
(27r)
Other accounts
Note: Numbers in parentheses rafer to line items on country pages of International Financial Statistics (see Table 1).
Note: Numbers in parentheses rafer to line items on country pages of International Financial Statistics (see Table 1).

Some problems in the presentation of DMB accounts are noted below.

1. In the consolidation of the accounts of deposit money banks, care must be taken to eliminate interbank float and other interbank claims and liabilities, if any.

2. The separation of DMBs from OFIs presents the problem of distinguishing between monetary and nonmonetary financial institutions in practice, as well as the problem of consistency in the treatment of the monetary system's claims on and liabilities to OFIs. The problem arises, on the one hand, because many savings institutions or development banks (OFIs) also have some demand deposits and, on the other hand, because time and savings deposits in DMBs have outgrown demand deposits in many countries. The current IFS practice is to classify as DMBs those institutions whose demand deposit liabilities are a significant part of their total liabilities and to treat as OFIs those institutions whose demand deposit liabilities are clearly insignificant. The borderline cases (of which there are many) are decided on a case-by-case basis with reference to the legal basis, tradition, and circumstances. As for both official and private DMB claims on and liabilities to OFIs (see the preceding section on The First Level: Monetary Authorities), separate entries are not shown in Table 3. With very few exceptions, the country pages of IFS do not show DMB claims on OFIs separately, because these are insignificant or are not known. However, there is no conceptual reason why there should not be a line (22f), corresponding to line (12f) of MA accounts, in cases where this is warranted; in fact, there is a line (22f) in the case of Mexico.

3. The term “claims” includes both direct and indirect credit, as explained in paragraph 4 of the preceding section on The First Level: Monetary Authorities.

4. The problem of classification of DMB claims and liabilities, arising out of the distinction between government and official entities, is the same as that explained in paragraph 5 of the preceding section on The First Level: Monetary Authorities. Claims on government and claims on official entities are shown separately in lines (22a) and (22b), respectively. Deposit liabilities to government in line (26d) and deposits of official entities are shown in line (24), if they are demand deposits, or in line (25), if they are time and savings deposits.

The Second Level: The Monetary Survey

A major purpose of the monetary survey is to allow analysis of the financial aggregates most influenced by the monetary authorities and most influential on other economic aggregates. To this end, the balance sheet data from all the deposit money banks and the monetary authorities are consolidated into a few categories of major interest to economists and policymakers (see Table 4).

TABLE 4.Typical Monetary Survey
AssetsLiabilities
Net foreign assets(31n)Money(34)
Domestic credit(32)Quasi-money(35)
Claims on government(32an)Import deposits(36b)
Claims on official entities(32b)Counterpart funds(36e)
Claims on private sector(32d)Other items (net)(37r)
Note: Numbers in parentheses refer to line items on country pages of International Financial Statistics (see Table 1).
Note: Numbers in parentheses refer to line items on country pages of International Financial Statistics (see Table 1).

For several reasons, only the financial institutions named earlier are included in the monetary survey. First, the monetary authorities and deposit money banks form what might be called the core of the system of financial intermediaries within any particular country, and the movements of the accounts of these institutions are of primary interest for monetary analysis. Second, the balance sheets of other financial intermediaries are often not available without substantial delay, thus limiting the usefulness of these data for the formulation of monetary policy. Finally, the instruments available to central banks for the control of monetary policy often affect deposit money bank operations directly, but they usually do not impinge quite as directly on the operations of other financial institutions.

The monetary survey must be constructed so as to eliminate float and to net out all interbank accounts. The items included in the monetary survey from the two consolidated balance sheets are derived as follows:8

