introduction to monetary accountsintroduction tointroduction to monetary accounts introductory...
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Introduction toIntroduction toIntroduction toIntroduction toMonetary AccountsMonetary Accountsyy
Introductory Workshop toFinancial Programming and PoliciesFinancial Programming and Policies
Yangon, MyanmarJanuary 19–23, 2015
Jan GottschalkTAOLAMTAOLAM
BangkokNovember 25, 2014
IMF-TAOLAM training activities are supported by funding of the Government of Japan
OutlineOutline
I I t d tiI. IntroductionII. Central Bank AccountsIII C i l B k A tIII. Commercial Bank AccountsIV. Monetary Survey
2This training material is the property of the International Monetary Fund (IMF) and is intended for the use in IMF courses. Any reuse requires the permission of the IMF.
Monetary Monetary StatisticsStatistics
Monetary statistics accounts areMonetary statistics accounts are critical for analysis of monetary conditions and formulation as well as implementation of monetary policy
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Scope of the Financial SystemScope of the Financial System
Financial system
Banking system (Monetary survey)
Other financial institutions
Central bank CommercialCentral bank (CBM/BoL)
Commercial banks
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OutlineOutline
I I t d tiI. IntroductionII. Central Bank AccountsIII C i l B k A tIII. Commercial Bank AccountsIV. Monetary Survey
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Central Bank AccountsCentral Bank Accounts
Selected functions of the central bank that have a direct Se ec ed u c o s o e ce a ba a a e a d ecimpact on its balance sheet include
Issuing of currencyg y
regulating the money supply (monetary policy)
acting as banker of the government
holding the country’s foreign reserves holding the country s foreign reserves(exchange rate policy)
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Analytical Balance Sheet of Central BankAnalytical Balance Sheet of Central Bank
RM = NFA + NDA
Assets Liabilities
Net foreign assets (NFA) Reserve money (RM)
Net domestic assets (NDA) Currency issued
Net claims on the government Held in banks
(NCG)Held in banks
Claims on commercial banks Held outside banks
Claims on other resident sectors Deposits (reserves) of commercial banks with central bank
Other items net
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Analytical Balance Sheet of Central BankAnalytical Balance Sheet of Central Bank
Assets N t f i t Net foreign assets holding the country’s foreign reserves (exchange rate policy) Net claims on government Net claims on government acting as banker of the government Claims on commercial banks regulating the money supply
(monetary policy)
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Analytical Balance Sheet of Central BankAnalytical Balance Sheet of Central Bank
Liabilities Currency issued Issuing of currencyDeposits of commercial banks with central bank regulatingDeposits of commercial banks with central bank regulating
the money supply (monetary policy)
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Why is Reserve Money Important? Why is Reserve Money Important?
The central bank can control reserve money because it is ‘created’ on its own
Policy
money because it is ‘created’ on its own balance sheet Reserve money matters for bank credit & broad money more generally, which, in
Decision Monetary Operations
& broad money more generally, which, in turn, matter for inflation & aggregate demand
Reserve Money
Broad Money, Bank CreditMoney
Broad
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InflationMoney on track?
Central Bank Balance Sheet ExamplesCentral Bank Balance Sheet Examples• Example: On the first day of its operations, central bank decides to buy foreign
currency worth Kyat 100 from commercial banks:
AssetsCB’s Net Foreign Assets 0Foreign exchange 0
LiabilitiesReserve money 0Currency in circulation 0
AssetsCB’s Net Foreign Assets 100Foreign exchange 100
LiabilitiesReserve money 100Currency in circulation 0
• Example: Next, central bank provides credit of Kyat 100 to government, which
CB’s Net Domestic Assets Deposits of commercial banks 0CB’s Net Domestic Assets Deposits of commercial banks 100
uses this credit to pay its suppliers: AssetsCB’s NFA 100
LiabilitiesReserve money 100
AssetsCB’s NFA 100
LiabilitiesReserve money 200
Foreign exchange 100CB’s NDA 0Net domestic credit 0
yCurrency in circulation 0Deposits of commercial banks 100
Foreign exchange 100CB’s NDA 100Net domestic credit 100
yCurrency in circulation 100Deposits of commercial banks 100
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Central Bank Balance Sheet ExamplesCentral Bank Balance Sheet Examples
• Example: central bank engages in open market operation to reduce base money supply and sells central bank securities of Kyat 100 to commercialmoney supply and sells central bank securities of Kyat 100 to commercial banks:
