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Thursday, July 25, 2024

Behind the money supply spike

By Thuy Le

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M2 money supply in the economy has fluctuated strongly in recent years. What has driven this trend? M2 influencing factors According to the General Statistics Office, M2 money supply includes cash circulating outside the banking system, deposits (demand deposits, time deposits and savings) at banks, and valuable papers issued by banking institutions. Cash is calculated as the difference between the total amount of money supplied by the State Bank of Vietnam (SBV) and the cash reserves held by the SBV, the State Treasury, and credit institutions. These items are also liabilities on the consolidated balance sheet of the SBV and credit institutions. Typically, cash in circulation, depending on the issuance pace of the SBV, accounts for an insignificant proportion of M2, e.g., 8.9% at the end of 2023. This ratio has been inching down in recent years due to the increasing popularity of non-cash payment instruments. Consequently, the growth rate of mobilized capital and M2 tends to align more closely. On the asset side of this consolidated balance sheet, the factors affecting M2 include net foreign assets (NFA) and net domestic assets (NDA). NDA is composed of (1) net domestic credit (NDC), which includes net credit to the government (NCG) […]
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