Assets
Net foreign assets (31n) =
Foreign assets of the monetary authorities(11)
Plus: Foreign assets of the deposit money banks(21)
Less: Foreign liabilities of the monetary authorities(16c)
and deposit money banks(26c)
Note: If the balance is negative (liabilities greater than assets), it is entered as such under (31n).
Claims on government (net) (32an) =
Claims on government of the monetary authorities(12a)
and deposit money banks(22a)
Less: Deposits of government with the monetary authorities(16d)
and with deposit money banks(26d)
Claims on official entities (32b) =
the sum of (12b) and (22b)
Claims on private sector (32d) =
Claims on the private sector by the monetary authorities
authorities(12d)
Plus: Claims on other financial institutions(12f)
Plus: Claims on the private sector by deposit money banks(22d)
Liabilities
Money (34) =
Currency outside deposit money banks(14a)
Plus: Private sector deposits with monetary authorities(14d)
Plus: Official entities' deposits(14dx)
Plus: Demand deposits in the deposit money banks(24)
Quasi-money (35) =
Time and savings deposits with the monetary authorities(15)
Time and savings deposits with deposit money banks(25)
Plus: Foreign currency deposits held by residents
with the monetary authorities(15x)
and deposit money banks(25x)
Import deposits (36b) = the sum of (16b) and (26b)
Counterpart funds (36e) = the sum of (l6e) and (26e)
Other items (net)9 (37r) =
Capital accounts(17a) and (27a)
Plus: Retained profits(27b)
Plus: Other liabilities of the monetary authorities,
including the counterpart of SDR
allocations(17b)
Less: Other items, including certain memorandum
accounts, of monetary authorities, and
deposit money banks(13)and (23)

For the most part, the entries are self-explanatory. Foreign assets (31n) comprise all types of foreign assets and gold, minus short-term and medium-term foreign liabilities of the institutions included in the survey. The intent is to show the domestic monetary impact of a country's transactions with the rest of the world, as measured by the change in net foreign assets. Domestic credit10 (an asset of the banking system) includes all outstanding credit granted by the banking system to government, official entities, and the private sector (including, for example, persons, corporations, or other financial institutions). All credit that banks grant to each other, as well as credit granted by the central bank to deposit money banks, disappears in the process of consolidation.

In the monetary survey, claims on government 11 are also entered as net—that is, the figures against this item include all credit granted to government by the banking system minus all deposits of the government in the banking system. This treatment facilitates measurement of the impact of government operations on the liquidity of the economy. Also, the government is the authority responsible for economic policy and, consequently, its decisions concerning expenditure do not usually depend on the amount of deposits it has but on wider measures, since it is not bound by liquidity considerations like those which apply to other sectors. Claims on official entities 11 are shown separately because of the importance and because of the special problems in regard to these entities, especially in the less developed countries. Claims on official entities are entered as gross because the amount of deposits and cash that they possess (their liquidity) is thought to influence their expenditure. Claims on the private sector11 register all credit to private individuals and enterprises and are entered as gross because of the considerations pointed out above with regard to claims on official entities. This item also includes claims on official and private OFIs.

The term “money” is variously defined both in theory and in practice. One of the more widely accepted definitions includes all currency in circulation outside the banking system and government—that is, currency in the hands of private sector and official entities and all deposits of the private sector and official entities that can be utilized as a means of payment. Deposits are generally that part of money which may be transferred by check. However, in certain institutional arrangements, other current deposits with a high rate of turnover, such as savings deposits, may be included. Accordingly, in the monetary survey, money includes the two categories: currency in circulation and demand-type deposits. It is shown as a liability of the monetary system because currency is a liability of the monetary authorities and demand deposits are liabilities of deposit money banks. The term “quasi-money” is another liability of banks and includes all other deposits with the monetary system that are not utilized directly as a means of payment and that usually have a lower rate of turnover. This generally means time and savings deposits with the banking system. Import deposits are advance payments made in domestic currency by residents when applying for foreign exchange, and these are not included in quasi-money. Government deposits are not included in either money or quasi-money, particularly because they do not represent liquidity in the sense that they do not constrain government expenditure policies and are thus different in character from private sector deposits.

It is necessary for the monetary survey to take into account peculiarities of the financial structure in any country. In France and in countries following French banking practices, the Treasury and Postal Savings Accounts have a very special role which must be considered in constructing the monetary survey. In other countries, a formerly private bank may serve in place of a treasury as the agency for all government accounts. Since these peculiarities or departures from the norm are frequent, IFS contains an explanation of such institutions or accounts in the footnotes to the country tables.

Some problems of consolidation in respect of the monetary survey are worthy of mention:

1. As in the case of the consolidation of the DMB accounts, the consolidation for the monetary survey could eliminate transactions between the MAs and the DMBs. Thus lines (12e), (14b), and (14c) in the MA accounts and lines (20) and (26g) in the DMB accounts are canceled out.

