Explanatory Note on Changes to Monetary Aggregates Data 31 May 2006

With this release, the definitions of M3 and broad money have been modified in line with the evolving international trend towards a functional rather than institutional approach to defining financial aggregates. The current changes are designed to ensure greater similarity in the treatment of equivalent financial products provided by different types of institutions. The changes include (with timing dependent upon data availability):

• Deposits in credit unions and building societies (CUBS), previously only included in broad money, are now also included in M3 (from August 1976), removing the distinction between CUBS and banks. Deposits in specialist credit card institutions (SCCIs) are also included in M3 (from August 2004).
• In broad money, promissory notes issued by authorised deposit-taking institutions (ADIs) are included (from March 2002), bills accepted by ADIs are included (from August 1976), and other short-term debt securities issued by registered financial corporations (RFCs) are excluded (from April 2003). The changes mean that these instruments are now treated identically for ADIs and RFCs.
• Foreign currency denominated certificates of deposit are now excluded from M3 and broad money (from April 2002).

The definitions of the monetary aggregates are now as follows:

• M1 is unchanged and defined as currency plus bank current deposits of the private non-bank sector.
• M3 is defined as M1 plus all other ADI deposits of the private non-ADI sector (including certificates of deposit).
• Broad money is defined as M3 plus non-deposit borrowings from the private sector by all financial intermediaries (AFIs), less the holdings of currency and bank deposits by RFCs and cash management trusts.

These changes result in modest upward revisions to the level of M3 and broad money, but for the most part result in only minor revisions to the growth rates of these aggregates. The levels and growth rates of currency and M1 are unaffected.