AssetsCB’s NFA 100
LiabilitiesReserve money 200
AssetsCB’s NFA 100
LiabilitiesReserve money 100CB s NFA 100
Foreign exchange 100CB’s NDA 100Net domestic credit 100
Reserve money 200Currency in circulation 100Deposits of commercial banks 100
CB s NFA 100Foreign exchange 100
CB’s NDA 0Net domestic credit 0
Reserve money 100Currency in circulation 100Deposits of commercial banks 0
NCG 100Net Claims on commercial banks 0Claims 0
NCG 100Net Claims on commercial banks -100Claims 0Liabilities 0Liabilities 100
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Main Components of CBM Assets (2012/13)Main Components of CBM Assets (2012/13)
Composition of Reserve Money - CBM Assets (in % of RM)
Composition of Reserve Money - BoT Assets (in % of RM)
300%
400%
Assets (in % of RM)
300%
400%
Assets (in % of RM)
100%
200%Net foreign assets 100%
200%
Net domestic
0%
100%
in % of RM
Net domestic assets 0%
100%
in % of RM
assets
Net foreign assets
-200%
-100%
-200%
-100%
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-300% -300%
Main Components of CBM Liabilities (2012/13)Main Components of CBM Liabilities (2012/13)
Composition of Reserve Money - BoTLiabilities (in % of RM)
Composition of Reserve Money - CBM Liabilities (in % of RM)
100%
120%
Liabilities (in % of RM)
100%
120%
Liabilities (in % of RM)
80%Deposits of commercial banks
80%Deposits of commercial banks with CBM
40%
60% with CBM
Currency in circulation
40%
60%Currency in circulation
0%
20%
0%
20%
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0%in % of RM
0%in % of RM
DiscussionDiscussion
Why is the asset side of the Bank of Thailand balance sheet so different from those of CBM and BoL?different from those of CBM and BoL? Think in terms of the exchange rate regime and foreign
exchange inflows … … and sterilization. Alternatively, could fiscal surpluses play a role, and if so,
how?how?
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Changes in CBM Balance SheetChanges in CBM Balance Sheet
Analyze the main drivers of the CBM balance sheet between 2012/13 and 2013/14:sheet between 2012/13 and 2013/14:
Your task!
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Evolution of CBM Balance SheetEvolution of CBM Balance Sheet——AssetsAssets
Reserve Money - Components (Assets, in Billions of Kyat)
10,000
12,000
14,000
4 000
6,000
8,000
,
0
2,000
4,000
-2,000
2001
M12
2002
M6
2002
M12
2003
M6
2003
M12
2004
M6
2004
M12
2005
M6
2005
M12
2006
M6
2006
M12
2007
M6
2007
M12
2008
M6
2008
M12
2009
M6
2009
M12
2010
M6
2010
M12
2011
M6
2011
M12
2012
M6
2012
M12
2013
M6
2013
M12
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2 2 2 2 2 2 2 2 2 2 2 2 2
Reserve money (monetary base) Net foreign assets Net domestic assets
Evolution of CBM Balance SheetEvolution of CBM Balance Sheet——LiabilitiesLiabilities
14,000
Reserve Money - Components (Liabilities, in Billions Kyat)
10,000
12,000
4,000
6,000
8,000
0
2,000
,
12 M5 10 M3
M8
M1
M6 11 M4
M9
M2
M7 12 M5 10 M3
M8
M1
M6 11 M4
M9
M2
M7 12 M5 10 M3
M8
M1
2001
M1
2002
M20
02M
120
03M
2003
M20
04M
2004
M20
04M
120
05M
2005
M20
06M
2006
M20
06M
120
07M
2007
M1
2008
M20
08M
2009
M20
09M
2009
M1
2010
M20
10M
2011
M20
11M
2011
M1
2012
M20
12M
120
13M
2013
M20
14M
Reserve money (monetary base) Currency in Circulation
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y ( y ) y
Deposits of commercial banks with CBM
OutlineOutline
I I t d tiI. IntroductionII. Central Bank AccountsIII C i l B k A tIII. Commercial Bank AccountsIV. Monetary Survey
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Commercial Bank AccountsCommercial Bank Accounts
S l d f iSelected functions:• Facilitate savings by offering deposits• Offer loans by transforming deposits into loans• Commercial banks are an important channel for the
i i f litransmission of monetary policy
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Analytical Balance Sheet of Commercial BankAnalytical Balance Sheet of Commercial Bank
Assets Liabilities
Net foreign assets (NFA) Deposits
Net domestic assets (NDA) Demand deposits
Claims on the central bank Time and saving deposits
o Currency held in vaults Foreign currency deposits
o Deposits at the central bank Liabilities to the central banko Deposits at the central bank Liabilities to the central bank
o Holdings of central bank bills
Domestic creditDomestic credit
o Net credit to the government
o Credit to private sector
Other items net
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Impact of Monetary OperationsImpact of Monetary Operations
Central bank sells Kip 100 in central bank bills to commercial banks:
C i l k l Sh
Assets LiabilitiesNet Foreign Assets Deposits
Assets LiabilitiesN t F i A t D it
Commercial Bank Balance Sheet
Net Foreign Assets … Deposits …
Net Domestic Assets … Demand deposits …
Claims on central bank … Time and saving deposits …
Net Foreign Assets … Deposits …