2. The term “claims” has the same meaning as that explained in paragraph 4 of the section above on The First Level: Monetary Authorities.

3. As explained in paragraph 2 of the preceding section on The First Level: Deposit Money Banks, OFIs are not included in the monetary survey and, as such, any demand deposits or time and savings deposits held in the OFIs are not reflected in the money and quasi-money figures of the monetary survey.12 However, the amount of demand deposits thus excluded from the monetary survey is likely to be small, since the size of demand deposits, as indicated in the preceding section, is the main criterion for classification as a DMB or as an OFI.

4. While claims on official and private development and savings institutions (OFIs) may be shown separately in MA (12f) and DMB (22f) accounts (see comments in the sections above on The First Level), they are not shown separately in the monetary survey but are included in credit to the private sector (32d). The information provided by the separate entries (12f) and (22f) is necessary, however, for the financial survey consolidation (see the next section on The Third Level), in order to net out claims and liabilities between MAs and DMBs, on the one hand, and OFIs, on the other hand; items (12f) and (22f) would disappear, and so would the corresponding liability items in the OFIs (liabilities to MAs and DMBs). Similarly, OFI cash (claims on MAs) and OFI claims on DMBs (items (40) and (42e) of Table 5) would be offset in the consolidation by the corresponding MA and DMB liabilities to OFIs.

5. On the assets side, the monetary survey consolidation classifies claims by sectors or sector components in lines (32an), (32b), and (32d). However, on the liabilities side, the classification is mainly according to the nature of liquidity (as explained earlier with reference to money, quasi-money, and government deposits). Thus, deposits of official entities are considered to have the same liquidity characteristics as private sector deposits and are included in money (34) or quasi-money (35) in the monetary survey consolidation (depending on whether they are demand or time and savings deposits), even though they may have been shown separately in the first-level consolidation, as for example, item (l4dx). Deposits of official or private development and savings institutions (OFIs) are included in private sector deposits in the MA and DMB accounts as well as in the monetary survey.

6. Foreign currency deposits held by residents, shown separately as item (15x) in MA accounts (for example, Chile) and item (25x) in DMB accounts (for example, Chile and Saudi Arabia), are included in quasi-money because their characteristics are similar to those of other components of quasi-money, even though they are denominated in foreign exchange.

7. Counterpart funds (36e) are shown separately in the monetary survey, if their amount is substantial. IFS currently shows counterpart funds separately in the monetary survey for seven countries (Bolivia, Egypt, Pakistan, Paraguay, Sudan, Tunisia, and Zaïre).

TABLE 5.Typical Consolidated Balance Sheet of Other Financial Intermediaries
AssetsLiabilities
Cash(40)Demand deposits(44)
Foreign assets(41)Time and savings deposits(45)
Claims on government(42a)Bonds and certificates(46a)
Claims on official entities(42b)Foreign liabilities(46C)
Claims on the private sector(42d)Credit from government(46f)
Claims on deposit moneyCredit from monetary
banks(42e)authorities(46g)
Credit from deposit money(46h)
banks(46h)
Capital accounts(47a)
Other items (net)(47r)
Note: Numbers in parentheses refer to line items on country pages of International Financial Statistics (see Table 1).
Note: Numbers in parentheses refer to line items on country pages of International Financial Statistics (see Table 1).

The Third Level: The Financial Survey

While the monetary survey covers only the monetary authorities and deposit money banks, the financial survey includes other financial intermediaries that are important in the financial structure of the economy. Information on their activities is useful for monetary and financial analysis. The financial survey establishes a link between money creation and the channeling of credit, on the one hand, and the collection of savings, on the other hand. The financial survey, together with the balance of payments and the financial accounts of the government sector, would make it possible to construct a statement of the financial transactions of the private sector, thus providing a link with flow-of-funds accounts.

Other financial intermediaries may include specialized credit entities, such as savings or postal banks, mortgage banks, development banks, or banks specializing in sectoral loans for mining or agriculture. Insurance and pension institutions may also figure importantly in this group of financial intermediaries.

