The money supply M2, April 2009

Monetary base (M0): banks' and the money-holding sector's notes and coins and deposits with Norges Bank. Banks’ deposits with Norges Bank comprise current account (sight) deposits and fixed-rate (time) deposits (F-deposits), from Norges Bank’s monthly balance sheet.

The narrow monetary concept (M1): the money-holding sector's notes and coins (in NOK) and transaction deposit accounts with Norges Bank and banks (in NOK and foreign currency). Note that a change in the coverage of M1 compared with the rest of M2 (see below) has caused a break in the data series for M1 between May and June 2001. Twelve-month growth rates for M1 for this period should therefore not be used.

Note that the changes in the demarcation between M1 and the rest of M2 introduced in November 2000 resulted in breaks in the time series. For that reason, twelve-month growth rates for the period June 2001 to May 2002 should not be compared.

The broad monetary concept (M2): M1 + the money-holding sector's other bank deposits (in NOK and foreign currency), excluding restricted deposits (bank savings with tax credit etc.), but including certificates of deposit. As from the publication of monetary aggregates for May 2006, money market fund shares are included in M2.

Money-holding sector (for M1 and M2): local government, non-financial corporations, households and other financial corporations (i.e. excluding banks and state lending institutions). As from the publication of monetary aggregates for May 2006, money market funds are no longer included in the money-holding sector. The money-holding sector of M0 also includes commercial banks and savings banks.

Money-issuing sector (for M1 and M2): comprises Norges Bank and commercial banks and savings banks. As from the publication of monetary aggregates for May 2006, money market funds are included in the definition of money-issuing sector. The money-issuing sector of M0 is Norges Bank.

Money-neutral sector (for M1 and M2): the money-neutral sector is made up of the same sub-sectors in M0, M1 and M2, and comprises the central government sector, state lending institutions and the non-resident sector.

Earlier changes in the definitions of money supply: from November 2000, the most important change in M1 and M2 was the exclusion of &“Unutilised overdrafts and building loans´´ from both concepts. Changes in the demarcation between M1 and the rest of M2 were made at the same time so that the M1 concept would only comprise notes and coins and deposit accounts that can be used for direct payments without costs other than ordinary transaction fees.

Classifications and sectorisation

The classification of most financial instruments and institutional sectors used for the money supply statistics by Statistics Norway is in line with the MFSM (see section 6.2). The composition of Norges Bank’s foreign assets (including the Government Petroleum Fund) reflects guidelines for the investment of Norges Bank’s international reserves and the Government Petroleum Fund. Against this background, international reserves include substantial amounts of bonds subject to repurchase agreements. Norges Bank currently adheres to the Financial Supervisory Authority of Norway’s regulations that require underlying bonds to remain within bond holdings. This practice deviates from the MFSM, which calls for the deduction of bonds reported from international reserves and recorded elsewhere.

Valuation

Statistics Norway adheres to Norwegian accounting principles for the valuation of assets and liabilities. These are not fully compliant with the MFSM recommendation that the valuation of assets and liabilities should be carried out on the basis of market prices or market-price equivalents. Market-based financial short-term assets are valued at market price. Other short-term assets are valued at the lowest of acquisition cost and real value. Long-term assets are valued at acquisition cost less depreciation and write-offs.

Loans granted by Norges Bank to the financial sector are valued at nominal values, according to international guidelines. Securities that are part of Norges Bank’s trading portfolio are valued at market prices, also in accordance with international guidelines. A small amount of securities and long-term investments are recorded at nominal value.

The other depository corporations adhere to Norwegian corporate accounting standards that provide for dual valuation; thus, the reporting units in practice report their trading portfolio at market prices (in accordance with international norms) while reporting their longer-term and/or less liquid financial assets (bonds and shares) at book values (not in accordance with the MFSM). On the liability side of the reporting units’ balance sheets, the securities and shares are valued at nominal prices, consistent with international statistical standards .

Deposits and capital on the balance sheets of the depository corporations are valued at nominal value and accrued interest is included in the balance sheets. However, part of the accrued interest is not linked to the separate instruments in the balance sheets, but only registered as a sum of the accrued interest of all instruments. This accrued interest is included respectively in other assets and liabilities. (The MFSM calls for their inclusion with the instruments. However, the international statistical standard &“A System of National Accounts´´ SNA1993 in §§11.101 and 13.81 recommend that accrued interest be recorded separately on loans and deposits).

Loans on the asset side of the balance sheets of the other depository corporations are reported twice, both adjusted and unadjusted for expected loan losses and/or provisions for losses. Contrary to the MFSM, Statistics Norway disseminates only the other depository corporations’ data adjusted for expected loan loss provisions, which is also the definition of loans used in the &“Credit indicator.´´ Statistics Norway believes that this treatment is more consistent with the principle of market values that is recommended in the MFSM. However, the loan concept will be evaluated.

Financial derivatives are reported by the other depository corporations as part of their balance sheet data, and derivatives that are part of the trading portfolio are valued at market or fair value, consistent with the MFSM. However, some financial derivatives are not reported separately. The latter amounts are disseminated together with other assets and other liabilities. According to the MFSM, financial derivatives should be specified as a separate instrument.

With regard to the recording of value and volume changes, Statistics Norway has adopted the MFSM methodology for compiling both stock and flow data, and has developed recording procedures for transactions, revaluations, and other changes in the volume of assets (OCVA). The exclusion of loan losses from OCVA in the credit indicators is an exception.

Recording is done on an accrual basis

In its own balance sheet, Norges Bank uses transaction dates (trade dates) when determining outstanding foreign currency resources and flows. Unsettled purchases and sales of foreign securities are counterbalanced by net receivables presented under foreign deposits (for international reserves this is also done when net receivables/liabilities are negative so as not to increase the value of international reserves).

In accordance with accounting regulations and practice within other depository corporations, interest payable and interest receivable are recorded in the balance sheet as interest accruals.

Grossing/netting procedures

In line with the general principles of the MFSM, assets and liabilities of Norges Bank and all other depository corporations are collected and subsequently compiled on a gross basis. Receivables from particular transactors are not netted against liabilities to those transactors.

In the compilation of the sectoral balance sheets of Norges Bank and other depository corporations, the data on financial assets and liabilities are aggregated into major categories (e.g. receivables classified by debtors and deposits classified by creditors.) Whilst compiled and generally available on a gross basis, many categories of monetary data are presented on a net basis in surveys and other presentations of data because of the analytical usefulness of the data in this form, for example, net credit to government and the state lending institutions.