Introduction to

Monetary
y Accounts
Introductory Workshop to
Financial Programming and Policies
Yangon, Myanmar
January 19–23, 2015

Jan Gottschalk
TAOLAM

Bangkok IMF-TAOLAM training activities are supported by funding of the Government of Japan
November 25, 2014
Outline

II. IIntroduction
t d ti
II. Central Bank Accounts
III
III. C
Commercial
i lB
Bankk A
Accounts
t
IV. Monetary Survey

This 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.
2
Monetary Statistics

Monetary statistics accounts are

critical for analysis of monetary
conditions and formulation as well
as implementation of monetary
policy

3
Scope of the Financial System

Financial system

Banking system Other financial

(Monetary survey) institutions

Central bank Commercial

(CBM/BoL) banks

4
Outline

II. IIntroduction
t d ti
II. Central Bank Accounts
III
III. C
Commerciali lB
Bankk A
Accounts
t
IV. Monetary Survey

5
Central Bank Accounts

Se ec ed functions
Selected u c o so of thee central
ce a bank
ba that
a have
a e a direct
d ec
impact on its balance sheet include
 Issuingg of currencyy
 regulating the money supply
(monetary policy)
 acting as banker of the government
 holding the country
country’ss foreign reserves
(exchange rate policy)

6
Analytical 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)

Claims on commercial banks Held outside banks

Deposits (reserves) of commercial

Claims on other resident sectors
banks with central bank

Other items net

7
Analytical Balance Sheet of Central Bank
Assets
 Net
N t foreign
f i assets t
 holding the country’s foreign reserves (exchange rate policy)
 Net claims on government

 acting as banker of the government

 Claims on commercial banks

 regulating the money supply

(monetary policy)

8
Analytical Balance Sheet of Central Bank
Liabilities
 Currency issued

 Issuing of currency

 Deposits of commercial banks with central bank regulating

the money supply (monetary policy)

9
Why is Reserve Money Important?
 The central bank can control reserve
money because it is ‘created’ on its own
balance sheet
 Reserve money matters for bank credit
Policy
& broad money more generally, which, in
Decision Monetary turn, matter for inflation & aggregate
demand
Operations

Reserve Broad Money,

Money Bank Credit

Broad
Money on Inflation
track? 10
Central 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:
Assets Liabilities
CB’s Net Foreign Assets 1000 Reserve money 1000
Foreign exchange 1000 Currency in circulation 0
CB’s Net Domestic Assets Deposits of commercial banks 1000

• Example: Next, central bank provides credit of Kyat 100 to government, which
uses this credit to pay its suppliers:
Assets Liabilities
CB’s NFA 100 Reserve moneyy 200
100
Foreign exchange 100 Currency in circulation 1000
CB’s NDA 1000 Deposits of commercial banks 100
Net domestic credit 100
0

11
 Central 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 commercial
banks:
Assets Liabilities
CB’ss NFA
CB 100 Reserve money 100
200
Foreign exchange 100 Currency in circulation 100
CB’s NDA 1000 Deposits of commercial banks 1000
Net domestic credit 1000
NCG 100
Net Claims on commercial banks -1000
Claims 0
Liabilities 1000

12
 Main Components of CBM Assets (2012/13)
Composition of Reserve Money - CBM Composition of Reserve Money - BoT
Assets (in % of RM) Assets (in % of RM)
400% 400%

300% 300%

200% 200%
Net foreign
100% assets 100% Net domestic
assets
Net domestic
Net foreign assets
0% assets 0%
in % of RM in % of RM
-100% -100%

-200% -200%

-300% -300%

13
Main Components of CBM Liabilities (2012/13)
Composition of Reserve Money - CBM Composition of Reserve Money - BoT
Liabilities (in % of RM) Liabilities (in % of RM)
120% 120%

100% 100%

Deposits of
80% 80%
commercial banks Deposits of
with CBM commercial banks
60% 60% with CBM
Currency in
circulation Currency in
circulation
40% 40%

20% 20%

0% 0%
in % of RM in % of RM

14
Discussion
 Why is the asset side of the Bank of Thailand balance sheet so
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?

15
Changes in CBM Balance Sheet
Analyze the main drivers of the CBM balance
sheet between 2012/13 and 2013/14:

Your
task!