The balance sheet of each one of these institutions reflects its particular character. Thus, consolidation of balance sheets from the major institutions of this sector into a single statement for financial intermediaries may often pose very difficult problems of netting and categorization. Where feasible, however, this statement has a form similar to that shown in Table 5.

To the extent that the accounting practices of these financial intermediaries are compatible with those of the banking system, and where data are available, the data are presented and then consolidated in the financial survey of IFS.13 The table takes the form shown in Table 6.

TABLE 6.Typical Financial Survey
AssetsLiabilities
Net foreign assetsLiquid liabilities
(51) = (31n) + (41) − (46c)1(54) = (34) + (35) + (44) + (45)
Net claims on governmentBonds and certificates
(52an) = (32an) + (42a) − (46f)2(56a) = (46a)
Claims on official entitiesCapital accounts
(52b) = (32b) + (42b)(57a) = (17a) + (27a) + (47a)
Claims on the private sectorOther items (net)
(52d) = (32d) + (42d)(57r) = (17r) + (27r) + (36r)
+ (36e) + (47r)−(13)−(23)
Note: Numbers in parentheses refer to line items on country pages of International Financial Statistics (see Table 1).

If long-term, item (46c) is not netted out.

It long-term, item (46f) is not netted out.

Note: Numbers in parentheses refer to line items on country pages of International Financial Statistics (see Table 1).

If long-term, item (46c) is not netted out.

It long-term, item (46f) is not netted out.

ISSUES FOR DISCUSSION

  • There are three levels of aggregation of monetary statistics in IFS. What are the purposes behind collection of statistics at each level?

  • On the asset side of the banking system balance sheets, classification is by sector, i.e., foreign sector, government sector, private sector, etc. On the liability side, classification is mainly by type of liability, i.e., money, quasi-money, other items, etc. What are (a) the purpose of and (b) the advantages and disadvantages of this asymmetrical classification?

  • Why are deposits denominated in foreign exchange and held by residents and nonresidents treated differently? Why are such deposits, when held by residents, included in quasi-money? Why are counterpart funds not treated as foreign liabilities or as quasi-money?

  • What are some of the problems encountered in the application of the criteria for distinguishing between DMBs and OFIs? How does such a distinction affect the figures for domestic credit and money?

  • How does the distinction between government and official entities (i.e., the inclusion of a particular official entity in one or the other of the above two categories) affect the figures for net credit to government, domestic credit, and money? Why are claims on official entities treated differently, in terms of sectorization, from liabilities to these entities? Why are claims on, and liabilities to, official development and savings banks not shown separately?

  • In the consolidation of the net foreign assets of MAs and DMBs, comment on the special problems arising out of the treatment of foreign asset holdings of the Treasury or other government institutions and of transactions with the IMF. Should bilateral payments balances (credit or debit) be included in net foreign assets? Should the foreign liabilities of the Central Government or of official entities be treated as foreign liabilities of the monetary authorities?

  • Why are government deposits not treated as money or quasi-money? Why does the monetary survey present credit to government as net of government deposits? Is there a situation where this would not be the best presentation, from the point of view of economic analysis? Why are deposits of official entities treated differently from deposits of the Government?

  • Why does the monetary survey show foreign assets net, i.e., after deducting foreign liabilities?

  • How does the financial survey provide a link with flow-of-funds accounts? How could it be better presented if the primary goal was to provide a data base for such a link?

MONETARY SURVEY FOR KENYA

It should be remembered that the claims of the monetary authorities on, and liabilities to, the commercial banks will not appear in the banking system's consolidated statement; similarly, the claims of the commercial banks on, and liabilities to, the monetary authorities will be excluded from the consolidated statement. The figure for total claims of commercial banks on the monetary authorities, as shown in the summary account for the commercial banks, does not exactly match the liabilities to commercial banks recorded in the balance sheet of the monetary authorities. These discrepancies are unavoidable because checks and other items are in transit and because a timing difference may exist in the recording of transactions. In the monetary survey these discrepancies will be reflected in “other items (net).” This item is not, therefore, equal to the sum of the corresponding items in the balance sheets of the monetary authorities and the commercial banks.