Net Domestic Assets 0 Demand deposits …
Claims on central bank 0 Time and saving deposits …Currency held in vaults Foreign currency deposits …Deposits/Reserves … Liabilities to the central bank …
Holdings of CB bills
Currency held in vaults Foreign currency deposits …Deposits/Reserves -100 Liabilities to the central bank …
Holdings of CB bills +100
Domestic credit …To the government …
To other resident sector …
Domestic credit …To the government …
To other resident sector …
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Other items net …Other items net …
Impact of Monetary OperationsImpact of Monetary Operations
Central bank conducts deposit auction over Kyat 100:
Commercial Bank Balance Sheet
Assets LiabilitiesNet Foreign Assets … Deposits …
Commercial Bank Balance Sheet
Assets LiabilitiesNet Foreign Assets … Deposits …
Net Domestic Assets … Demand deposits …
Claims on central bank … Time and saving deposits …Currency held in vaults Foreign currency deposits …
Net Domestic Assets 0 Demand deposits …
Claims on central bank 0 Time and saving deposits …Currency held in vaults Foreign currency deposits …y Foreign currency deposits …Reserves … Liabilities to the central bank …
Current CBM deposits
Other CBM deposits
y Foreign currency deposits …Reserves 0 Liabilities to the central bank …
Current CBM deposits -100
Other CBM deposits +100Other CBM deposits
Domestic credit …To the government …
To other resident sector
Other CBM deposits +100
Domestic credit …To the government …
To other resident sector
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To other resident sector …
Other items net …
To other resident sector …
Other items net …
Impact of Monetary OperationsImpact of Monetary Operations
What do these open market operations What do these open market operations achieve?
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OutlineOutline
I I t d tiI. IntroductionII. Central Bank AccountsIII C i l B k A tIII. Commercial Bank AccountsIV. Monetary Survey
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Monetary SurveyMonetary Survey
Consolidated balance sheet for the banking system:• Add up balance sheets for the central bank and
commercial banks, but …• before doing so consolidate common items on the two• … before doing so, consolidate common items on the two
balance sheets!
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Consolidation of Central Bank and Consolidation of Central Bank and Commercial Bank Balance SheetsCommercial Bank Balance Sheets
Central BankAssets Liabilities
Net Foreign Assets Reserve money (RM)
Net Domestic Assets Currency issued
Net claims on the government Held in banks
Claims on commercial banks Held outside banks
Claims on other resident sector Deposits of commercial banks
Other items net Other deposits
Commercial BanksAssets Liabilities
Net Foreign Assets Deposits
Net Domestic Assets Demand deposits
Claims on the central bank Time and saving deposits
Currency held in vaults Foreign currency deposits
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Deposits at the central bank Liabilities to the central bank
Domestic credit
Other items net
Consolidation of Central Bank and Consolidation of Central Bank and Commercial Bank Balance SheetsCommercial Bank Balance Sheets
Central BankAssets Liabilities
Net Foreign Assets Reserve money (RM)
Net Domestic Assets Currency issued
Net claims on the government Held in banks
l l b k ld d b k
Monetary surveyAssets Liabilities
Claims on commercial banks Held outside banks
Claims on other residential sector Deposits of commercial banks
Other items net Other deposits
Net Foreign Assets Broad money (M2)
Of the central bank Narrow money (M1)
Of the commercial banks Currency in circulation
Commercial BanksAssets Liabilities
Net Foreign Assets Deposits
Net Domestic Assets Demand deposits
Net credit to the government Quasi money
Credit on the other resident sector Time and saving deposits
Oth it t F i d itNet Domestic Assets Demand deposits
Claims on the central bank Time and saving deposits
Currency held in vaults Foreign currency deposits
d i h l b k i bili i h l b k
Other items net Foreign currency deposits
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Reserve deposits at the central bank Liabilities to the central bank
Domestic credit
Other items net
Monetary SurveyMonetary Survey——Why is M2 Money?Why is M2 Money?
Why is M2 “money”?
Because it is what the economy can use to make payments and economic
itransactions:
• Currency in circulation: “cash”
D i i f• Deposits constitute a means of payment, as one can write checks (not so common in Myanmar), or make transfers, or withdraw cash against deposits
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Fi l iFinal exercise: Finish our mini- Finish our miniframework by adding a forecast for the CBM balance sheet for 2014/152014/15
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