16
Evolution of CBM Balance Sheet—
Sheet—Assets
Reserve Money - Components (Assets, in Billions of Kyat)

14,000
12,000
10,000
,
8,000
6,000
4 000
4,000
2,000
0
-2,000
2002M6

2003M6

2004M6

2005M6

2006M6

2007M6

2008M6

2009M6

2010M6

2011M6

2012M6

2013M6
2001M12

2002M12

2003M12

2004M12

2005M12

2006M12

2007M12

2008M12

2009M12

2010M12

2011M12

2012M12

2013M12
2

2
Reserve money (monetary base) Net foreign assets Net domestic assets

17
Evolution of CBM Balance Sheet—
Sheet—Liabilities
Reserve Money - Components (Liabilities, in Billions Kyat)
14,000
12,000
10,000
8,000
6,000
4,000
,
2,000
0
M5

M3
M8
M1
M6

M4
M9
M2
M7

M5

M3
M8
M1
M6

M4
M9
M2
M7

M5

M3
M8
M1
12

10

11

12

10

11

12

10
2002M

2003M
2003M
2004M
2004M

2005M
2005M
2006M
2006M

2007M

2008M
2008M
2009M
2009M

2010M
2010M
2011M
2011M

2012M

2013M
2013M
2014M
2001M1

2002M1

2004M1

2006M1

2007M1

2009M1

2011M1

2012M1
Reserve moneyy (monetary
( y base)) Currencyy in Circulation
Deposits of commercial banks with CBM

18
Outline

II. IIntroduction
t d ti
II. Central Bank Accounts
III
III. C
Commerciali l Bank
B k Accounts
A t
IV. Monetary Survey

19
Commercial Bank Accounts

SSelected
l d ffunctions:
i
• Facilitate savings by offering deposits
• Offer loans by transforming deposits into loans
• Commercial banks are an important channel for the
transmission
i i off monetary policy
li

20
Analytical 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 bank

o Holdings of central bank bills

Domestic credit

o Net credit to the government

o Credit to private sector

Other items net

21
Impact of Monetary Operations
Central bank sells Kip 100 in central bank bills to commercial banks:
C
Commercial
i l Bankk Balance
l Sheet
Sh
Assets Liabilities
Nett FForeign
N i A Assets
t … Deposits
D
Deposits
it …
Net Domestic Assets …
0 Demand
Demanddeposits
deposits …
Claims on central bank …
0 Time
Timeand
andsaving
savingdeposits
deposits …
Currency held
Currency held in
in vaults
vaults Foreign
Foreigncurrency
currencydeposits
deposits …
Deposits/Reserves
Deposits/Reserves …
-100 Liabilities
Liabilitiesto
tothe
thecentral
centralbank
bank …
Holdings of
Holdings of CB
CB bills
bills +100

Domestic credit …
To
To the
the government
government …
…
To
To other
other resident
resident sector
sector …
…

Other items net …

22
Impact of Monetary Operations
Central bank conducts deposit auction over Kyat 100:
Commercial Bank Balance Sheet
Assets Liabilities
Net Foreign Assets … Deposits …
Net Domestic Assets …
0 Demand deposits …
Claims on central bank …
0 Time and saving deposits …
Currencyy held in vaults Foreign currency deposits …
Reserves …
0 Liabilities to the central bank …
Current CBM deposits -100
Other CBM deposits +100
Domestic credit …
To the government …
To other resident sector …

Other items net …

23
Impact of Monetary Operations

 What do these open market operations

achieve?

24
Outline

II. Introduction
I t d ti
II. Central Bank Accounts
III Commercial
III. C i lB
Bankk A
Accounts
t
IV. Monetary Survey

25
Monetary Survey
Consolidated balance sheet for the banking system:
• Add up balance sheets for the central bank and
commercial banks, but …
• … before doing so
so, consolidate common items on the two
balance sheets!

26
Consolidation of Central Bank and
Commercial Bank Balance Sheets
Central Bank
Assets 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 Banks
Assets 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
Deposits at the central bank Liabilities to the central bank
Domestic credit
27
Other items net
Consolidation of Central Bank and
Commercial Bank Balance Sheets
Central Bank
Assets Liabilities
Net Foreign Assets Reserve money (RM)
Net Domestic Assets Currency issued
Monetary survey
Net claims on the government Held in banks
Assets Liabilities
Claims
l on commerciall banks
b k Held
ld outside
d bbanksk
Net Foreign Assets Broad money (M2)
Claims on other residential sector Deposits of commercial banks
Of the central bank Narrow money (M1)
Other items net Other deposits
Of the commercial banks Currency in circulation
Net Domestic Assets Commercial Banks
Demand deposits
Net credit to the government
Assets Quasi money Liabilities
Credit
Net on the
Foreign other resident sector
Assets Time and saving deposits
Deposits
Oth
Other
Net it
items Assets
Domestic nett F i deposits
Foreign
Demand currency d
deposits
it

Claims on the central bank Time and saving deposits

Currency held in vaults Foreign currency deposits
Reserve deposits
d i at the
h centrall bank
b k Liabilities
i bili i to the
h centrall bank
b k
Domestic credit
Other items net 28
Monetary Survey—
Survey—Why is M2 Money?

Why is M2 “money”?
Because it is what the economy can
use to make payments and economic
transactions:
i
• Currency in circulation: “cash”
• D
Deposits
i constitute
i a means off
payment, as one can write checks
(not so common in Myanmar), or
make transfers, or withdraw cash
against deposits

29
Fi l exercise:
Final i
 Finish our mini-
mini
framework by
adding a forecast
for the CBM
balance sheet for
2014/15

30