EXERCISES AND ISSUES FOR DISCUSSION

Exercise A

  • Table 9 below gives a consolidated balance sheet of the banking system from 1973 through 1976 in the form of the monetary survey, which has been derived from the summary accounts of the monetary authorities (Table 7) and the commercial banks (Table 8). The column for 1977 in Table 9 has been left blank, and these figures are to be filled in, using Tables 7 and 8.

TABLE 7.Kenya; Summary Accounts of the Monetary Authorities, 1973–77(In millions of Kenya shillings)
Assets19731074197519761977Liabilities19731974197519761977
Foreign assets (11)1,615.01,354.01,439.02,309.04,282.0Reserve money (14)1,395.01,789.01,613.02,001.03,233.0
Fund reserve position102.2Currency outside banks
Holdings of SORs142.416.336.326.8139.0(14a)982.01,086.01,234.01,62502,1820
Correspondents 1820.3747.0304.91,581.93,533.7Currency in bank
Holdings of foreignvaults (14b)137.0253.0174.0205.0241.0
securities524.2587.4589.1684.4586.3Banks' deposits (14c)221.0381.0131.0133.0730.0
Government foreignOfficial entities' deposits
exchange holdings25.43.68.315.823.1(14d)255.069.074.038.080.0
Claims on Government (12a)369.0526.01,111.5851.01,243.0Foreign liabilities (16c)6.0269.0750.0844.0570.0
Advances200.0200.0543.1200.0200.0Use of Fund credit280.3662.9820.9460.0
Treasury bills59.9148.8284.320.0132.6Other foreign liabilities6.08.787.123.1110.0
Securities issued orGovernment deposits (16d)464.036.0−59.073.01,278.0
guaranteed by Government108.8176.9150.1496.9726.5Counterpart of Fund
SDR allocations used byreserve position102.1
Government134.4134.4134.4Other deposits of the
Trust Fund loan49.6Treasury361.836.0−59.073.01,278.0
Claims un official entities (12b)7.0Capital accounts (17a)182.0186.0186.0186.0186.0
Claims an commercial banksOther liabilities123.294.0129.3163.8299.9
(12e)236.334.38.518.1
Fixed assets and other items
(13)179.0279.036.0100.024.0
Sources: Central Bank of Kenya, Annual Report for the Financial Year Ended 30th June, 1973; International Monetary Fund, International Financial Statistics, July 1978.Note: Numbers in parentheses rarer to line items on country pages of International Financial Statistics (see Table 1).

Includes balances with Banks of Tanzania and Uganda as follows:

19731974197519761977
10.06.911.57.431.6

Including some float.

Sources: Central Bank of Kenya, Annual Report for the Financial Year Ended 30th June, 1973; International Monetary Fund, International Financial Statistics, July 1978.Note: Numbers in parentheses rarer to line items on country pages of International Financial Statistics (see Table 1).

Includes balances with Banks of Tanzania and Uganda as follows:

19731974197519761977
10.06.911.57.431.6

Including some float.

TABLE 8.Kenya: Summary Accounts of Commercial Banks, 1373–77(In millions of Kenya shillings)
Assets19731974197519761977Liabilities19731974197519761977
Reserves (20)372.0514.0298.0313.0971.0Government deposits (25d)76.070.061.072.0128.0
Cash in vaults Deposits in the Central Bank137.0253.0174.0205.0241.0Demand deposits (24)2,825.02,881.03,249.04,079.06,189.0
Bank234.0261.0124.0108.0730.0Savings deposits (25)979.41,143.21,277.71,513.72,083.2
Foreign assets (21)222.0304.0372.0407.0334.0Rest of public sector3.84.513.823.519.0
Holdings of foreignPrivate sector975.61,138.71,263.91,490.22,064.2
currency5.07.118.916.023.3Time deposits (25)515.0660.0996.51,266.61,902.6
Deposits and securities abroadRest of public sector141.1209.5397.9440.6530.8
abroad217.0296.9353.1391.0313.7Private sector373.9450.5598.6826.01,321.8
Claims on Government (22a)649.6510.1676.91,191.91,963.4Deposits of foreign273.0400.0480.0413.0413.0
Treasury bills459.7325.6498.31,015.91,370.9correspondents (26c)
Government securities185.4194.4174.0158.6590.2Credit from Central Bank
Loans and advances4.50.14.217.42.3(26g)254.0190
Claims on official entitiesCapital accounts (27a)307.0373.0443.0537.5750.0
(22b)230.0223.0303.0215.0259.0Other liabilities (27b)287.3454.6411.1664.3743.2
Claims on private sector
(22d)13,143.03,813.04,344.05,362.07,196.0
Fixed assets and other items
(23)647.0670.0953.01,057.01,485.0
Sources: Central Bank of Kenya, Annual Report for the Financial Year Ended 30th June, 1978; International Monetary Fund, International Financial Statistics, July 1978.Note: Numbers in parentheses refer to line items on country pages of International Financial Statistics (see Table 1).

