Journal Issue

World economy in transition: Monetary indicators: 1951-83

International Monetary Fund. External Relations Dept.
Published Date:
March 1985
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Money, 1951–83

The financial system can have an important influence on the real sector of any economy, and the behavior of the monetary aggregates is a valuable indicator of conditions in the economy, as well as a guide for setting macroeconomic policies. Charts 1 and 3 use a narrow definition of money (M1), which comprises the financial claims that can be used as a means of payment, viz., currency held by the public and demand deposits in central and commercial banks. This measure is called money in International Financial Statistics. Charts 2 and 4 use a measure of broad money (M2) that includes the time, savings, and foreign currency deposits (often referred to as quasi-money) of those same institutions in addition to deposits included in money. As can be seen from comparing Charts 1 and 2, broad money has almost invariably grown faster than narrow money, although the growth rates of the two magnitudes have displayed similar features.

During the 1950s and 1960s, both the industrial and developing countries experienced roughly similar moderate upward trends in the growth of both monetary aggregates. The growth rates for all groups increased further in the early 1970s, but from about the mid-1970s, the monetary growth rates for the industrial and non-oil developing countries became increasingly divergent. In the period covered by the charts, the gap between these two groups was greatest in 1983.

Developing countries generally have a high proportion of the means of payment (M1) held as currency, although there has been a downward trend in this ratio over the 33 years covered by Chart 3. In 1983 the ratio for non-oil developing countries was 43 percent, compared to 28 percent for the industrial countries.

The income velocity of broad money in Chart 4 shows the trends in the value of transactions financed by a unit of broad money. The stability of this ratio for industrial countries does not show the substantial decrease in the relative size of narrow money compared with quasi-money. With the exception of the Western Hemisphere countries, developing country groups experienced a downward trend, which was influenced by growth in the size of the monetized sector. In the case of some Western Hemisphere countries, high inflation and controls on nominal interest rates contributed to the overall rise in velocity of broad money for this group.

Sources: IMF. International Financial Statistics: Supplement on Money, 1983 and Yearbook 1984.

Notes: The country groupings used in these charts are derived from International Financial Statistics. Not all countries may be used in the calculation for all periods and for all series. Currency, money, and broad money are annual averages of monthly data. The derivation of all series is more fully explained in the Supplement on Money.

1 Ratio of gross domestic product (or if not available, gross national product) to broad money.

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