Claims on two financial institutions—Cereals and Sugar Finance Corporation (CSFC) and Agricultural Finance Corporation (AFC)—are included here as follows:

19731974197519761977
285.279.5258.0470.5683.5

Sources: Central Bank of Kenya, Annual Report for the Financial Year Ended 30th June, 1978; International Monetary Fund, International Financial Statistics, July 1978.Note: Numbers in parentheses refer to line items on country pages of International Financial Statistics (see Table 1).

Claims on two financial institutions—Cereals and Sugar Finance Corporation (CSFC) and Agricultural Finance Corporation (AFC)—are included here as follows:

19731974197519761977
285.279.5258.0470.5683.5

TABLE 9.Kenya: Monetary Survey, 1973–77(In millions of Kenya shillings)
Item19731974197519761977
Net foreign assets1,558.0969.0581.01,459.0
Foreign assets1,837.01,658.01,811.02,716.0
Use of Fund credit280.3662,9820.9
Other foreign liabilities279.0408.7567,1436.1
Domestic credit3,859.04,986.06,414.07,475.0
Government (net)479.0930.01,767.01,898.0
Official entities237.0223.0303.0215.0
Private sector13,143.03,813.04,344.05,362.0
Other items (net)61.0116.0181.0480.0
Money plus quasi-money5,356.05,819.06,814.08,454.0
Money3,862.04,016.04,540.05,674.0
Currency982.01,086.01,234.01,625.0
Demand deposits22,880.02,950.03,323.04,117.0
Uncleared effects−20.0−17.0−68.0
Quasi-money1,494.01,803.02,274.02,780.0
Source: Tables 7 and 8.

Includes data for CSFC and AFC (see footnote to Table 8) as follows:

1973197419751976
285.279.5258.0470.5

Includes official entities' deposits with the monetary authorities.

Source: Tables 7 and 8.

Includes data for CSFC and AFC (see footnote to Table 8) as follows:

1973197419751976
285.279.5258.0470.5

Includes official entities' deposits with the monetary authorities.

Exercise B

  • Table 10 below gives the changes in the items of the monetary survey from 1973 through 1976. The columns for the changes in shillings and in per cent from 1976 to 1977 have been left blank, and these figures are to be filled in, using Table 9.

TABLE 10.Kenya: Changes in Monetary Survey Items, 1973–77(In millions of Kenya shillings and per cent)
Item19731974197519761977
PerPerPerPerPer
AmountcentAmountcentAmountcentAmountcentAmountcent
1. Net foreign assets20014.7−589−37.8−38.8−40.0878151.1
2. Domestic credit84127.91,10728.71,44829.21,06116.5
3. Credit to Government (net)13338.445194.283790.01317.4
4. Credit to other general government4624.0−14−5.98035.9−88−29.0
5. Credit to private sector166226.767021.353113.91,01823.4
6. Assets = liabilities1,05624.35229.71,05518.01,94327.8
7. Money83327.51544.052413.01,13425.0
8. Quasi-money22918.130920.747126.150622.3
9. Other items−21−25.65590.26556.0299165.2
Source: Table 9.

Includes CSFC and AFC (see footnote to Table 8).

Source: Table 9.

Includes CSFC and AFC (see footnote to Table 8).

Exercise C and Issues for Discussion

  • In 1976 and 1977, the economy of Kenya experienced a sharp upsurge in economic activity, led by increases in exports of coffee. In 1977, real GDP is estimated to have grown by 7.5 per cent. Consumer prices rose by 15 per cent. Domestic aggregate demand increased by 23 per cent in current prices.

  • Examine the accounts of the monetary authorities for 1977. How did the export boom affect their assets?

  • Calculate the change in net foreign assets of the monetary authorities in 1977. What would be the approximate first round impact of this change on reserve money? Was the actual change in reserve money larger or smaller than this?

  • Examine the accounts for the Government in both the monetary authorities and commercial banks in 1977. What was the change in net credit to Government in (a) the monetary authorities and (b) the commercial banks? Does it appear from these accounts that Kenyan policy was to move to offset or exacerbate the liquidity impact of the export boom on the banking system?

  • Examine the monetary survey. What was the percentage change in money plus quasi-money in 1977? How does this compare with the percentage change in (a) real GDP and (b) domestic aggregate demand?

  • Aside from the influences of the Government on the banking system, what other accounts could the monetary authorities influence in order to affect the expansionary effect of the banking system on the economy?

  • What was the percentage change in domestic credit in 1977? How does this compare to the increase in aggregate domestic demand? Below are listed data for the percentage increases in domestic aggregate demand and domestic credit in recent years. Does the increase in credit in 1977 seem excessive or deficient in magnitude? Is this a reasonable comparison? What other information is needed to assess the appropriate increase in domestic credit during the year?

Aggregate Demand1Domestic Credit2
(In millions of Kenya shillings and percentage

changes from previous year)
PercentagePercentage
AmountchangeAmountchange
197420,17916.74,96628.7
197524,43721.16,41429.2
197628,83518.07,47516.5
197735,03921.59,25523.8

Aggregate domestic demand is defined as the sum of consumption and gross fixed investment in any particular year. Data from Kenya's Economic Survey.

Data from International Financial Statistics.

Aggregate domestic demand is defined as the sum of consumption and gross fixed investment in any particular year. Data from Kenya's Economic Survey.

Data from International Financial Statistics.

Earl Hicks, Graeme S. Dorrance, and Gerald R. Aubanel, “Recent Developments in Monetary Analysis: Monetary Analyses,” Staff Papers, Vol. 5 (February 1957), pp. 342–433.

Presented in IFS for only a limited number of countries, because of the lack of adequate data.

Numbers in parentheses refer to line items on the country pages of IFS (see Table 1).

See also International Monetary Fund, Government Finance Statistics Yearbook (annual).

Under PL-480, commodity assistance (largely in the form of grain) is provided by the United States, generally in the form of a long-term loan repayable in local currency, to countries in balance of payments difficulties. The proceeds of sales of these imported commodities generate the counterpart funds in local currency, which are owned by the United States (i.e., a liability of the recipient country to the United States). The United States and the recipient country conclude agreements regarding the disposition of these funds, which may take diverse forms in different countries. Usually, most of the funds are transferred to the local government, as long-term loans in local currency, to provide financing for mutually agreed development projects. However, a part of these funds may be set aside for use by the U.S. Embassy to finance local currency expenditure. Another part (usually small) may be used to make local currency loans to U.S. corporations operating in the country. A relatively small part may be transferred to the local government on a grant basis.

In most countries, these are carried on the books of the central bank.

The distinction between money and quasi-money is discussed at greater length below in the section on The Second Level: The Monetary Survey.

In the case of French-speaking countries, the following modifications to the table would be needed: Private sector deposits in Postal Savings Accounts and the Treasury are to be reported in (34) with a contra-entry in (32an), postal debt is included in (31n) and (32an), and custom duty bills held by the Treasury are in (32an) and (32d) [compare IFS pages for France and member states of the Banque des Etats de l'Afrique Centrale (BEAC) and the Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO)].

This is a balancing entry.

Domestic credit and its components (claims on government, claims on official entities, and claims on the private sector) also include investments made by the banking system in securities issued by government, official entities, and the private sector.

See footnote 10.

Other financial institutions (OFIs) are not treated as monetary institutions in the monetary survey. However, claims of the monetary system on OFIs are either reported separately, if significant, or are otherwise subsumed in claims on the private sector, and their deposits with the monetary system are included in money and quasi-money.

Claims and liabilities of the monetary authorities or deposit money banks on other financial institutions should be excluded, as for example, lines (32f) and (34).

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